Introduction
The Private Attorneys General Act of California has undergone a thorough overhaul and is now a regulation. A deal that Governor Newsom supported resulted in the PAGA reform (SB 92 and AB 2288), which was exchanged for the removal of the PAGA repeal vote from the November ballot.
Because businesses frequently fall prey to the plaintiffs’ bar’s attempt to impose unjust civil fines for basic wage-and-hour infractions, California employers consider PAGA to be an essential problem. The goal of the PAGA reform is to reconcile the state’s desire to guarantee equitable treatment of employees with the frustrations of PAGA (and the way it has evolved in the courts).
For cases brought after 19th June 2024, the PAGA reform is effective immediately.
PAGA Reform 1: Legislation Correcting Unfavorable Court Decisions
A. Plaintiffs under PAGA may only represent irate workers for violations they experienced
A worker (or ex-employee) might sue a company for infractions they did not experience, which was one of PAGA’s most nefarious features. Consider the scenario where an employee was not given a single rest period over the PAGA term. Even if they were not directly harmed, the employee might nevertheless file a lawsuit against their company for any PAGA violations that all staff members experienced, such as those involving lunch breaks, overtime, or wage statements.
When you combine that with the fact that class-action lawsuits such as PAGA sometimes involve plaintiffs demanding seven-figure sums for “civil penalties,” you have a prescription for disaster. Before the PAGA reform, it was the situation. Courts ruled in Huff vs Securitas Sec as well as Kim vs Reins International that a worker could file a PAGA action for all breaches in the name of all harmed employees, regardless of whether they were the ones who experienced those violations; they only needed to experience one violation of any kind to cover every worker for all infractions.
That was altered by the PAGA reform. It is now necessary for a PAGA complainant to have “individually suffered” the alleged breach in order to bring a lawsuit for it. This means that if a worker (or former worker) has never experienced a meal period infraction, they cannot file a lawsuit under PAGA for it. This puts a stop to one of PAGA’s most brutal features.
B. The Limitation Period of One Year Is Defined
A one-year statute of limitations, which is one year and sixty-five days prior to the PAGA claim being submitted, is currently in place for PAGA claims. State-level trials struggled to define the statute of limitations for PAGA claims under the previous law and after the Court of Appeals’ ruling in Johnson vs Maxim Healthcare Services, Inc. Several courts concluded that even after the PAGA claimant left the company, the resentful workers were still subject to PAGA violations.
As a result of that decision, plaintiffs contended that the statute of limitations never expired due to “continuous violations” involving current employees. Because any worker who experienced a Labor Code violation may assert that other employees were still experiencing violations (including ones they did not experience), this effectively made the PAGA limitations timeframe meaningless.
Theoretically, if Huff and Johnson were in the incorrect court, a worker who was let go five years ago may file a PAGA case for infractions they never experienced. [Yes, some litigants did attempt to pursue it that far.] That argument is now closed. Plaintiffs under PAGA must have experienced violations during the statute of limitations’ one-year timeframe.
C. An Improvement in the “Manageability” Argument
The dispute between the opposing rulings in Estrada vs Carpet Royalty Mills and Wesson vs Staples Superstore on whether a judge may reject a PAGA case before hearing on manageability reasons captivated the attention of employment journalists worldwide prior to the PAGA reform. The case of Estrada reached the Supreme Court of California. In that case, the state Supreme Court ruled in favor of the employees, holding that a trial judge could only restrict the evidence given at trial to make the trial manageable rather than dismissing a PAGA case before trial due to unmanageable evidence.
Contrary to popular assumption, the PAGA legislation did not codify the Estrada verdict. The PAGA reform provision was really based on an earlier case, Woodworth vs Loma Linda University Medical Center, which failed to provide guidance that a trial court might restrict evidence just at trial, predicated on manageability. We don’t think PAGA cancellations on manageability reasons before trial are going to be a long-term answer, even while this gives courts the option to reject PAGA claims prior to trial once more, in light of the California Supreme Court’s decision in Estrada.
Regardless, the PAGA reform stipulates that employers can successfully argue that claimants must be able to offer evidence in a manageable manner both before and during a PAGA trial. This should provide the courts with the additional confidence they require to limit the amount of evidence that is presented.
