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All too familiar to California employers is the Private Attorneys General Act ("PAGA"). On July 1, 2024, Governor Gavin Newson passed two bills that significantly alter PAGA, and some of the provisions benefit California employers, by imposing stricter standing requirements, decreasing penalties for compliant employers, and requiring manageability to litigate these claims, along with other changes detailed below. Notably, the changes do not impact cases filed or PAGA notices submitted before June 19, 2024. This new legislation is foreseen to have significant impact on California wage and hour law.
Enacted in 2004, PAGA gives employees or "aggrieved employees" the authority to file representative lawsuits to collect civil penalties for certain Labor Code violations. Common violations of the Labor Code include not paying overtime, failing to pay the minimum wage, delayed payment of wages, failing to provide meal periods and rest breaks, and unreimbursed business expenses. The law was intended to enforce labor laws and alleviate the strain on California's Labor and Workforce Development Agency ("LWDA"). Before filing a lawsuit under PAGA, an employee must first provide notice to the LWDA of the alleged Labor Code violation. If the State does not investigate the violation(s) within 65 days, the employee may proceed with the lawsuit, acting as a representative for others who experienced Labor Code violations. If successful, 75% of the PAGA penalties go to the LWDA, and 25% are distributed amongst the aggrieved employees. These PAGA penalties are in addition to the underlying wages the employee would also be entitled to. Lucrative to the employee's attorney is the award of reasonable attorneys' fees. The State receives around 5,000 PAGA notices annually, and the State rarely investigates them. Unlike class actions, however, an employee who files a PAGA lawsuit may include in the PAGA lawsuit violations that he or she did not personally suffer but that were allegedly suffered by other represented employees.
In recent years, PAGA has been the subject of scrutiny. Decisions of the United States Supreme Court and California Supreme Courts have allowed arbitration agreements that carve-out PAGA representative actions. In addition, PAGA plaintiffs are not required to meet class certification requirements to represent the entire workforce and can bring claims even though they never personally suffered a particular Labor Code violation. This has forced many employers to settle for large sums of money and suffer great financial losses, while plaintiffs' attorneys benefit greatly from the settlement, leaving very little for the employees. There has been $10 billion in PAGA settlements since 2013 that have been reported to the LWDA. That figure does not include settlements paid out in response to demand letters that are not reported to the LWDA.
Such criticism has led to the California Fair Pay and Employer Accountability Act to repeal and replace PAGA. The proposed legislation, found in Assembly Bill 2288 and Senate Bill 92, which have both now passed, does the following:
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Standing: An individual's standing to pursue a PAGA claim will be limited to those who personally suffered each violation;
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Manageability Requirement: To tackle the manageability issues of PAGA trials, trial courts will be empowered to limit evidence at trial and limit the scope of claims to "ensure that the claim can be effectively tried;"
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Changes To Structure Of Civil Penalties:
- The $100 penalty per pay period will be reduced depending on the employer's compliance after receiving notice of a potential PAGA claim;
- The $200 penalty for a "subsequent violation" will only be assessed if the Labor Commissioner or a court within the five years preceding the alleged violation has issued a finding that the purported violation was unlawful or if a court finds the employer's conduct to be "malicious, fraudulent or oppressive;"
- Related civil penalties for employers who cure violations, particularly for derivative paystub violations, will be eliminated or reduced;
- Because PAGA penalties are based on pay periods, employers who pay employees on a weekly or bi-weekly payroll calendar will not be penalized differently;
- Derivative penalties will be limited to violations that are willful or intentional for waiting time penalties, and knowing or intentional for pay stub violations, which substantially limits a major driving force in PAGA claims;
- There will be an exception to the penalty reductions provisions if a court finds that the facts and circumstances of a case warrant or to do otherwise would be unjust, arbitrary, oppressive or confiscatory;
- The 75% / 25% split between the state and aggrieved employees has been modified to a 65% / 35% split.
- Cure processes have been altered depending on the employer's size;
- If an employer utilizes the cure provisions, an employee will be entitled to reasonable attorney's fees and costs to be determined by the LWDA or court, even when a cure is proper and civil litigation is avoided;
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Injunctive Relief Is Now a New Potential Remedy: Injunctive relief will be available to aggrieved employees to compel employers to implement changes in the workplace to remedy violations.
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