On July 1, 2024 California Governor Newsom signed “compromise” PAGA reform bills into law (AB 2282 and SB 92) (PAGA Reform), which took the PAGA repeal initiative we told you about in May (see here) off the November 5, 2024 ballot.
On the bright side for employers, the new law shows leniency toward employers who can show they have taken reasonable steps toward PAGA compliance, through (among other things) caps on damages and expanded cure provisions. That said, employers will still need to be diligent to avoid wage and hour violations. One reason: while the ballot initiative (if passed) would have prevented plaintiffs’ attorneys from recovering fees, the PAGA Reform still allows plaintiffs to collect reasonable attorneys’ fees and costs. In addition, the PAGA Reform allows employees to keep a greater percentage of the recovery than before, meaning there is still plenty of incentive for employees to file PAGA claims–even with the employer-friendly changes.
We hit the highlights of the PAGA Reform here.
Effective date
The PAGA Reform applies to PAGA civil complaints and notices of PAGA claims provided to the California Labor & Workforce Development Agency (LWDA) on or after June 19, 2024. Prior PAGA rules will apply to claims pending on or before June 19 or based on notices sent prior to June 19. (Though note that certain cure provisions do not take effect until October 1, 2024–see more below.)
Stricter standing requirements, and statute of limitations questions clarified
Under PAGA Reform, employees are now required to show they “personally suffered” each of the violations of the Labor Code they seek to pursue in a representative capacity under PAGA. Before the new law, if an employee could prove a single Labor Code violation, the employee could sue in a representative capacity on the same or any other Labor Code violation–even if the employee had not been personally affected by the other violations. (Note, the new standing requirement does not apply to certain nonprofit legal aid organizations that have served as counsel of record for PAGA civil actions for at least 5 years prior to January 1, 2025.)
In addition, PAGA Reform clarifies that the statute of limitations to bring a PAGA claim is one year (the period prescribed under Section 340 of the Code of Civil Procedure)–dismissing interpretations that stemmed from the California Court of Appeals decision in Johnson v. Maxim Healthcare Services, Inc. that the PAGA statute of limitations defines the liability period for a PAGA claim, but otherwise places no time restriction on who may pursue a PAGA claim.
However, even if an employee meets the statute of limitations under PAGA, if the LWDA (or any of its departments, divisions, commissions, boards, agencies or employees) has already–on the “same facts and theories”–timely cited an employer for violation of the same section of the Labor Code under which the employee is attempting to recover a civil penalty, or initiated a proceeding under Section 98.3 (allowing the Labor Commissioner to prosecute certain violations, including wage-related violations), the employee is barred from pursing that civil penalty. This restriction remains from prior PAGA rules, and helps to ensure employers are not penalized twice for the same conduct.
Courts’ power to manage PAGA claims clarified
Under PAGA Reform, courts have specified power to manage PAGA claims, including by limiting the scope of any claim to ensure it can be effectively tried, and limiting the evidence presented at trial–following the lead of the California Supreme Court decision Estrada v. Royal Carpet Mills, Inc., which held that though trial courts do not have inherent authority to strike PAGA claims on manageability grounds, a trial court can use its case management procedures to ensure that PAGA claims can be tried effectively.
Injunctive relief and attorneys’ fees
PAGA plaintiffs can now seek injunctive relief in any circumstances under which the LWDA could seek injunctive relief–in addition to the civil penalties and reasonable attorneys’ fees and costs PAGA plaintiffs can seek. However, injunctive relief is not available for violation of a posting, notice, agency reporting or filing requirement, unless the filing or reporting requirement involves mandatory payroll or workplace injury reporting.
Curing violations
Except for failure to provide accurate wage statements (under Labor Code § 226(a)), an employer can “cure” by correcting the violation alleged by the aggrieved employee, being in compliance with the law, and making each aggrieved employee whole–meaning paying the employee an amount sufficient to recover any owed unpaid wages due dating back three years from the date of the notice, plus 7% interest, any liquidated damages as required by statute, and reasonable lodestar attorney’s fees and costs to be determined by the LWDA or the court.
For failure to provide accurate wage statements, employers can only cure in the following ways:
- For the failure to include the name and/or address of the employer, by showing the employer has provided written notice of the correct information to each aggrieved employee. The notice can be in summary form, but must identify the correct information for each pay period in which a violation occurred.
- For the failure to include other required information on wage statements (such as gross wages earned and total hours worked by the employee), by showing that the employer has provided–at no cost to the employee–a fully compliant, itemized wage statement to each aggrieved employee for each pay period during which the violation occurred during the three years prior to the date of the notice–and if such information is customarily provided in a digital form, the employer may provide the information in that form.
In addition, the types of violation that can be cured has been expanded to include violations of any provisions listed in Section 2699.5 of the Labor Code–including some of the most frequently alleged PAGA violations, such as § 226 (wage statement violations), § 226.7 (employer’s failure to pay meal or rest period premiums), and § 510 (failure to pay overtime).
The PAGA Reform also introduces new procedures employers can utilize to cure PAGA violations, depending on the size of the employer.
- Large employers (those with at least 100 employees in total during the period covered by notice of violation) may, upon receipt of a PAGA notice, file a request for an early evaluation conference and a request for stay of court proceedings with the court. The filing requires the court to stay the proceedings (absent good cause for denying the employer’s request in whole or in part). A neutral will review the employer’s plan to cure violations, and if accepted, the employer must present evidence within 10 calendar days (or such longer period as agreed by the parties or set by the neutral) demonstrating that the employer has cured–or risk termination of the early evaluation process and the court’s stay. The court must also consider the employer’s efforts to cure and comply in limiting potential penalties. And if the neutral or the plaintiff do not agree that the employer has cured, the employer may file a motion with the court requesting approval of the cure.