PAGA Reform 2: Employers Can Completely Avoid PAGA Penalties
A. PAGA Penalties Are Removed in a Good-Faith Conflict
The PAGA reform, which gives legislative significance to the latest Naranjo vs Spectrum Security Services case, firmly establishes that (1) inability to pay all wages owed and payable upon departure [or in the first three days of departure for unforeseen resignations] (referred to as “waiting time fines”), (2) failing to pay wages in time, and (3) salary statement infractions that were not deliberate or malicious [but not in which a wage statement wasn’t given at all] are all eliminated in a good-faith dispute. Employers have a strong case that a court would either not impose PAGA fines for such allegations or would drastically lower them.
B. Not “Stacking” Some Violations
For violations resulting from an identical payroll/policy error for failing to timely pay salaries upon departure, failure to promptly pay wages while working, and derivative pay statement violations, the PAGA reform allows judges to lower “stacked” fines.
PAGA Reform 3: Decreases in the monetary penalties
A. Limited “Subsequent” Penalties
In cases where the PAGA did not specify a punishment, the default was one hundred dollars for the first infraction and two hundred dollars for the second. According to the plaintiffs, “subsequent” indicated any infraction that came after the initial infraction. A subsequent breach could only take place after a first violation was determined to have happened by the judge or the Labor Commissioner, the defendants said, frequently referencing Gunther vs Alaska Airlines.
According to PAGA reform, unless (1) a tribunal or the Labor Commissioner determines that the employer’s policy or procedure violated the regulations within the five most recent years, or (2) the court finds that the employer operated “maliciously, deceptively, or unlawfully,” the standard one-hundred-dollar penalty is applicable to all violations. The definition of “maliciously, deceptively, or unlawfully” is not provided under the new statute. However, the default penalty for consecutive infractions will rise to two hundred dollars if either of the aforementioned circumstances holds true.
B. Penalties Capped for Wage Statements (Three Ways)
In the past, wage statements could hit firms with one hundred or two hundred dollars in infractions (per worker, per pay period). More sensible caps are imposed under the PAGA reform. Employers who would otherwise require Sherlock Holmes to uncover little, technical wage-statement infractions should feel less stressed as a result of this.
- Wage Statement Limit 1 ($25): The penalty is limited to $25 if the worker could quickly and easily ascertain the correct data from the pay statement alone.
- Wage Statement Limit 2 ($25): The penalty is limited to $25 if the worker was not misinformed or confused about who the employer was, and the failure to appropriately disclose the company’s name and address is the only infraction.
- Wage Statement Limit 3 ($50): The maximum penalty for a wage statement that was the consequence of a single, non-recurring incident that lasted for 30 days in a row (for bi-weekly workers) or four successive pay periods (for weekly employers) is $50.
Employers who fail to submit wage statements are not subject to a cap, and they will be subject to the $100 or $200 default fines.
Employers can use specific defenses to support their claim to capped penalties, even when these fines are nonetheless excessive. According to Magadia vs Walmart, for instance, there might not be a breach if an employee is able to calculate their pay using “basic math.”
C. Employers Can Make Weekly Payments Without Experiencing Double PAGA Penalties
Due to the fact that they paid workers twice as frequently, weekly employers in the past had twice as many “payment periods.” Many firms moved to bi-weekly periods of pay to prevent the possibility of double PAGA penalties, much to the chagrin of their workers. Due to the PAGA legislation, which lowers fines for employees who pay weekly by 50%, employers are able to pay weekly without worrying about double penalties.
PAGA Reform 4: PAGA Penalties Are Now Capped If Employers Make “All Reasonable Efforts” to Adhere to the Law
By demonstrating that they took “all reasonable efforts” to keep up with the law, an employee can limit PAGA fines in two different situations.
A. First scenario (fifteen percent): Prior to being notified of PAGA or having a request for employee records
PAGA fines are set at 15% if a company can demonstrate that it made “all reasonable efforts” to adhere to the law prior to either (1) getting a PAGA notification or (2) getting a request for employee records (in accordance with Section 432, 226, or 1198.5).
B. Situation 2 (30%): Following receipt of a PAGA notification [Deadline of 60 Days]
PAGA fines are set at 30% if a company can demonstrate that, within 60 days of receiving a PAGA notification, it made “all reasonable efforts” to comply with the legislation.
C. “All Reasonable Steps” Definition
The phrase “all reasonable steps” encompasses, but is not restricted to:
- Carrying out routine payroll audits and responding to the audit’s findings;
- Distributing written policies that are legal;
- Educating managers on wage order adherence and the relevant Labor Code; or
- Taking the proper remedial steps in relation to supervisors.
