Effective as of July 1, 2024, California has finally adopted a substantial overhaul of the Private Attorneys General Act (“PAGA”). PAGA has long been a major thorn in the side of employers, with the threat of large-scale PAGA claims raised by employees constantly looming. The changes to the Act do much to narrow the scope and potential penalties associated with PAGA claims going forward, and provide employers with much-needed ways to cure and remediate potential harms both before and after PAGA claims have been raised. Though the bar was admittedly very low to begin with, the new version of PAGA is much more employer-friendly than the original version.
As an initial matter, an employee may now only bring a PAGA claim based on Labor Code violations actually experienced by that employee. Previously, employees had been authorized to use a single Labor Code violation as a springboard to allege violations of any other Labor Code provisions experienced by other employees, whether or not the complaining employee had suffered such violations themselves. This essentially brought every possible Labor Code violation into play any time a PAGA action was filed, leading to wide-reaching discovery and extreme difficulty in accurately determining the scope of claims and potential damages. The new PAGA also makes clear that the aggrieved employee must have actually suffered the alleged Labor Code violation within one year of the date of the complaint, closing another loophole which had been partially opened by the courts to greatly expand the timeframe for raising PAGA claims. Collectively, these changes drastically limit the scope of claims an employer is likely to face in a PAGA action, and provide a stronger-than-ever incentive to correct any weaknesses in labor practices early to start the one year clock ticking.
The potential penalties an employer faces with respect to PAGA claims may now be significantly reduced through cure and remediation provisions in the new statute. If employers have taken reasonable steps to comply with the Labor Code prior to receiving notice of a potential claim or violation, default penalties can be reduced by 85 percent. Reasonable steps include payroll audits, taking steps to adopt and distribute lawful employment policies, training supervisors and managers on various Labor Code issues which often form the heart of PAGA complaints under the original version of the Act, and taking corrective actions as soon as possible with respect to violations. Employers may also reap the benefit of significantly reduced penalties for taking remedial action within sixty days of receiving a PAGA notice (a precursor to a PAGA claim). Where a violation is cured, the employee’s right to obtain a civil penalty for the violation may now be completely eliminated. Again, the new statutory language builds in strong incentive for employers to take early preventative action to ensure Labor Code compliance to the greatest extent possible before claims are raised and immediately thereafter. The new PAGA is far from perfect, and questions remain as to how various remediation and cure efforts will be accomplished. But the changes, including the opportunity to cure, are welcome ones for employers nonetheless.
Another significant change is a codified prohibition on the stacking of Labor Code violations to create additional PAGA penalties. Under the original version of PAGA, an employee could allege a failure to pay overtime or minimum wage, and then stack additional derivative claims on top of such claim to tack on additional penalties (e.g., failure to pay wages at termination, failure to provide compliant wage statements). Now, such stacking of derivative claims is barred absent intentional conduct on the part of the employer. PAGA’s standard $100/$200 penalty scheme per employee and per pay period has also been clarified, and in many cases reduced. The split on recoveries in PAGA claims has been altered in employees’ favor- whereas employees previously retained 25 percent of any PAGA award with the remaining 75 percent being paid to LWDA, employees are now entitled to retain 35 percent of such awards.
All in all, the California Legislature has moved the needle on PAGA claims much more towards fairness to the employers with the new PAGA. The cure and remediation options available to employers help to emphasize preemptive employer action and compliance with the Labor Code over a rush to the courthouse to file a complaint by aggrieved employees. Being an employer in California may still not be for the lighthearted, but the new PAGA is a welcome shift in the right direction for anyone who has taken on the challenge.