On July 2, 2024, California Governor Gavin Newsom signed a set of reforms to California’s Private Attorneys General Act (“PAGA”), AB 2288 and SB 92, into law. In the face of threats of a ballot measure seeking to repeal and replace the law, the reforms preserve PAGA, but also contain substantial changes impacting PAGA actions brought by plaintiffs after its enactment.

The comprehensive PAGA reforms are the result of extensive negotiations and efforts among Gov. Newsom, lawmakers, and business and employee advocacy groups to avoid the looming threat of a ballot measure, the California Employee Civil Action Law Initiative, which had received more than 700,000 signatures and qualified for the November 5 state ballot. The ballot measure sought to repeal and replace PAGA with legislation that would undermine the law’s private right of action by barring plaintiffs’ attorneys from recovering any fees not otherwise specified in the Labor Code and by requiring enforcement through the state’s overtaxed Division of Labor Standards Enforcement (“DLSE”). In accordance with the agreement the various groups reached, the proponents of the ballot initiative withdrew the measure a week before the Governor signed the PAGA reforms into law.

The PAGA reforms took effect immediately, applying to cases for which PAGA notices of violations are filed after June 19, 2024, with new court cure procedures made effective July 19, 2024, and new state agency cure procedures set to go into effect on October 1, 2024. The changes impact many of the law’s key components.

Changes to PAGA in the PAGA Reforms

1. Standing Requirement

In Huff v. Securitas Sec. USA Services, Inc., and Kim v. Reins Int’l Cal., Inc., the courts held that a plaintiff had standing to bring a PAGA action against an employer on behalf of all aggrieved employees for all labor violations, as long as the plaintiff had personally suffered at least one of the violations. The PAGA reforms require that, to bring a PAGA action against an employer, plaintiffs must have personally experienced each of the alleged violations during the relevant time period, the one-year statute of limitations under Section 340 of the Code of Civil Procedure. Cal. Lab. Code § 2699(c)(1). However, the prior standing requirement described in Huff and Kim still governs actions filed on behalf of aggrieved employees by a qualified nonprofit legal aid organization. Id. § 2699(c)(2). Furthermore, the PAGA reforms do not affect Kim’s holding that employees maintain their status as aggrieved employees, and therefore their standing to assert PAGA claims, upon settling their individual underlying Labor Code claims.

2. Assessment of Penalties

One of the most significant changes introduced by the PAGA reforms is a set of changes to the penalties that can be assessed and imposed for Labor Code violations.

Where PAGA previously provided a default penalty of $100 per aggrieved employee per pay period for an initial violation, and $200 per aggrieved employee per pay period for a subsequent violation, the PAGA reforms impose a standard $100 penalty for each aggrieved employee per pay period. Id. § 2699(f)(2)(A). The law also clarifies the circumstances for imposing a heightened penalty, by prescribing that the $200 penalty can be assessed: (1) where an agency or court has issued a finding or determination to the employer that its policy or practice giving rise to the violation was unlawful in the five years preceding the alleged violation and (2) where a court determines that the employer’s conduct giving rise to the violation was malicious, fraudulent, or oppressive. Id. § 2699(f)(2)(B).

The PAGA reforms also establish lower penalties for certain violations under certain conditions. The law now imposes a $25 dollar penalty, as opposed to the prior $100/$200 dollar penalty schedule described above, for each aggrieved employee per pay period for paystub violations codified under Cal. Lab. Code § 226 if: (1) the employee is able to promptly and easily verify the accurate information from the wage statement alone or (2) would not be confused or misled about the identity of the employer or entity that secured the employer’s services. Id. § 2699(f)(2)(A)(i). The law imposes a $50 penalty for each aggrieved employee per pay period if the violation resulted from an isolated, nonrecurring event lasting no more than the lesser of 30 days or four pay periods. Id. § 2699(f)(2)(A)(ii).

The PAGA reforms also limit the collection of derivative penalties (penalties arising from the same underlying unpaid wage violation) for violations of Sections 201 (pertaining to the payment of wages earned and unpaid at the time of discharge), 202 (pertaining to the payment of wages upon an employee quitting or retiring from their employment), and 203 (ascribing a 30 day penalty at the employee’s pay rate for an employer’s failure to pay wages due upon an employee’s discharge or resignation) of the Labor Code, for a violation of Section 204 (pertaining to an employer’s obligation to pay wages on regular paydays) that is not willful or intentional, or for a violation of Section 226 (requiring employers to furnish an accurate itemized statement at the time of payment of wages) that is not knowing or intentional nor a failure to provide a wage statement. Id. § 2699(i).

