CA Governor Gavin Newsom Signs PAGA Reform Bills Into Law, Avoiding Ballot Initiative: What Employers Need to Know Now

On July 1, 2024, Governor Gavin Newsom signed legislation to reform the state’s Private Attorneys General Act (PAGA) after the two bills, Assembly Bill 2288 and Senate Bill 92, unanimously passed the California Legislature days earlier. This legislation is the result of months of negotiations between labor and business groups and legislative leaders to reform PAGA in exchange for the withdrawal of a November ballot initiative that would have repealed the statute altogether.

PAGA authorizes employees to step into the shoes of the Labor Commissioner and sue on behalf of the state and other aggrieved employees to collect civil penalties for California Labor Code violations. When enacted in 2004, the law was intended to be a more effective means for employees to resolve labor disputes. However, over the past 20 years, PAGA has been widely criticized for encouraging frivolous and costly lawsuits that hurt small businesses and non-profits to the tune of billions of dollars while greatly enriching plaintiffs’ attorneys (who receive a far greater portion of PAGA settlements than employees). Earlier this year, a coalition of business groups led by the California Chamber of Commerce qualified a ballot initiative that would have repealed the state’s PAGA law entirely. This newly passed legislation strikes a deal that will allow labor groups to keep PAGA in place while curbing frivolous litigation and misuse of the statute.   

Key Changes from the Legislation  

Standing

• Requires employees bringing PAGA lawsuits to have “personally suffered” each of the alleged Labor Code violations within the one-year statute of limitations
  • This reform abrogates existing law under Huff v. Securitas Security Services USA, Inc., 23 Cal. App. 5th 745 (2018), which permitted PAGA plaintiffs to pursue penalties for Labor Code violations that never affected them so long as they personally experienced at least one other Labor Code violation. These changes to the standing requirement could limit the filing of overly broad “kitchen sink” PAGA complaints. 

Penalty Structure 

• Increases the amount of penalty money allocated to employees from 25% to 35% to ensure that a greater share of the penalties benefit employees
• Caps penalties on employers who take proactive steps to comply with the Labor Code before receiving a PAGA notice, as well as employers who take steps to fix policies and practices and make employees whole within 60 days after receiving a PAGA notice
• Reduces maximum penalties for wage statement violations that are short in duration and eliminates penalties for derivative claims
• Imposes new, higher penalties on employers who act maliciously, fraudulently or oppressively in violating labor laws
• Protects employers who pay workers weekly (as opposed to biweekly) from double penalties 

Right-to-Cure Provisions 

• Expands which Labor Code sections can be cured before a PAGA action is filed, increasing opportunities for employers to avoid lawsuits by making employees whole after receiving notice of alleged violations
• Creates a right-to-cure process through the Labor & Workforce Development Agency (LWDA) for small employers and provides for early resolution in court for larger employers

Manageability 

• Codifies a court’s discretion to limit the scope of claims and evidence presented at trial to ensure cases can be managed effectively at trial  
  • This portion of the legislation appears to codify the California Supreme Court’s holding in Estrada v. Royalty Carpet Mills, Inc., 15 Cal. 5th 582 (2024), that courts have discretion to limit a PAGA claim at trial (but may not strike a PAGA claim due to manageability concerns before trial).  
• Permits courts to consolidate PAGA lawsuits alleging overlapping claims against the same employer

Injunctive Relief

• Allows courts the ability to award injunctive relief to compel businesses to remedy labor law violations

What Employers Need To Know and Can Do Now

California employers can be cautiously optimistic that certain elements of the legislation—for example, the caps on penalties, the broader ability to cure alleged violations and the changes to PAGA standing—have the potential to rein in some of PAGA’s worst excesses. Other aspects of the bill are disappointing for employers, as they appear to simply codify the status quo.

Notably, these reforms do not apply to pending PAGA actions, but only prospectively to PAGA cases based on notice letters submitted to the LWDA on or after June 19, 2024. Employers facing pending PAGA litigation or who have received PAGA letters before June 19, 2024, will not benefit from these changes.  

To take advantage of the caps on penalties, employers should take proactive steps to evaluate their wage and hour compliance, including periodically auditing their payroll/wage statements and ensuring that their timekeeping, meal and rest period, and final pay policies and practices are lawful. In addition, employers would benefit from implementing training for supervisors on applicable Labor Code and wage and hour compliance. Employers should also be prepared to promptly respond to and remedy alleged Labor Code violations asserted in an employee’s PAGA notice within 60 days to take advantage of the expanded notice-and-cure provisions.  

If you have questions about PAGA, wage and hour compliance, or any related issues, we encourage you to contact a member of Glaser Weil’s Employment Practice to assist you.