After months of discussions between businesses, labor advocates, and the Legislature, on June 18, 2024, Governor Newsom announced that they had reached an agreement to amend the California Private Attorneys General Act (“PAGA”). This agreement arises from a somewhat controversial ballot initiative, set to be included on the November 2024 ballot, which seeks to repeal PAGA and eliminate the Labor Commissioner’s authority to contract with private organizations or attorneys to assist with enforcing PAGA actions. The measure instead proposes that the State provide more funding to the Labor Commissioner to enforce Labor Code violations under PAGA.
PAGA is a California state law that allows employees to sue businesses on behalf of themselves, other employees, and the State itself when they believe there has been a violation of the California Labor Code. The Legislature originally designed PAGA to serve as an added mechanism for workers to theoretically hold businesses accountable for purported wage and hour violations. The current PAGA statute has cost employers billions of dollars in PAGA awards/settlements and attorneys’ fees, with nominal actual financial benefits to workers.
If passed, the new legislation would reform PAGA to ensure workers continue to retain a vehicle to resolve labor claims while attempting to limit the severe negative impact on employers as a result of frivolous litigation under the current PAGA statutory scheme.
Summary of the Proposed Agreement and Changes to PAGA
Precise details of the proposed legislation are not yet known, as the bill’s actual text is not anticipated to be released until early this week. However, the Governor’s office and various business groups involved have revealed the following key items of the proposed PAGA reform, provided below:
- Imposes Stricter Standing Requirements
- Requires the employee-plaintiff to personally experience the alleged violations brought in a claim
- Requires that the alleged violations must have occurred within the last year (presently, there is no time limitation)
- Reforms Penalty Structure
- Increases the share employees receive from any penalty from 25 percent to 35 percent (presently, penalties awarded are allocated as 25 percent to the aggrieved employees and 75 percent to the State)
- For employers who proactively take steps to comply with the Labor Code before receiving a PAGA notice, the maximum penalty that can be awarded is 15 percent of the applicable penalty amount
- For employers who take steps to fix policies and practices after receiving a PAGA notice, the maximum penalty that can be awarded is 30 percent of the applicable penalty amount
- Creates a new penalty ($200 per pay period) if an employer acted maliciously, fraudulently, or oppressively
- Reduces the maximum penalty where the alleged violation was brief or where it is a wage statement violation that did not cause confusion or economic harm to the employee (e.g., misspelling of the company employer name on a pay statement)
- Adjusts the penalty amount for employers who pay weekly (presently, such employers are penalized at twice the amount because penalties accrue on a per pay period basis)
- Proposes limitations on “stacking” penalties and derivative claims based on a single violation
- Expands and Reforms Employer’s Right to Cure
- Expands which Labor Code sections can be cured through the Labor and Workforce Development Agency (“LWDA”) so employees can be made whole quickly
- Protects small employers by providing a stronger right to cure process to reduce litigation and costs
- Provides an opportunity for early resolution in court for larger employers
- Allows for Judicial Manageability to Streamline and Reduce Litigation
- Codifies that a court may limit both the scope of claims and evidence presented at trial
- Improves Measures for Injunctive Relief
- Allows courts to provide injunctive relief to compel businesses to implement changes in the workplace to remedy labor code violations
- Strengthens State Enforcement
- May give the administrative enforcement agency, California Department of Industrial Relations (“DIR”), the ability to expedite hiring and filling vacancies to improve and expedite enforcement of employee labor claims
Moving Forward
While this reform is welcome news for employers, a celebration would be premature as the legislation has not yet become final. The Governor is anticipated to consider the proposed legislation within the coming week. If signed and passed into law by June 27, 2024, the groups pushing for the ballot measure have agreed to withdraw the initiative from the upcoming November ballot.
We anticipate that the proposed language of the bill will not include retroactive application to pending litigation. As a practical matter, however, if passed, many of the changes outlined above are expected to favorably impact pending PAGA litigation.
GRSM is closely tracking the latest legislative developments. Should you have any questions regarding how this new legislation may impact your business practice or current cases, or if you would like more information on the subject, please get in touch with a GRSM employment attorney.