In determining whether the employer’s actions were reasonable, the entire situation is examined, taking into account the employer’s scale and resources as well as the type, extent, and length of the claimed infractions. It may be feasible to have proof of a breach even after taking “all reasonable measures.”
Penalties for employers who “cure” claimed infractions but fail to take “all reasonable steps” to adhere to the law will be limited to $15 per period of pay.
D. Caps on “All Reasonable Steps” Restrictions
The “all reasonable steps” limit is not applicable in cases where a court determines that the employer operated “maliciously, deceptively, or unlawfully,” or if the Labor Commissioner or a court has determined that the company’s policy or practice is illegal within the past five years.
Given the particular circumstances and facts of the case, a court may go beyond the 30% limit for employers who take “all reasonable steps” after getting an LWDA notice if doing so would end in a settlement that is unreasonable, arbitrary, and restrictive, or prohibitive.
PAGA Reform 5: Companies That “Cure” Infractions and Make Workers “Whole” May Avoid Legal Action for Specific Allegations
In order to legally “cure” the applicable infractions (listed below) to avoid PAGA penalties, businesses must make workers “whole” in addition to “curing” the underlying activity that led to the supposed infractions detailed in the PAGA notification. The PAGA reform broadens the list of infractions that a company can “correct,” but the condition for making an employee “whole” is very strict.
Step 1: “Cure” Alleged Infractions
Additional Labor Code infractions that companies may now cure include:
- Inability to Pay Premiums and Provide Meal Periods & Rest Periods [Labor Code 226.7 & 512];
- Violations of the Minimum Wage [Labor Code Sections 227.3, 1194, and 1197]
- Violations of overtime [Labor Code Section 510];
- Reimbursements for expenses [Labor Code Section 2802]; and
- Expanded Wage Statement Infractions [Labor Code Section 226].
In the past, there was just two wage-statement criteria that might be waived: it was necessary to include the address and name of the legal body that is the hiring organization [(Labor Code Section 226(a) (8)] and the complete dates of the time frame for which the worker receives compensation [(Labor Code Section 226(a)(6)].
By giving each irate employee a written notification of the proper data that indicates the correct company information for every paycheck in which an infraction occurred, the PAGA reform makes it clear that neglecting to list the hiring entity’s details can be remedied without issuing every new wage statement. It is adequate to include a brief synopsis of the entity details and pertinent dates.
For all other infractions, employers are required to provide workers with updated wage statements for every paycheck they received within the previous three years when a violation had occurred.
The PAGA reform resolves the dispute that employers must “supply” (print out all wage statements, for example) rather than allow workers to access them online. In other words, companies can now “give” updated salary statements by allowing workers to examine them online.
Step 2: Make the employee “whole”
An employer must do the following to make a worker “whole”:
- Give workers enough money to offset any unpaid wages they may have incurred during the previous three years;
- Make a 7% interest payment.
- As mandated by law, pay all liquidated damages; and
- If a lawyer is involved, pay appropriate legal fees and expenses, which are decided by the law enforcement department or a court.
If the amount of wages owed is disputed, the employer may pay amounts that are adequate to repay any unpaid salary that the court or the LWDA determines could be rightfully owed to the harmed workers in light of the claimed violations in the notice.
PAGA Reform 6: Small employers (less than one hundred workers) have thirty-three days to cure from the PAGA notice date (starting on 1st October 2024)
Employers with fewer than 100 workers can submit a private proposal to the LWDA outlining their strategy to address the infractions mentioned in the PAGA notification, starting on 1st October 2024, and within thirty-three days of receiving the notice.
The LWDA may schedule a meeting with both parties to assess the adequacy of the proposed remedy within fourteen days of receiving the proposal; this conference may be done virtually and must take place within the following 30 days. The LWDA may decide during the conference if the suggested remedy is adequate, identify any more data required to assess the cure’s adequacy, and establish a due date for the company to finish the cure.
65 calendar days after the PAGA notification, the PAGA plaintiff may file a lawsuit if the LWDA finds that the cure isn’t facially adequate or does not take action on the employer’s proposed cure (although the LWDA may extend the 65-day limitation period for a maximum of 120 days). [Note: Following the PAGA plaintiff’s filing in court, the employer may proceed with asking for an “early assessment meeting,” as detailed below, even when the LWDA fails to reply.]
When an employer promptly cures according to the LWDA’s deadline, but no later than 45 days following the meeting, the employer is required to give the worker and the LWDA a legally binding notice that the cure has been completed.
