Proposed Amended PAGA Statute Would Bring Some Relief to Employers

Quick Hits

• On June 21, 2024, two bills were introduced in the California Legislature to reform PAGA, which could provide a measure of relief to California employers and much-needed increased court oversight.
• Notably, the proposed amendments would allow an employee to bring PAGA claims only for Labor Code violations the employee “personally suffered” within the statute of limitations.
• For several claims, the proposed legislation would adjust PAGA penalties based on whether the employer’s violations were isolated or recurring, knowing or willful, what steps the employer took to be legally compliant, whether the employer cured the violations before or after notice, whether the violations caused actual harm, and whether the penalties duplicate other penalties for the same conduct.

Faced with a voter initiative on the ballot in November 2024 that would repeal much of the existing PAGA statute, Governor Newsom, working with the legislature and with employer and worker-advocate stakeholders, hammered out a deal that became the basis for the new legislation: Assembly Bill (AB) No. 2288 and Senate Bill (SB) No. 92.

While each bill focuses on different provisions of PAGA, each depends on passage of the other to become law. However, the amended PAGA statute would not be retroactive. It would apply only to those actions filed on or after June 19, 2024, unless the pre-litigation PAGA notice was given before June 19, 2024, in which case the amended PAGA statute would not cover the action, even when the action is filed on or after June 19.

The PAGA reform bills contain meaningful improvements that will help curb the worst abuses of the PAGA enforcement scheme. The bills, however, will likely fall short of the steps needed to meaningfully reduce the proliferation of wage and hour litigation targeting California employers.

The two bills propose the following amendments to PAGA.

Narrowed Standing to Bring PAGA Claims

Civil penalties and injunctive relief are limited to claims personally suffered. Courts have interpreted PAGA’s definition of “aggrieved employee” to allow a PAGA plaintiff who claims a violation of a single Labor Code statute to have standing to sue on any other possible Labor Code violations, regardless of whether the other alleged violations were suffered by the plaintiff. AB 2288 now provides, with one exception, that an aggrieved employee can bring claims only for violations that the employee “personally suffered.” The exception is that the old definition of standing will still apply if the plaintiff’s counsel is (1) “a nonprofit legal aid organization,” (2) “a qualified legal services project or qualified support center,” or (3) “has served as counsel of record in civil actions under [PAGA] for at least five years prior to January 1, 2025.”

The employee must have personally suffered violations within the statute of limitations. Recent court interpretations have put into question whether a PAGA plaintiff who personally suffered a violation of his or her Labor Code statutory rights could bring a claim regardless of whether the violation took place within PAGA’s one-year statute of limitations. One court of appeal held a PAGA plaintiff with a time-barred claim could pursue civil penalties on behalf of other employees, even if the PAGA plaintiff could not recover civil penalties for himself or herself. AB 2288 amends Labor Code section 2699(c) to clarify that the PAGA plaintiff must have personally suffered a Labor Code violation within the statute of limitations.

Revamped PAGA Penalty System

Penalties are modified depending on prior conduct or harm. While AB 2288 keeps the $100 per aggrieved employee per pay period model, the penalty drops to $50 “if the alleged violation resulted from an isolated, nonrecurring event that did not extend beyond the lesser of 30 consecutive days or four consecutive pay periods.” The bill also modifies the circumstances under which a $200 civil penalty can be assessed: (1) if an agency or court, within the last five years, has found the employer’s “policy or practice giving rise to the violation is unlawful,” or if the employer’s conduct causing the violation was “malicious, fraudulent, or oppressive.”

Penalties are diminished based on the employer’s compliant policies. AB 2288 provides that if an employer has, prior to receiving a plaintiff’s notice to the California Labor and Workforce Development Agency (LWDA) (or records request), taken “all reasonable steps” to be in compliance with the provisions identified in the notice, the civil penalties may not be over 15 percent of what the employer would otherwise be assessed. The new provision specifies what can count as “all reasonable steps,” which will be evaluated under a “totality of the circumstances” test; the provision does not apply to those who would otherwise meet the conditions for the $200 assessment. And the bill caps the penalties at 30 percent if the employer takes “all reasonable steps” to come into compliance within sixty days after receiving the notice to the LWDA.

Penalties are either eliminated or substantially reduced if a violation is cured. AB 2288 provides that if an employer has taken “all reasonable steps” to come into compliance and cures the violation, the employer will not be required to pay any PAGA penalties. Regarding wage statement violations, if an employer cures them, no penalties can be assessed. Similarly, if an employer has not taken “all reasonable steps” but has otherwise cured the violations, the penalties will be limited to $15 per pay period.

