Good News for California Employers – PAGA Reform Is Here!
Jaimee Wellerstein, Esq., Bradley, Gmelich & Wellerstein, LLP, CALSAGA Legal Advisor
California employers can breathe a sigh of relief (for once)! On June 27, 2024, California Gov. Newsom signed Assembly Bill (AB) 2288 and Senate Bill (SB) 92, significantly reforming the 20-year old Private Attorneys General Act of 2004 (PAGA). While employers may not have gotten rid of this one-sided adversary, they’ve finally been given some tools to defend PAGA claims. As a result of this new law, the November ballot initiative to repeal PAGA has been withdrawn.
The PAGA reform will apply to civil actions brought on or after June 19, 2024, and will not apply to matters in which notice was filed before June 19, 2024.
Here are the highlights about PAGA reform:
Standing
AB 2288 provides that a plaintiff must have personally suffered each Labor Code violation they seek to pursue on behalf of other aggrieved employees within one year of filing the required administrative notice (PAGA Notice) with the California Labor & Workforce Development Agency (LWDA). This is a significant win for employers as previously, any employee that suffered even one Labor Code violation was entitled to file a PAGA lawsuit for all alleged violations, even for those the employee did not suffer.
PAGA Penalties
AB 2288 reforms PAGA’s penalty structure by incorporating new caps and reductions, as follows:
- For employers who proactively take steps to comply with the Labor Code before receiving a PAGA notice, the maximum penalty that can be awarded is 15% of the applicable penalty amount.
- For employers who take steps to fix policies and practices after receiving a PAGA notice, the maximum penalty that can be awarded is 30% of the applicable penalty amount.
Examples of such reasonable steps include, but are not limited to, conducting periodic payroll audits and taking action in response to the results of those audits, disseminating lawful written policies, training supervisors on applicable Labor Code and Wage Order compliance, and/or taking appropriate corrective action with regard to supervisors as needed. Whether or not the employer took reasonable steps will be a decision left to the discretion of the court, which can take into account factors such as the size and resources available to the employer, and the nature, severity and duration of the alleged violations.
- Penalties for wage statement violations under Labor Code Section 226 that do not cause injury (i.e. misspelling of company name or forgetting to add “Inc.” on the wage statement) will be capped at $25 per employee per pay period. Note: there is no cap on penalties for a failure to provide wage statements.
- The penalty for isolated errors that do not extend beyond the lesser of 30 days or four consecutive pay periods will be capped at $50.
- Penalties will be reduced by 50% for employers who pay employees on a weekly basis (such as private patrol operators).
- Creates a new penalty ($200 per pay period) if an employer acted maliciously, fraudulently, or oppressively. However, this penalty will be assessed only after (1) a court or agency “has issued a finding or determination to the employer that its policy or practice giving rise to the violation was unlawful” within the 5 years preceding the allegation violation, or (2) the court determines an employer acted maliciously, fraudulently or oppressively.
- Employees may not receive penalties for “derivative” violations (in other words, PAGA penalties when an employee has already received penalties for the underlying violation) for (1) failure to timely pay wages at termination (i.e., Labor Code §§ 201-203); (2) failure to timely pay wages during an employment (i.e., Labor Code § 204) if the violation was neither willful nor intentional; or (3) wage statement violations (i.e., Labor Code § 226) that are neither knowing or intentional, or a failure to provide a wage statement.
- The allocation of penalties to the LWDA will decrease from 75% to 65%.
- The allocation of penalties to the aggrieved employees will increase from 25% to 35%.
Employer Cure Provisions
The reform contains various cure provisions and separate processes for small and large employers, as follows:
Small employers (with fewer than 100 employees during the period covered by the PAGA Notice) may submit a confidential proposal to LWDA to cure the alleged violations. If deemed necessary, the LWDA will have the ability for a conference with the parties. The employer will be provided time to complete the cure, and the employee will be given an opportunity to respond. All proceedings will be deemed confidential.
Large employers (with at least 100 employees during the period covered by the PAGA Notice), will be able to request an early evaluation conference, which will include a statement regarding whether the employer intends to cure any or all of the alleged violations, and a request for a stay of court proceedings. While the proceedings are stayed, the parties will work with a neutral evaluator assigned by the court through a multistep process designed to help resolve the dispute.
Importantly, an employer may only use the notice and cure provisions once in any 12-month period for violations of the same provisions set forth in the PAGA Notice.
Strengthening Enforcement Agency
The Administration will pursue a trailer bill to give the California Department of Industrial Relations (DIR) the ability to expedite hiring and filling vacancies to improve and expedite enforcement of employee labor claims.
Judicial Discretion (Manageability)
AB 2288 expressly provides the courts with the power to manage PAGA claims, including the discretion to 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.”
Injunctive Relief
For the first time, AB 2288 allows PAGA plaintiffs to seek injunctive relief.
Employer Takeaway
PAGA reform should be viewed as an opportunity – employers are given the chance to lower and cap potential exposure, and in some cases, cure the violations before penalties even arise. The new law is intended to incentivize employers to be proactive and stay compliant, so you are encouraged to take action immediately.
Employers should become familiar with the new law. Take reasonable steps to become compliant, including conducting regular audits, ensuring policies and procedures are lawful and disseminated to employees (and documented), train (and retrain) supervisors on all applicable wage and hour issues, pay employees correctly, and correct/modify/change anything, as needed.
If you have any questions about how this new law may affect your business or need assistance conducting audits, preparing compliant policies or revising your practices or policies, please contact your attorneys at Bradley, Gmelich & Wellerstein LLP. We are here to help.
Jaimee K. Wellerstein, Esq. is a Partner and the firm’s Employment Team Head. Representing employers in all aspects of employment law, Ms. Wellerstein collaborates with her clients to develop proactive business and legal strategies to try to avoid workplace conflict and employment disputes. She provides legal advice and counsel to numerous businesses, including conducting individualized training programs for both management and employees.
Ms. Wellerstein performs internal audits of her clients’ employment practices to ensure compliance with the rapidly-changing world of employment laws, and guides investigations of employee allegations regarding harassment, discrimination, and employee misconduct. When litigation cannot be avoided, Jaimee K. Wellerstein aggressively defends her clients against employment law claims in the state and federal courts, as well as at administrative hearings, arbitrations, and mediations. Having defended numerous representative and individual lawsuits on behalf of her clients, Ms. Wellerstein is a skilled litigator and negotiator with a broad spectrum of experience upon which to draw.
A frequent speaker on numerous topics, including employment law and contract law, Ms. Wellerstein regularly conducts training seminars and programs for managers and employees in all areas of employment practices and policies.