By: Andrew Sokolowski, Matthew Sgnilek, Daniel Spencer, & Katherine Den Bleyker, Partners

Last week Governor Newsom’s office announced significant revisions to the Labor Code Private Attorneys General Act of 2004 (commonly known as “PAGA”). The proposed revisions are the product of a cooperative effort between legislators, labor groups, and business groups, including the California Chamber of Commerce.

Late last week, the text of the proposed legislation, AB 2288 and SB 92 was released. If the proposed legislation is signed into law by June 27, it will replace the November 2024 ballot initiative known as the Fair Pay and Employer Accountability Act.

The following are key aspects of the proposed PAGA reform.

The reforms will not apply to PAGA matters pending before June 19, 2024.

If passed, the law will take effect immediately and it will apply to all PAGA cases filed on or after June 19, 2024. The bill also states that it will not apply to PAGA actions in which the PAGA notice was filed before June 19, 2024. The latter means that yet-unfiled cases in which counsel filed the PAGA notice before June 19, 2024 and are awaiting the expiration of the PAGA notice period will be exempt from the reform’s effect even though they are filed after June 19, 2024.

Stricter standing requirements will apply.

PAGA plaintiffs will only be able to pursue civil penalties on behalf of “other current and former employees against whom a violation of the same provision was committed”. This is a significant change from the current law, which allows PAGA plaintiffs to seek penalties for any violation regardless of whether the plaintiff personally suffered that violation.

Various provisions help reduce or limit potential penalties.

If an employer takes “all reasonable steps” to comply with all Labor Code provisions identified in a PAGA notice before receiving the notice or a request for employment records, the civil penalty recovered may be no more than 15% of the penalty sought.

If, within 60 days after receiving a PAGA notice, the employer takes “all reasonable steps” to prospectively comply with the provisions identified in the PAGA notice, the civil penalty recovered may be no more than 30% of the penalty sought.

“All reasonable steps” may include: conducting periodic payroll audits and taking action in response to the results of the audit, disseminating lawful written policies, 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 shall be evaluated by the totality of the circumstances and take into consideration the size and resources available to the employer and the nature, severity and duration of the alleged violations. The existence of a violation, despite the steps taken, is insufficient to establish that an employer failed to take all reasonable steps.

An employer who meets either of the “reasonable steps” tests and cures a violation shall not be required to pay a civil penalty for the violation. Any other employer who cures a violation – but does not meet the “reasonable steps” test – shall pay no more than $15 per employee per pay period for any cured violation.

A violation is “cured” when the employer corrects the violation, is in compliance with the underlying statutes referenced in the PAGA notice and makes each employee whole. For example, with respect to unpaid wages, an employee is made whole when (1) the employee receives an amount sufficient to recover any unpaid wages due under the statutes referenced in the PAGA notice for the 3 years before the date of the notice, (2) plus 7 percent interest, (3) any liquidated damages required by statute, and (4) reasonable lodestar attorneys’ fees and costs to be determined by the LWDA or the court.

The reform ends stacking of some derivative penalties. PAGA plaintiffs cannot collect penalties for (1) violations of Sections 201, 202, 203, of the Labor Code, (2) violations of Section 204 that are neither willful or intentional, or (3) violations of Section 226 that are neither knowing or intentional nor a failure to provide a wage statement, that are in addition to the civil penalties collected by that aggrieved employee for the underlying unpaid wage violation.

The reform sets default PAGA penalties at $100 for each aggrieved employee per pay period. However, if the alleged violation relates to wage statements, the penalty is only $25 for each employee per pay period (1) if the employee could promptly and easily determine the required accurate information from the wage statement alone or (2) regarding the employer’s identity, if the employee would not be confused or misled about the correct identity of their employer. Further, the civil penalty is $50 for each aggrieved employee per pay period if the alleged violation resulted from an isolated, non-recurring event that did not extend beyond the lesser of 30 consecutive days or four consecutive pay periods.

The reform maintains a $200 penalty in limited circumstances. Specifically, the enhanced penalty applies if either (1) within the five years preceding the alleged violation, the agency or any court issued a finding or determination to the employer that its policy or practice giving rise to the violation was unlawful or (2) the court determines that the employer’s conduct giving rise to the violation was malicious, fraudulent, or oppressive.

The reform includes detailed procedures for curing violations early on.

The legislation includes detailed procedures for employers to quickly cure violations and seek an expedited path to resolution. Employers with at least 100 employees during the PAGA liability period may file a request for an early evaluation conference and a request for a stay of court proceedings before or simultaneously with that employer’s responsive pleading or other initial appearance in the action.

For employers with fewer than 100 employees during the PAGA liability period, within 33 days of receiving a PAGA notice the employer may submit to the LWDA a confidential proposal to cure one or more of the alleged violations. If the cure is sufficient or if a conference is necessary to determine if a sufficient cure is possible, the agency may set a conference with the parties to determine whether the proposed cure is sufficient, what additional information may be necessary to evaluate the sufficiency of the cure, and the deadline for the employer to complete the cure. The reform provides timelines for completing this process.

Increased distribution of penalties to aggrieved employees.

The reform changes the division of recovered penalties between employees and the LWDA. Employees will now receive 35% of penalties (rather than 25%) and the LWDA will receive 65% (rather than 75%).

Employers are no longer penalized for paying employees weekly.

The reform provides that penalties are reduced by half for employers who pay weekly rather than bi-weekly or semi-monthly.

Courts have the ability to consolidate or coordinate cases and limit the scope of claims at trial.

The superior court may limit the evidence to be presented at trial or otherwise limit the scope of any PAGA claim to ensure that the claim can be effectively tried. This revives manageability arguments which had been rejected by the California Supreme Court in Estrada v. Royalty Carpet Mills, Inc., which held that trial courts lack authority to strike PAGA claims on manageability grounds. In addition, courts will now have the authority to consolidate cases involving the same or overlapping claims against the same employer.

Employees may also receive injunctive relief.

The reform now allows the court to award injunctive relief in PAGA cases.

Let O’Hagan Meyer’s wage and hour team help you reduce the risk of doing business in California.

The proposed PAGA reform represents the most significant legislative amendment to PAGA since its inception. If passed, employers will be able to substantially reduce potential PAGA liability if they (1) take “reasonable steps” to maintain preventative policies and practices designed to ensure Labor Code compliance before receiving a PAGA notice or (2) act swiftly after receiving a PAGA notice to correct any violations and take the appropriate remedial efforts to “cure” any issues. Our attorneys are ready to partner with you to navigate this new PAGA landscape.