Penalties are diminished for wage statement violations. For wage statement violations (except incorrect employer name and address), the civil penalty is $25 per employee per pay period, provided the “employee could promptly and easily determine from the wage statement alone the accurate [required] information.” A wage statement violation concerning the correct employer name and address will likewise incur a penalty of $25, provided “the employee would not be confused or misled about the correct identity of their employer.”

Stacked penalties are eliminated for certain violations. As proposed, AB 2288 provides that no additional civil penalty will be collected for any violation of Sections 201, 202, 203, or 204 (payment of wages) that is “neither willful or intentional” or for a wage statement violation that is “neither knowing or intentional,” if a civil penalty has been collected “for the underlying unpaid wage violation.” Similarly, nothing in the proposed bill prevents a court “from reducing the penalty for any alleged violation if the same conduct or omission resulted in multiple violations of this code.”

Reductions in penalties are available for employers that pay weekly. Previously, employers that paid their employees weekly could be assessed PAGA penalties twice those of employers that paid biweekly or semimonthly for the same number of workdays. AB 2288 provides that any penalties recovered “shall be reduced by one-half if the employees’ regular pay period is weekly rather than biweekly or semimonthly.”

PAGA Cure Provisions

Cure provisions must make employees “whole.” To cure a non-wage statement violation, an employer must, besides showing it has brought itself into compliance with the underlying statutes, make the employee “whole,” which means the employer must (1) pay any unpaid wages going back three years; (2) pay 7 percent interest; (3) any liquidated damages as required by statute; and (4) “reasonable lodestar attorney’s fees and costs to be determined by the agency or the court.” If there is a dispute over the amount of unpaid wages, the employer may rely on the agency or court to determine what is “reasonably … owed to the aggrieved employee[].”

Cure provisions exist for wage statement claims. The proposed amendments also provide that an employer may cure a wage statement violation concerning the employer’s legal name and address by providing the aggrieved employees the correct information, which may be done in “summary form.” For any other wage statement violation, the employer must provide three years of corrected wage statements, which, if the information is “customarily provided in digital form,” the employer can cure by providing “reasonable access to a digital or computer-generated record.”

Early Evaluation and Settlement Provisions

Early evaluation and settlement provisions prior to October 1, 2024. Regarding curable provisions of the Labor Code (i.e., those sections not listed in Section 2966.5), SB 92 includes provisions for early evaluation and settlement for employers with one hundred or more employees. These provisions last until October 1, 2024, when a new Section 2699.3 will be enacted. The provisions allow such an employer to request an early neutral evaluation and to stay the action while the evaluation is taking place. A neutral evaluator may direct the plaintiff to provide a factual basis for each claim and the amount of penalties and attorney’s fees sought. If there is agreement the employer has cured the violations, a court can approve the agreement as a settlement. If there is no agreement between the parties, an employer may move the court for a determination that the violations were cured.

Early evaluation and settlement provisions after October 1, 2024. A new Section 2699.3 will take effect on October 1, 2024, which adds similar provisions for those employers with fewer than one hundred employees but also gives the agency the ability to dismiss a wage statement claim if it is satisfied it has been cured; if the plaintiff disagrees, he or she may appeal to the superior court.

New Miscellaneous Provisions

Court discretion is clarified. AB 2288 provides that whenever the LWDA (or related entities) has discretion to assess a civil penalty or injunctive relief, a court will have the same discretion. A superior court may also “limit the evidence to be presented at trial or otherwise limit the scope of any claim filed pursuant to this part to ensure that the claim can be effectively tried.”

Non-curable Labor Code Sections are reduced. SB 92 eliminates twelve statutes from the list of non-curable statutes in Section 2699.5: Sections 226 (wage statements); 226.7 (meal and rest breaks); 227 (withholdings); 227.3 (vacation wages); 500 (work periods); 512 (meal periods); 513 (makeup worktime); 1194, 1197, and 1197.1 (minimum wage remedies); and 2800 and 2802 (indemnification).

Injunctive Relief. The proposed legislation permits an aggrieved employee to seek injunctive relief in PAGA litigation.

The PAGA amendments have only just been proposed and could be amended as the legislature continues to work on AB 2288 and SB 92.

Ogletree Deakins’ California Class Action and PAGA Practice Group will continue to monitor developments and will provide updates on the California, Class Action, and Wage and Hour blogs as additional information becomes available.

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