Additionally, if the alleged breaches involved a financial obligation, the employer must offer a payroll inspection and audit register, along with any additional information required to confirm the cure. The cure will then be confirmed by the LWDA after 20 days. If the LWDA takes more than sixty-five days from the time of the PAGA notification to review the cure, the statute of limitations will be tolled.
The LWDA will inform the company/PAGA complainant if it finds that the alleged infractions have been resolved. The LWDA will schedule a hearing within thirty days if the worker contests the decision, and within twenty days after the hearing, it will provide a final determination along with its justification. The employee cannot file a lawsuit if the LWDA determines that the issues were appropriately resolved.
To contest the LWDA’s ruling, the PAGA plaintiff may still file an appeal with the higher court. However, if the higher court determines that the agency misused its discretion in determining that the employer’s cure was sufficient, all sums paid by the company to the harmed employees, excluding fines during curing, will be deducted from any judgment subsequently made over that breach.
According to the PAGA reform, the cure offer is a secret settlement proposal as defined by Evidence Code Section 1152. Practically speaking, however, there is serious worry that the data contained in the correspondence may provide plaintiffs with a blueprint for pursuing a class action against a company.
No matter where the workplace is located, employers are not allowed to correct any infractions that are mentioned in a PAGA notification on more than one occasion in a period of twelve months.
The statute of limitations is tolled via the LWDA/cure process for small employers.
PAGA Reform 7: Big Companies (Over 100 Workers) Can Ask for an “Early Evaluation Conference” and a Court Case Stay
Employers who’re being sued pursuant to PAGA and have 100 or more workers may, as of right now, apply for an “early evaluation meeting” and a stay of proceedings in court before or at the same time as the employer’s responsive plea or other preliminary involvement in the case (such as an announcement of appearance).
The new law doesn’t clarify what an “early evaluation meeting” is. Determining what violations took place and whether they have been remedied, assessing the positive and negative aspects of the claims and defenses, deciding if the claims or any portion of them may be settled, and identifying any details that both sides could share to aid in the process are just a few of the objectives of the initial evaluation conference.
In addition to stating whether the accused party plans to remedy all or any of the alleged infractions, an application for an “early evaluation meeting” must also explain the claims that the defendant denies and, if applicable, specify which alleged violations it plans to remedy.
When a company asks for an “early evaluation meeting,” the court matter must be stayed (unless the court finds good cause differently). The PAGA reform calls for a court to direct, among other things, that (1) An obligatory conference be set up within seventy days of the ruling and that both sides appear; (2) the company present in confidence to the neutral evaluator—a justice, commissioner, or other individual the court designates—and serve the complainant with the company’s proposed plan to remedy those infractions and provide the foundation and supporting documentation for contesting any uncured infractions within twenty-one days of the ruling’s issuance; (3) directs the plaintiff to provide the neutral assessor and the employer with a private statement that contains, to the best of the plaintiff’s knowledge, all of the information that follows within twenty-one days (after the delivery of the company’s proposed cure strategy): (i) the facts underlying each of the claimed infractions; (ii) the sanctions sought for each infraction, if any, and the methodology used to calculate them; (iii) the total amount of law firm expenses and fees incurred thus far, if any; (iv) any request for a compromise of the whole matter; and (v) the rationale behind accepting or rejecting the employer’s suggested plan to remedy any or all of the alleged infractions.
The company must show proof that the cure was successfully completed within a period of ten days (or within a longer time frame decided upon by both parties or the neutral assessor) if the neutral assessor approves the employer’s cure program. If the employer doesn’t, the court has the authority to end the “early evaluation conference” and put a hold on proceedings.
The parties must provide a joint declaration to the court stating that the employer has rectified the claimed violations it promised to rectify, if both sides and the neutral evaluator concur. The proposal should be accepted by the court as a recommended settlement if there are no uncured offenses left. The court may choose to postpone considering the parties’ joint declaration until after “additional legal processes” if there are still claimed violations that are not resolved.
The employer may make a motion to ask the court to authorize the cure and provide proof that the purported breaches have been corrected if the plaintiff or the impartial evaluator disagrees that the employer has fixed the alleged breaches that it declared an intention to cure. In answer to the motion, the court may ask the parties to provide more briefing and evidence.
Unless both parties agree to an extension, the early evaluation procedure shouldn’t be longer than 30 days.
All discussions during the early evaluation meeting and the evidence presented for its purposes will be considered confidential and inaccessible in court.