Furthermore, under the reforms, a greater percentage of the recovered penalties will go to the aggrieved employees, 35% as opposed to 25%, and a lesser percentage will go to the state, 65% as opposed to 75%.

3. Cure Procedures

The PAGA reforms also incorporate various changes to the cure procedure, encouraging employer compliance with labor laws by providing for reduced penalties where an employer has made certain compliance efforts. The reforms cap recoverable penalties as follows in a civil action:

• 15% of the penalties sought when an employer takes reasonable steps to comply with Labor Code provisions identified in a PAGA notice of violations prior to receiving the notice or a request for employee records pursuant to Section 226, 432, or 1198.5 (provisions providing employees a right to request payroll and personnel records); and
• 30% of the penalties sought when an employer takes reasonable steps to prospectively comply with the provisions identified in a notice within 60 days of receiving the PAGA notice.

However, penalties are not capped where the court has determined that the employer’s conduct was malicious, fraudulent, or oppressive. Id. § 2699(g), (h). Reasonable steps include conducting periodic payroll audits and taking action in response to the audit, disseminating lawful written policies, training supervisors on labor law compliance, or taking appropriate corrective actions regarding noncompliant supervisors. Id.

Furthermore, the revised PAGA defines the meaning of “cure” with respect to making aggrieved employees whole, for purposes of the procedures codified under Section 2699.3, under which employers may submit a proposal to cure alleged violations and cut off a civil action if the agency determines that the alleged violation has been cured. Under this definition, an employee owed wages is made whole when: the employee has received owed unpaid wages dating back three years from the date of the notice, plus 7 percent interest; any liquidated damages as required by statute; and reasonable attorney’s fees and costs. Id. § 2699(d)(1). Cure procedures are also amended to provide employers with fewer than 100 employees a cure evaluation process through the Labor and Workforce Development Agency (“LWDA”). These reforms provide an earlier opportunity for intervention by the LWDA in case of smaller employees, where, previously, employers could engage in a notice and cure procedure, under which employers could cure alleged violations and notify aggrieved employees, within 33 days of receiving the notice, after which the aggrieved employees could file a notice disputing the employer’s curing of the violations for the agency’s review. Furthermore, employers with over 100 employees can now request an early evaluation conference procedure following the filing of a civil action to determine whether violations have been cured and the possibility of early resolution.

The PAGA reforms also expand the violations that can be cured, id. § 2699.5, including, for example, meal period and rest break, minimum wage, overtime, and expense reimbursement violations. Under the PAGA reforms, employers that have cured violations are required to pay only a reduced penalty of $15 per employee per pay period for the statutory period, while employers that have taken reasonable steps to comply with labor provisions and that have cured a violation are not required to pay any civil penalty, id. § 2699(j).

4. Injunctive Relief and Case Management

The PAGA reforms also amend or clarify a court’s authority with respect to PAGA actions, including authorizing courts to exercise the same discretion provided to the LWDA to award injunctive relief, id. § 2699(e), (k); codifying Estrada v. Carpet Royalty Mills, Inc.’s holding providing that a court may limit the evidence presented or scope of claims for manageability reasons, id. § 2699(p); and enabling courts to consolidate or coordinate civil actions against the same employer, id. § 2699(q).

Implications for Plaintiffs and Labor Rights

Overall, the preservation of PAGA as a tool for employees to enforce labor violations—still the only law of its kind in the country—is a significant feat of the PAGA reforms and the discussions which preceded their enactment. PAGA is all the more vital in light of trends towards forced arbitration, particularly as PAGA representative claims cannot be subjected to forced arbitration.

The reforms’ implementation of incentives for employers’ compliance with labor laws ultimately serves the interests of California employees by securing compliant employment settings without costly and intensive litigation. While PAGA notice submissions indicate a spike in filings following the reforms, the expectation of stakeholders is a reduction in the overall number of PAGA filings as employers avail themselves of the amended penalty and cure provisions. Where employers do not heed opportunities to ensure compliance with the state’s labor laws and avoid the steep penalties associated with noncompliance, however, PAGA remains a vital tool to provide effective redress for employees.