iThis November, California voters were expecting to vote on a measure that would replace the current Private Attorney General Act (PAGA) statute with the California Fair Pay and Employer Accountability Act (FPEAA). In a plot twist similar to what unfolded with respect to the recently enacted FAST Act, Gov. Newsom and legislative leaders announced in a June 18, 2024, press release that an agreement to strike FPEAA from the ballot (just days before the June 27, 2024, deadline to do so) and fundamentally reform PAGA was reached (“PAGA Reform Agreement”). The PAGA Reform Agreement reflects significant negotiations between Gov. Newsom’s office and legislative leadership and business/labor stakeholders.
On June 21, 2024, companion bills Assembly Bill 2288 (AB 2288) and Senate Bill 92 (SB 92) were introduced to memorialize the PAGA Reform Agreement, and these bills are now making their way through the legislative process. If the legislation is signed into law as currently drafted, its provisions will apply to civil actions brought on or after June 19, 2024 (except as otherwise specified).
What Are the Anticipated PAGA Reforms?
The current text of AB 2288 and SB 92 includes the following PAGA reforms:
| Common-Sense Changes to Standing Requirements | An employee who files a lawsuit will be required to have personally suffered the alleged violations (akin to class action lawsuits within the period set forth by the statute of limitations for a PAGA claim). (Currently, an employee can recover under PAGA even if they did not personally suffer the precise violation, and can recover even if they suffered no violation with the PAGA limitations period.) |
| New Cure Process for Small Employers | Smaller employers (those with fewer than 100 employees during period covered by the PAGA notice) will be entitled to submit to the LWDA “a confidential proposal to cure one or more of the alleged violations.” The LWDA will be required to “verify whether the cure is complete within 20 days of receiving the employer’s notification.” (Currently, the cure process under PAGA makes no statutory distinctions based on employer size.) |
| Additional Cure Opportunities | Additional Labor Code sections are identified as curable through pre-litigation actions. These additional Labor Code sections now include Labor Code violations for failure to pay meal/rest period premiums, overtime, and expense reimbursement. (Currently, PAGA permits curing certain labor code violations, such as failure to include start or end date of pay period on employee wage statements). |
| Early Stay and Neutral Evaluation of Cases to Facilitate Early Resolution | Larger employers (those with at least 100 employees during the period covered by the PAGA notice) who are served with a complaint will be permitted to request a stay of proceedings to participate in an early evaluation conference with the court, provided such request is made before or with their responsive pleading or initial appearance. The purpose of the early evaluation conference is, among other things, to determine whether the alleged violations occurred and whether the employer cured the alleged violations and to assess the strengths and weaknesses of plaintiff’s claims and defendant’s defenses. The court may also direct employers who file a statement indicating an intent to cure the alleged violations to submit the proposed plan for curing. To facilitate early resolution, PAGA plaintiffs must also submit a confidential statement that includes the factual basis for allegations, “to the extent reasonably known”; demand for settlement; and the basis for accepting or not accepting the employer’s curing plan. If the plaintiffs or neutral evaluation do not agree the employer sufficiently cured the allegations, the employer “may file a motion to request the court to approve the cure and submit evidence showing correction of the alleged violations.” (Currently, PAGA does not have a statutory mechanism for seeking a stay and early evaluation of the case, although many parties follow this course by agreeing to a stay and engaging a private neutral to seek early resolution.) |
| Injunctive Relief | Courts will have the discretion to order injunctive relief to force employers to remedy violations through policy and process changes. (Currently, PAGA provides no mechanism for such judicial discretion.) |
| Manageability | To address manageability issues that have plagued PAGA cases, courts will have the discretion to “limit the evidence to be presented at trial” and “otherwise limit the scope of any claim filed…to ensure that the claim can be effectively tried.” (Currently, PAGA provides no mechanism for such judicial discretion. As discussed in a previous blog post, the California Supreme Court recently held, in Estrada v. Royalty Carpet Mills, Inc., that although a trial court could not strike a PAGA claim on manageability grounds, courts did have authority to manage cases through “numerous [case management] tools” available to them, such as limiting the types of evidence a plaintiff an present, limiting witness testimony, etc.) |
| Employer Penalty Reforms | The legislation identifies a number of significant reforms to the current PAGA penalty structure: For employers who demonstrate they took “all reasonable steps to be in compliance” before receiving the PAGA notice or request for personnel records, penalties are capped at 15% of the penalty sought; For employers able to demonstrate they took “all reasonable steps to be in compliance” after receiving the PAGA notice, penalties are capped at 30% of the penalty sought; “Reasonable steps” may include the following: conducting periodic payroll audits (and taking appropriate action based on audit results); disseminating lawful policies; training management on wage/hour compliance; and taking corrective action against management for non-compliance. The court will evaluate such steps based on “the totality of the circumstances, [taking] into consideration the size and resources available to the employer, and the nature, severity and duration of the alleged violations.” For wage statement violations where there is no harm to plaintiffs, per-pay period penalties are capped at $25 per aggrieved employee; For other violations resulting “from an isolated, nonrecurring event that did not extend beyond the lesser of 30 consecutive days or four consecutive pay periods,” per-pay period penalties are capped at $50 per aggrieved employee per pay period; The existing per-pay period penalty of $200 per aggrieved employee is only available if: (1) the violation occurs within five years of an agency or court finding that the employer’s policy or practice was unlawful; or (2) a court determines that the conduct was malicious, fraudulent, or oppressive (Currently, penalties are capped at $100 per employee, per pay period, and subsequent violations are capped at $200 per employee, per pay period.) |
| Increased Penalty Allocation to Employees | The amount of money allocated to employees is increased to 35%. (Currently, the allocation is 25%.) |
| Expediting Hiring into Department of Industrial Relations | Provides a pathway for the DIR to fast-track hiring and fill existing vacancies, to improve agency enforcement of claims. |
What Comes Next?
This legislation may be fast-tracked and signed by Gov. Newsom before the June 27, 2024, deadline for ballot measures to be withdrawn.
