Client Alert: PAGA Reform

On July 1, 2024, the California Legislature passed two bills that significantly reform and amend the Private Attorneys General Act of 2004 (“PAGA”)—collectively, “PAGA Reform.” Many of the amendments take effect immediately, though a few revisions take effect on October 1, 2024. These changes apply to PAGA actions filed on or after June 19, 2024, as well as PAGA notices submitted to the Labor Workforce Development Agency (“LWDA”) on or after that date.

PAGA Reform provides many potential benefits to employers, including additional standing and manageability requirements that may reduce the scope of PAGA claims, opportunities for early evaluation conferences by a third-party neutral and a stay of court proceedings, potential opportunities to cure alleged violations, and reduced penalties in some circumstances. There remain a number of ambiguities in the revised statutes, however, that may spur additional litigation in the coming months.

We have summarized some of the key amendments from PAGA Reform below. Please contact Katherine M. Forster or David W. Moreshead for more information.

 
Procedural Changes: The new legislation has revised the standing and manageability requirements for PAGA claims.

• Standing Requirement: Prior to PAGA Reform, California courts held that so long as a PAGA plaintiff had suffered at least one Labor Code violation, the plaintiff could pursue penalties for any alleged Labor Code violation on behalf of other employees. PAGA Reform provides now that in order to have standing, a PAGA plaintiff must have personally suffered each of the alleged violations during the relevant statutory period and may only seek penalties on behalf of other employees who suffered the same violation within a one-year statute of limitations.
• Manageability Requirement: PAGA Reform codifies the proposition that a trial court may limit the scope of a PAGA claim in order to make the claim manageable at trial. Courts may limit the evidence the parties may present at trial, limit the scope of a PAGA claim such that the claim can be manageably tried, or consolidate or coordinate actions that allege legally or factually overlapping violations against the same employer.

Cure Opportunities: PAGA Reform implements a new scheme that permits employers to (a) request an early evaluation conference at the outset of a case and to stay litigation, and (b) reduce liability for PAGA penalties by promptly correcting and curing alleged Labor Code violations.

• Early Evaluation Conferences: Beginning immediately, PAGA defendants with 100 or more employees may file a request for an early evaluation conference with a neutral evaluator (who must be a judge, commissioner, or other knowledgeable person) before or at the same time as a responsive pleading or first appearance. The employer may request a stay of the court proceedings and, absent good cause, the court must grant the stay request. The early evaluation conference permits the parties to discuss the employee’s factual basis for the alleged violations, the employer’s plan to cure any of the alleged violations, and provides an opportunity to resolve the dispute. Communications and briefing related to the early evaluation conference are protected by the settlement privilege of Evidence Code section 1152.During this process, the employer may submit to the neutral evaluator a plan to cure the alleged violations. If the neutral evaluator accepts the cure proposal, the employer must provide evidence that is has completed the cure. If the neutral evaluator and the parties agree that the cure is sufficient, the parties may submit a joint statement to the court setting forth the terms of their agreement, which should include the factual basis for the alleged violations, the demand for settlement, and the amount of attorneys’ fees and costs that the employee seeks. The agreement will be treated as a motion for approval of a PAGA settlement. If the neutral evaluator or the plaintiff does not agree that the cure was sufficient, the employer may file a motion with the court to approve the cure. The court may order further briefing or evidence from the parties.
• Cure Opportunity for Small Businesses: Beginning October 1, 2024, employers with fewer than 100 employees who receive a notice submitted by an employee to the LWDA may submit within 33 days a confidential proposal to the LWDA to cure the alleged violations. The LWDA may accept the proposed cure or it may set a conference to discuss the cure. At the conference, the LWDA and the parties may discuss whether the proposed cure requires the employer to provide any unpaid wages, liquidated damages, or interest. If the LWDA determines that the employer timely completed the cure, the employee may not proceed with a PAGA action unless the Superior Court finds that the LWDA abused its discretion. If the LWDA determines that the employer’s cure proposal is insufficient or if the agency does not respond to the cure proposal, employers with fewer than 100 employees may still request an early evaluation conference and a stay of court proceedings at the outset of any litigation (as explained above).
• Cure of Alleged Wage Statement Violations: If an employer cures an alleged wage statement violation within 33 days of receiving notice of it, an employee may not bring a civil PAGA action. The employee may dispute the employer’s cure with the LWDA, however, and, if the LWDA determines that the alleged violation has not been cured or fails to respond, the employee may pursue a PAGA claim.
• Limitations on Cure Opportunities: An employer may only cure violations of the same provisions once within a 12-month period regardless of the location of the workplace.

Revisions to Relief Available to Aggrieved Employees: AGA Reform has amended the amounts in civil PAGA penalties available to aggrieved employees.

1. Revision to Standard Penalty: Before PAGA Reform, an employee could recover $100 per employee per pay period for an “initial” violation and $200 per employee per pay period for each “subsequent” violation. PAGA Reform clarifies that the standard civil PAGA penalty is $100 per aggrieved employee per pay period. Employers may be subject to heightened penalties of $200 per pay period only if, within the past five years, the LWDA or a court has found that the employer’s underlying policies were unlawful or, in the alternative, the court finds that the employer’s conduct was malicious, fraudulent, or oppressive.
2. Reduced Penalties: PAGA Reform provides that the penalties available to an employee will be reduced in the following circumstances:
   (1) For certain wage statement violations, available penalties are limited to $25 per employee per pay period;
   (2) For isolated nonrecurring violations, available penalties are $50 per employee per pay period;
   (3) For employers who use weekly pay periods, available penalties are reduced by 50% per pay period;
   (4) In most circumstances, if an employer has taken “reasonable steps” to comply with the Labor Code before receiving a PAGA notice or a request for records from an employee, the maximum civil PAGA penalties will be 15% of the maximum penalty available;
   (5) Generally, if an employer has taken reasonable steps to comply with the Labor Code after (but within 60 days) of receiving a PAGA notice or a request for records from an employee, the maximum civil PAGA penalties will be 30% of the maximum penalty available.

“Reasonable steps” can include (1) conducting periodic payroll audits, (2) disseminating lawful written policies, (3) training supervisors on applicable Labor Code and wage order compliance, and (4) taking appropriate corrective action with regard to supervisors.

• No Derivative Penalties: PAGA Reform provides clarity around whether a PAGA plaintiff may recover “stacked” PAGA penalties (i.e., penalties for multiple Labor Code violations arising from a single course of conduct). Aggrieved employees may not collect derivative penalties for failure to pay wages during employment or at termination (violations of Labor Code sections 201, 202, 203, 204) unless any such violation was willful and intentional. Nor may aggrieved employees collect penalties for derivative claims regarding failure to provide accurate wage statements (violation of Labor Code section 226) unless the violation was knowing or intentional or the employer failed to provide any wage statement at all. In these cases, a PAGA plaintiff may only collect a penalty for the underlying wage violation.
• Revised Distribution of Penalties: PAGA Reform increases the share of any recovered PAGA penalties that is distributed to the aggrieved employees from 25% to 35%.
• Injunctive Relief: PAGA Reform provides courts, for the first time, with authority to order injunctive relief in civil PAGA actions.