California’s Labor Code Private Attorneys General Act of 2004 (PAGA) continues to be the subject of a struggle between employees and employers and their respective advocates. On July 1, 2024, Governor Gavin Newsome approved legislation to reform PAGA as a compromise to a potential ballot initiative. Six weeks later, on August 15, 2024, the California Supreme Court issued its decision in Tamelin Stone v. Alameda Health System, which limits the sector of employees who are protected by PAGA. This article will review these two recent developments regarding this law that has been both heralded as a vital means for workers to protect their rights and decried as a threat to business.
But first, a quick summary of PAGA. California’s Labor Code, which governs workplaces in this state, is enforced in part by California’s Labor Commissioner. Leading up to 2004, the Labor Commissioner was unable to effectively carry out its enforcement function due to a lack of resources. California’s Legislature passed PAGA with the intent to increase enforcement by allowing private civil actions to recover civil penalties that only the Labor Commissioner previously could recover. Said pursuit is by means of a representative action, in which an employee acts a representative of the State of California to recover civil penalties on behalf of the employee and all other affected employees. Procedurally, the employee is required to first give notice to the employer and California’s Labor and Workforce Development Agency regarding the alleged violations. If the LWDA declines to intervene, the employee can pursue a civil action. Prior to the recent amendments, the civil penalty was $100 per aggrieved employee per pay period (default penalty), except where a statute specifically provided for a defined amount. Twenty-five percent of the penalties went to the affected employees and 75 percent to the LWDA for enforcement of labor laws.
The July 1, 2024 amendments to PAGA affect (1) standing, (2) civil penalty amounts, (3) employers’ ability to avoid penalties by curing the alleged violations, (4) stacking of penalties, (5) the distribution of the civil penalty, and (6) alternative dispute resolution of PAGA claims.
Regarding standing, an employee must be “aggrieved.” This is now defined as an employee who was employed by the alleged violator and personally suffered each of the violations alleged within a one-year statute of limitations.
With respect to the amounts, the civil penalty is reduced from $100 for each aggrieved employee per pay period under certain circumstances. If the alleged violation concerns pay statements and the employee could promptly and easily determine from the statement alone the required information other than the legal identity of the employer, the penalty is $25 per employee per pay period. If the alleged violation arises from the legal identity of the employer in pay statements, the penalty is $25 per employee per pay period if the employee would not be confused or misled about the correct identity. However, if the alleged violation concerns the failure to provide pay statements, the $100 penalty still applies. If the alleged violation resulted from an isolated, nonrecurring event that did not extend beyond 30 consecutive days or four consecutive pay period, whichever is less, the penalty is $50 for each aggrieved employee per pay period.
Other circumstances result in a reduction of the civil penalty on a percentage basis. If the employer, prior to receiving notice of the alleged violation or a request for personnel records from the employee, took all reasonable steps to be in compliance with all provisions identified in the notice, the civil penalty is not more than 15 percent of the full amount. Also, if within 60 days after receiving the notice of alleged violation the employer takes all reasonable steps to prospectively be in compliance with all provisions identified in the notice, the civil penalty is limited to 30 percent of the full amount.
The civil penalty is now effectively the same whether the employer uses weekly or biweekly or semimonthly pay periods. The penalty is reduced by one-half if the pay period is weekly.
However, the civil penalty is increased to $200 per aggrieved employee per pay period under certain circumstances. First, if within the five years preceding the alleged violation, the Labor Commissioner or any court issued a finding or determination that the employer’s policy or practice giving rise to the violation was unlawful. Second, if the court determines the employe’s conduct giving rise to the violation was malicious, fraudulent, or oppressive.
As to employers’ ability to avoid civil penalties, an employer who cures the alleged violation can avoid civil penalties entirely. Cure means the employer corrects the violation, is in compliance with the statutes specified in the notice, and makes each employee whole. For violations involving unpaid wages, the employee must receive the unpaid wages plus seven percent interest as well as any statutorily required liquidated damages and reasonable lodestar attorney’s fees and costs. For alleged pay statement violations, the employer must provide written notice of the correct information to each aggrieved employee.
Regarding stacking penalties, if there is an underlying unpaid wage violation, an aggrieved employee cannot collect a separate civil penalty for alleged failure to timely pay final wages. Nor can an aggrieved employee collect an additional civil penalty for alleged failure to timely pay wages other than the final wages unless the failure was willful and intentional. Furthermore, an aggrieved employee may not recover a separate civil penalty for an alleged pay statement violation unless the violation was knowing or intentional or a failure to provide a statement.
With respect to the distribution of the civil penalty, it is now 35 percent to the aggrieved employees and 65 percent to the LWDA.
Finally, as to ADR, there is now an early evaluation conference available. Upon service of process of a PAGA claim, employers with at least 100 employees may file a request for an early evaluation conference and stay of court proceedings. Absent good cause for denying the request, the court must stay the proceedings and order the conference to take place within 70 days.
Shortly after the foregoing amendments to PAGA were passed, the California Supreme Court issued a major decision concerning the reach of the Labor Code. First, the court in Tamelin Stone v. Alameda Health System held that the Labor Code provisions governing meal and rest breaks do not cover public sector employees. As for PAGA, the court addressed the question of whether that law applies to public sector employees. The court of appeal held that for the default penalty provisions, i.e., when no civil penalty is specifically provided, a public employer is not subject to a PAGA claim; but for statutes with defined civil penalties, a public employer could be a defendant. The appellate court reached this conclusion based on the default penalty provision using the term “person” as defined by Labor Code section 18, which had been held to not include public employers; whereas the defined penalty provision did not include “person.” The California Supreme Court decided this interpretation was inconsistent with legislative intent, could lead to absurd results, and ran counter to Government Code section 818, which shields public entities from punitive damages. It concluded that the statute’s language defines who may bring a PAGA claim rather than the identity of the defendant. Furthermore, the Legislature’s choice to use Section 18’s definition of person was intentional and nothing in the statutory text suggests an intent to subject public employers to some PAGA penalties but not others. The California Supreme Court held that PAGA does not cover public sector employees.
The foregoing is only the latest in what is sure to be ongoing efforts by employees and employers to either expand to contract the reach of PAGA. Stay tuned.
Dean Royer is a Senior Litigation Attorney at Szeto-Wong Law, a family law and civil litigation firm. Dean has advocated for employees since 2005, handling a variety of employment cases, including discrimination, retaliation, harassment, and whistle-blower matters.