- Effective October 1, 2024, small employers (those with under 100 employees during the period covered by the notice of violation) can within 33 days of receipt of notice submit a proposal to cure to the LWDA. The LWDA may arrange a conference with the plaintiff and employer to determine, among other things, whether the proposed cure is sufficient. If the LWDA determines that the cure is not facially sufficient (or if the LWDA does not act upon the employer’s cure proposal), the employee can proceed with a civil action–but the employer is entitled to file a request for a stay and the same early evaluation conference available to large employers (described above).
An employer who both remediates (i.e. takes “all reasonable steps” to comply, see below), and cures a violation is not required to pay a penalty for that violation.
Civil penalties can be capped for employers who remediate by taking “reasonable steps” to comply
Before the PAGA Reform, Labor Code violations would cost employers a $100 civil penalty for each aggrieved employee per pay period for an initial violation, and $200 for each subsequent violation. The new law does not change the penalty amounts, but now damage caps may be imposed at the court’s discretion when employers take steps to comply–and employers can only be required to pay the $200 penalty for subsequent violations in limited situations.
And though a court’s discretion to determine the amount of the penalties awarded employers based on the totality of the circumstances of the case has long been assumed, the court’s discretion has now been codified in the PAGA Reform.
Under the new law, caps on penalties are available for employers who takes steps to remediate:
- Cap if employer takes steps to comply before PAGA notice: If an employer shows it has taken “all reasonable steps” to comply with the law before the employer receives a PAGA notice or request for payroll or personnel records from the aggrieved employee or employee’s counsel, then available penalties are capped at 15% of the amount sought.
- Cap if employer takes steps to comply within 60 days after PAGA notice: If an employer who has received a PAGA notice has taken “all reasonable steps” to prospectively be in compliance with all provisions identified in the notice within 60 days after receiving a PAGA notice, the available penalties are capped at 30%.
- Under the law, “reasonable steps” for the 15% and 30% penalty caps to apply include, but are not limited to, conducting periodic payroll audits and taking action in response to audit results, disseminating lawful written policies (specifically as to the alleged violations if the employer has already received a PAGA notice), training supervisors on applicable Labor Code and wage order compliance, or taking appropriate corrective action with regard to supervisors.
- Whether the employer’s conduct was “reasonable” must be evaluated by the totality of the circumstances and take into consideration the size and resources available to the employer, as well as the nature, severity and duration of the alleged violations. And the determination that a violation exists, despite the steps taken, is insufficient to show that an employer failed to take all reasonable steps.
- Cap on penalties if a wage statement violation does not harm plaintiff: If a wage statement violation under Labor Code § 226 does not harm the plaintiff (i.e. if, despite the violation, the employee could promptly and easily determine from the wage statement alone the accurate information required to be provided under § 226, or, in the case where the information missing is the name and address of the legal entity that is the employer but the employee would not be confused or misled about the correct identity of their employer), the only civil penalty applicable is $25 for each aggrieved employee per pay period.
- $200 “subsequent violation” penalty only available in two circumstances: Under the PAGA Reform, there are only two circumstances when a $200 “subsequent violation” penalty may be awarded:
- If there has been a finding or determination by the LWDA or a court within the five years prior to the alleged violation that the employer had an unlawful policy or practice giving rise to the alleged violation; or
- A court determines the employer’s conduct giving rise to the violation was malicious, fraudulent, or oppressive.
- Cap on penalties for one-off violations: For an alleged violation resulting from an isolated, nonrecurring event that did not extend beyond the lesser of 30 consecutive days or four consecutive pay periods, the maximum penalty available is $50 per each aggrieved employee per pay period.
- No derivative penalties: Under PAGA Reform, aggrieved employees cannot collect additional civil penalties for violations of certain other Labor Code provisions in addition to the civil penalty collected by the employee for the underlying unpaid wage violation, including penalties under § 201 (failure to pay earned wages immediately when an employee is fired or laid off); § 202 (failure to pay earned wages timely upon termination); § 203 (imposing “waiting time” penalties for each day an employer fails to timely pay earned wages upon termination); and § 204 (failure to pay the wages in the pay period earned, though additional civil penalties can still be sought under § 204 if the failure to pay was willful and intentional); and § 226 (failure to include accurate information on the wage statement for the pay period, though additional civil penalties can still be sought under § 226 if the violation is knowing or intentional or if the violation is a failure to provide a wage statement).
- Employers who pay weekly get a break: Because PAGA imposes penalties on the basis of a pay period, prior to the PAGA Reform employers who pay employees weekly had twice the exposure as employers who pay employees biweekly or semimonthly. The PAGA Reform corrects this, providing that a penalty imposed for an employer who pays employees on a weekly basis rather than biweekly or semimonthly is reduced by half.
Though these changes tilt heavily in the favor of employers, under the PAGA Reform affected employees now get to keep 35% of the share of penalties awarded (with the rest to go to the LWDA)–as opposed to the prior 25%. The increased percentage of take-home penalty amounts for PAGA plaintiffs may act as increased incentive for employees to file suits under PAGA, even with all of the employer-friendly components of the reform.
Employer Takeaways
California employers have several reasons to welcome the PAGA Reform, but will need to continue to be diligent in ensuring they avoid wage and hour violations that lead to PAGA claims by employees. Even with the new provisions, employers who do not comply can still face steep penalties, as well as attorneys’ fees and costs if employees prevail.