New PAGA Reform Provides Numerous Benefits to California Employers

7.8.24

Labor and business groups and Governor Gavin Newsom reached a deal to keep an initiative to repeal PAGA off of the November 2024 ballot. On June 21, 2024, Assembly Bill 2288 and Senate Bill 92 were introduced with provisions to instead implement reforms to PAGA. Both bills passed in the legislature, and on July 1, Newsom signed the reform into law. The provisions include numerous benefits for employers including reform to the penalty structure, more restrictive standing requirements for plaintiffs, courts’ ability to limit scope of claims and evidence due to manageability, and new rights to cure.  While this is good news for employers, there are affirmative steps that employers should take to protect themselves – see the “non-exhaustive list of reasonable steps” below.

1.  Penalty Reform

One of the major reforms introduced is a cap on penalties for employers who act quickly to adjust bad practices. There will be a 15 percent cap on penalties for employers who take reasonable steps for compliance prior to receipt of a PAGA notice or a request for personal records and a 30 percent cap on penalties for employers who take all reasonable steps after receipt of PAGA notice.

A non-exhaustive list of reasonable steps an employer may take include:

  1. Conducting periodic payroll audits and taking action in response to audit results;
  2. Disseminating lawful written policies;
  3. Training supervisors on applicable Labor Code and wage order compliance; or
  4. Taking appropriate corrective action with regard to supervisors.

However, the reform also allows courts to grant injunctions to force businesses to fix labor violations and to increase penalties for only the most abusive employers. Thus, the agreement still protects employees but grants safeguards to employers who follow labor laws.

Moreover, wage statement violations that do not cause injury are capped at $25, and there cannot be double-dipping to seek penalties under both Labor Code section 226 and section 226.3. The bill also sets forth limitations for when the $200 penalty for a subsequent violation may be awarded. Penalties also cannot be awarded for derivative claims based on a single violation. Additionally, there is a $50 maximum penalty for an employer’s errors that occur for less than 30 days or four consecutive pay periods.

2.  Stricter Standing Requirements for Plaintiffs

Importantly, plaintiffs must now also demonstrate any alleged Labor Code violations personally impacted them. Prior to this reform, plaintiffs could seek penalties affecting other employees without having to personally experience the alleged violation. AB 2288 also provides that a one-year statute of limitations applies, providing a limit on broad PAGA actions.

3.  Manageability Determinations

Further, AB 2288 explicitly states that courts have the power to limit both evidence presented at trial and the scope of PAGA claims based upon manageability. Previously, in Estrada v. Royalty Carpet Mills, Inc., trial courts had been denied the ability to determine the manageability of PAGA claims.

4.  New Cure Provisions

Furthermore, new cure provisions expand employers’ ability to cure or fix a plaintiff’s alleged Labor Code violations. The violations that can be cured include wage statements, failure to pay meal/rest period premiums, overtime, and expense reimbursement. Small employers can notify the LWDA they would like to cure these violations and a settlement conference will be arranged to potentially reach an early resolution. Larger employers wanting to cure may request an Early Neutral Evaluation, and even if a neutral does not agree a cure is sufficient, the employer may file a motion for the court to approve a cure.

5.  No Retroactive Application

Since the new legislation does not include retroactive application, employers with pending PAGA actions will not be affected. The law only applies to new cases based on PAGA notice letters submitted to the LWDA on or after June 19, 2024.

For more information or to discuss further, please contact the SSCSB attorney with whom you regularly work.