The California Private Attorneys General Act (“PAGA”) is set to undergo a significant overhaul, the first since its enactment nearly two decades ago. On June 18, 2024, Governor Gavin Newsom announced that an agreement was reached between business and labor groups to reform PAGA. The agreement comes on the heels of the looming June 27, 2024 deadline to remove a PAGA proposition from the November 5, 2024 ballot. The agreement, if passed by California’s state legislature, would overhaul several aspects of PAGA and withdraw a ballot measure that would have repealed PAGA’s statutory scheme altogether.
Currently, PAGA permits employees to bring representative actions against employers on behalf of the State of California as “private attorneys general” for alleged Labor Code violations. These Labor Code violations include such things as the failure to pay overtime, the failure to provide meal and rest breaks and the failure to comply with California’s stringent wage statement requirements, to name just a few. Once an employee has initiated a PAGA case for one type of violation, the employee may represent a wider group of “aggrieved employees” for Labor Code violations that the representative employee did not suffer.
In the wake of California courts’ continued expansion of PAGA lawsuits and criticism of a scheme that seems to enrich lawyers, provide little recovery to employees, and penalize employers for technical violations, business groups have worked to replace the current statute with the California Fair Pay and Employer Accountability Act (the “FPEAA”). On June 9, 2022, the California Secretary of State announced that the campaign had submitted over 638,000 signatures, and on July 22, 2022, the PAGA repeal initiative had qualified for the November 2024 ballot.
Unlike the FPEAA, the agreed-upon PAGA reform does not strip PAGA of attorneys’ fees, and does not award 100% of PAGA penalties to employees. It does, however, increase the employees’ share of PAGA penalties from 25% to 35%, and it promises to expand an employer’s right to cure certain provisions of PAGA and limit potential penalties. The proposal also would bring another welcome change for employers regarding an employee’s standing to bring a PAGA claim. If passed, employees could bring claims only for alleged Labor Code violations that they personally experienced. And unlike FPEAA, the proposed agreement permits employees to avoid mandatory arbitration and allows courts to order injunctive relief.
According to the California Chamber of Commerce, the Labor and Workforce Development Agency (LWDA), the agency which deputizes employees to sue under PAGA on behalf of the state, received over 4,000 PAGA notices in 2014, and at least 4,000 every year since. Data from the California Department of Industrial Relations indicates that the number of notices sent to the LWDA reached a record high of 7,780 in 2023. And while attorneys’ fee awards average around $372,000, payments to workers average around $1,300 from PAGA cases filed in court.
The newly announced PAGA reform would withdraw FPEAA from the November ballot for a less dramatic overhaul of PAGA. While the agreement must pass through the California legislative process to become law, statements by Senate President Pro-Tempore Mike McGuire (D-North Coast) and Speaker of the Assembly Robert Rivas (D-Salinas) seemingly indicate that a bill will be passed before the June 27, 2024 deadline.
While any attempt to improve PAGA is welcome, it is not clear that the proposed changes will fully address the concerns that prompted the FPEAA or reduce the number of PAGA lawsuits. Only as the agreement winds its way through the legislative process will it become clear whether the proposed PAGA reforms might actually help employers mitigate the expense of PAGA litigation, or if the promise of robust right to cure provisions and stricter standing requirements will turn out to be empty.
In the interim, employers with California employees should continue to consult with their legal counsel and representatives regarding complying with PAGA.