On July 1, 2024, Governor Newsom signed two bills, S.B. 92 and A.B. 2288, that amend the principal provisions of California’s Labor Code Private Attorneys General Act, Labor Code §2698 et seq. (PAGA). These bills reflect a broad compromise between business and labor groups to preserve the essence of PAGA as an effective tool for enforcing workplace rights while reforming some of PAGA’s most criticized provisions. This compromise averted a contentious ballot measure fight, as sponsors withdrew a PAGA repeal initiative from the November 2024 ballot.
Many of the new PAGA provisions are designed to eliminate what employers characterized as unduly harsh and unrealistic penalties, while furthering the statutory goal of deterring Labor Code violations, including by creating economic incentives to encourage employers to take proactive steps to comply with their workplace obligations. While repeat offenders and the most egregious violators will continue to face substantial civil penalties, lower penalty tiers are now available to encourage prompt remedial action and to reflect the practical reality of how PAGA lawsuits have actually been resolved over the past two decades. And, for the first time, PAGA plaintiffs may seek injunctive relief for the underlying violations – another significant step in obtaining prompt compliance.
Background of PAGA
The California Legislature enacted PAGA in 2003 to address two structural problems with enforcement California’s worker protections: First, many Labor Code provisions were only enforceable through criminal prosecution and not through the more easily prosecuted administrative actions for civil penalties. Second, because the State’s workplace enforcement agencies were woefully understaffed and underfunded, they lacked the resources necessary to pursue most Labor Code violators. To address those problems, PAGA: (1) established a “default” civil penalty for violations of nearly every provision of the Labor Code, and (2) created a new private right of action in which “aggrieved employees” acting as the State’s “agent” or “proxy” were authorized to bring suit as private attorneys general to recover those civil penalties from Labor Code violators. The state received 75% of the penalties, and aggrieved employees received the other 25%.
In recent years, the number of PAGA filings increased dramatically in response to court decisions holding that employers may impose mandatory pre-dispute arbitration agreements on their workers that preclude class and collective actions but not PAGA representative actions, leaving PAGA as the only statutory mechanism available for many plaintiffs seeking workplace-wide relief. Several employer groups, including the proponents of the PAGA-repeal initiative, pushed back, contending that PAGA was too blunt to serve as a meaningful enforcement tool and that its per-violation/per-employee/per-pay period penalties were too high and failed to meaningfully distinguish inadvertent or technical violations from others.
In an effort to avoid a contentious and costly fight over a PAGA repeal measure on the November 2024 ballot, stakeholders negotiated amendments to the statute that encouraged prompt workplace compliance while offering meaningful benefits to employers and workers alike.
Specific Statutory Changes
The 2024 PAGA amendments cover a wide range of topics, discussed in more depth below. In general, the amendments address employers’ key concerns by somewhat limiting the scope of PAGA actions and by reducing penalties for employers that have taken all reasonable steps to comply with their Labor Code obligations or have promptly cured particular violations. At the same time, the statute preserves PAGA’s overall structure and increases the penalties and available remedies against employers that willfully or egregiously violate the law.
Aggrieved employee standing: The new legislation limits a PAGA plaintiff’s standing to pursue statutory civil penalties in two respects. First, the plaintiff must have personally experienced one or more Labor Code violations within the year preceding the filing of a PAGA notice. (Lab. Code, § 2699(c)(1).) This reverses the rule established by Johnson v. Maxim Healthcare Services, Inc. (2021) 66 Cal.App.5th 924, reh’g denied (Aug. 9, 2021), review denied (Nov. 10, 2021) that granted standing to an “aggrieved employee” who suffered a Labor Code violation at any time in the past. (Id. at p. 930.)
Second, except for plaintiffs whose attorneys are employed by certain types of non-profit legal services organizations, PAGA plaintiffs now may only seek PAGA penalties for themselves, the LWDA, and those co-workers who experienced violations of the same Labor Code sections that gave rise to the plaintiffs’ claim. (Lab. Code, § 2699(a).) This reverses in part the rule established by Huff v. Securitas Sec. Servs. USA, Inc. (2018) 23 Cal.App.5th 745, that an aggrieved employee may seek penalties on behalf of co-workers for any violation of any Labor Code provision that those co-workers might have suffered. This possibility of a PAGA plaintiff seeking penalties for violations of Labor Code provisions experienced only by others has long been a concern of employers. But the amendment also preserves the ability of employees who have been subject to a violation to bring claims on behalf of the LWDA for all their employer’s violations of that Code provision, as well as to bring actions with other aggrieved employees subject to violations of different statutes.
Increased Employee Share of Penalties: PAGA penalties will be allocated 65% to the LWDA and 35% to the aggrieved employees, increasing the share received by the employees who are taking on the enforcement role, while still funding LWDA’s enforcement efforts. (Lab. Code, § 2699(m).)
Modified penalty provisions: PAGA previously provided that, where the Labor Code did not already provide a civil penalty collectible by the LWDA, the default penalty would be $100 per employee per pay period per “initial” violation (or $200 for “subsequent” violations, after the employer had been given notice of its non-compliance), with courts having case-by-case discretion to reduce the maximum penalty amounts. The amendments importantly distinguish between inadvertent or minor violations and willful or egregious violations, and create significant economic incentives for employers to acknowledge their violations and act quickly to comply with their legal obligations.
- Reduced Penalties for Isolated Violations: If a violation was based on an isolated, nonrecurring event that did not extend beyond the lesser of 30 consecutive days or four consecutive pay periods, the PAGA penalty is reduced to $50 per aggrieved employee per pay period. (Lab. Code, § 2699(f)(2)(A)(ii).)