PAGA Reform 8: Cure Provisions Specific to Wage Statements
Employers should use an alternative process starting on 1st October 2024, if the sole alleged violation they are addressing is one involving wage statements. In addition to (a) correcting the wage-statement infractions, employers are required to (b) notify the PAGA claimant or their attorney in writing via certified mail and submit the written document detailing the corrective measures to the LWDA online within thirty-three days of the PAGA notification’s postmark date. The PAGA complainant may file a lawsuit when the wage-statement irregularities are not resolved within thirty-three days.
The resentful worker (or their attorney) must give written notification of the exact grounds supporting their challenge to the employer via certified mail and online submission with the LWDA if they contest that the employer fixed the wage-statement breaches.
The LWDA must evaluate the company’s corrective action and send a written notification to the company and the offended worker via certified mail with its determination about the appropriateness of the cure within seventeen days of receiving that notice. The company may be given a further three business days by the LWDA to correct the claimed infraction.
The PAGA claimant may take the matter to the next level of court if the LWDA finds that the claimed breach has not been remedied or that the agency was not notified in a timely manner.
Employees have the right to appeal to a higher court if the LWDA finds that the wage-statement breach has been fixed, but they still disagree.
Miscellaneous
The LWDA’s part of the PAGA money drops from seventy-five percent to sixty-five percent, while the angry employees’ share rises from twenty-five percent to thirty-five percent.
Currently operating nonprofit legal assistance organizations are exempt from the new standing criteria.
There is injunctive relief available.
Important Lessons
Every coin has two sides to it. This also applies to the PAGA overhaul. On one side, the PAGA reform aims to reward companies that immediately alter wage-and-hour policies and address many of the PAGA’s most outdated features. On the other side, long-term success may be hampered by the reform’s actual implementation and unforeseen consequences.
1. The Positives
The reform and ballot proposition welcomed attention to some PAGA shortcomings that needed to be addressed. The first step is admitting that there’s a problem. The claimants’ bar will need to reconsider how (and presumably why) they seek PAGA claims, at the very least.
The resolution of some of PAGA’s most concerning features (such as necessitating an employee to have experienced certain infractions in order to file a claim and solidifying the statute of limitations timeframe) likely outweighed the cost of taking PAGA repeal off the ballot.
Employers will be encouraged by activating the new PAGA penalty caps if they promptly take “all reasonable efforts” to comply.
An employer will benefit greatly from prompt adjustment and strict adherence to the new cure method if they receive a PAGA notification.
In order to restrict the extent of the PAGA claim, companies should ask the court to split up the discovery process so that the initial discovery is limited to any breaches the PAGA plaintiff may have experienced.
Ensuring wage-and-hour procedures are in compliance is more essential than ever. By doing this, possible penalties will be reduced, and the range of people who can file claims will be reduced. Conducting a preventive wage-and-hour assessment is fundamental to this preventive approach.
2. Potential Negatives
This reform’s most regrettable feature is that it eliminated the opportunity to completely repeal a flawed statute.
According to the rumors, the plaintiffs’ bar sees this as a diminished source of income that they plan to compensate for in other ways. If this is the case, PAGA reform might just lead to more collective litigation (with additional demands for settlement), more PAGA lawsuits, and additional funds needed to settle them. After the first wave of dust settles, watch for an increase in PAGA instances.
The regulations are poorly written and unclear. This affords the plaintiffs’ bar an apparently limitless number of reasons to contest the cure procedures that well-intentioned employers have put in place. After spending a significant amount of time and resources on retrospective compliance procedures that are later shown to be inadequate, it may also imply that a company will have to litigate.
Although it sounds good in theory, the cure elements call for widespread repairs in a timeframe that may not be realistic. To make matters worse, the early settlement process’s “private” character is a front. Evidence of remedial measures serves as a roadmap of infractions and potentially legitimate issues that complainants can use toward an employer, even though they are technically agreement interactions in the phase of cure (although they will need to request the details they already have in discovery time).
In essence, employers could provide the plaintiff with the facts required for certification of a class action against them while also curing a PAGA claim. It’s not a good compromise.
The already overburdened LWDA and legal system most likely lack the resources needed for the cure and early resolution measures. Although much remains to be decided, it first appears that many cases will end up in court regardless of how hard an employer tries.
Therefore, even though there are some things for which we should be thankful, California’s PAGA litigation will not be moving anywhere anytime soon.