- Reduced Penalties for Wage Statement Violations: PAGA civil penalties for wage statement violations are reduced from $100 to $25 per aggrieved employee per pay period if the plaintiffs could promptly and easily determine any information allegedly missing from the statement. (Lab. Code, § 2699(f)(2)(A)(i).) Also, PAGA penalties are not recoverable for inaccurate wage statements if the claim is derivative of an unpaid wage claim and the violation was neither knowing nor intentional. (Id., § 2699(i).)
- Reduced Penalties for Other Derivative Violations: PAGA civil penalties for violations of Labor Code §§201, 202, 203 (unpaid wages upon termination of employment) are not recoverable if the claim is “derivative” of an unpaid wage claim for which the worker has recovered the PAGA penalty. PAGA penalties for violations of §204 remain available if the violation was “willful or intentional.” (Lab. Code, § 2699(i).)
- Increased Penalties for Egregious Violations: If the violation rested on malicious, fraudulent, or oppressive conduct, or if the LWDA or a court had determined within the preceding five years that the employer’s challenged practices or policies were unlawful, the PAGA penalty is increased to $200 per aggrieved employee per pay period. (Lab. Code, § 2699(f)(2)(B).) Those increased penalty amounts cannot be reduced by an employers’ assertion that it took all reasonable steps to come into compliance.
- Incentives to Engage in Good Faith Compliance: The amendments also reduce penalties for employers who take “all reasonable steps” to comply with the Labor Code provisions at issue. If the employer took such steps before receiving a PAGA notice, it will only have to pay 15% of the otherwise available penalty, subject to the court’s discretion to adjust the amount up or down. (Lab. Code, § 2699(g)(1).) If the employer takes those steps within 60 days after receiving notice, penalties are still reduced, but only to 30% of the total available. (Id., § 2699(h)(1).) Examples of “reasonable steps” could include conducting periodic payroll audits, taking action in response to the results of the audits, disseminating lawful written wage and hour policies, training supervisors on wage and hour compliance, and taking appropriate corrective action with regard to supervisors. (Id., § 2699(g)(2).)
- Revised Treatment of Employers with Weekly Pay Periods: PAGA penalties have historically been based upon the number of violations per employee per pay period. This meant that some employers that pay weekly rather than bi-weekly or semi-monthly were subject to twice the amount of penalties. The amendments reduce any PAGA penalties recoverable against those weekly-pay-period employers by one half. (Lab. Code, § 2699(o).)
New “Cure” Provisions: PAGA has always provided that employers can “cure” violations of specified Labor Code provisions once they receive notice, avoiding litigation. The amendments include several new provisions that encourage employers to acknowledge and cure additional Labor Code violations and that reduce or eliminate the penalties for violations that have been promptly cured.
- Cure Process (Lab. Code, § 2699.3(c)(2)): Effective October 1, 2024, employers can, within 33 days after receiving a PAGA notice, submit to the LWDA a confidential proposal to cure any alleged violation that is not otherwise included in the statute’s cure provision. If the LWDA accepts that the proposed cure is sufficient, the employer has 45 days to implement it. If the LWDA does not accept the proposal or the employer fails to implement it, the employees may file their claims in court. If the LWDA accepts a cure but the employees dispute its sufficiency, they may challenge the LWDA’s determination in court, under an abuse of discretion standard. Employers may not seek to avail themselves of these cure provisions more than once every 12 months for the same Code section violation, or if they were previously served with a PAGA notice for the same violation.
- Early Evaluation Conference (Lab. Code, § 2699.3(c)(3)): For employers with at least 100 employees, at any time before the employer files its responsive pleading or makes its initial appearance in court, it may ask the court for good cause to order an early evaluation conference (“EEC”), to be conducted by a neutral evaluator, and to stay court proceedings. To obtain a stay and/or referral to a neutral evaluator, the employer must submit a confidential statement to the court explaining which alleged Labor Code violations it disputes and which, if any, alleged Labor Code violations it intends to cure. The statute creates an EEC process in which both parties offer confidential statements, the neutral evaluator discusses the cure proposal with the parties, and it can be treated by the court as a joint settlement proposal if accepted.
These provisions avoid or streamline litigation, significantly reducing costs for all parties, and offer a way for employees to obtain more immediate relief (although it remains to be seen how the courts will go about identifying and selecting neutral evaluators). An employer that has previously taken “all reasonable steps” to comply with its obligations and cures the disputed violations (including, in a wage case, by paying three years of backpay plus 7% interest, statutory liquidated damages where applicable, and reasonable attorneys’ fees) will not be liable for any additional PAGA civil penalty.
Injunctive Relief: PAGA plaintiffs may now pursue injunctive relief under PAGA. (Lab. Code, § 2699(e)(1).) This is a significant change in the law, and one that should significantly further PAGA’s underlying purpose of increasing prompt and meaningful Labor Code compliance. By empowering aggrieved employees to seek a court order requiring their employer to stop breaking the law and to promptly comply with its obligations under the Labor Code, this provision will significantly strengthen PAGA as a workplace enforcement tool. And, by expressly authorizing PAGA claimants to seek injunctive relief, the Legislature has recognized that the types of Labor Code violations that underlie PAGA can be enjoined, regardless of the other possible relief available.
Manageability: The amendments codify the California Supreme Court holding in Estrada v. Royalty Carpet Mills Inc. (2024) 15 Cal.5th 582, that although courts may not dismiss PAGA claims as unmanageable, they 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.” (Lab. Code, § 2699(p).) The amendments also confirm that courts may consolidate or coordinate PAGA lawsuits that involve overlapping Labor Code violations against the same employer, although they do little else to address the increased recent litigation over “reverse auction” settlements.
Michael Rubin, Altshuler Berzon
Robin Tholin, Altshuler Berzon