The New PAGA: Proactively Navigating Next Steps to Reduce the Risk of Wage and Hour Lawsuits

On June 27, 2024, California Governor Gavin Newsom signed Assembly Bill 2288, thereby reforming PAGA and amending Labor Code Section 2699. Passed in 2004, PAGA authorizes aggrieved employees to file lawsuits to recover civil penalties on behalf of themselves, other employees, and the State of California for various Labor Code violations. Since its passing, it has become a powerful tool for plaintiffs seeking to add to class action lawsuits or equally common on its own as the sole cause of action.

PAGA was slated to appear on the November ballot, which would risk getting rid of the law for good. In response, lawmakers worked with employers to reach an agreement regarding reform to the law. After all, the pre-reform PAGA called for 75% of civil penalties recovered to be allocated to the Labor and Workforce Development Agency (LWDA). Ultimately, a compromise was reached and PAGA 2.0 came to be.

The amended PAGA will only affect cases where the PAGA notice was issued on or after June 19, 2024.

So, what does PAGA look like moving forward? Here are some of the key provisions of the reformed PAGA that employers should keep in mind:

• Taking “All Reasonable Steps” to Comply: If an employer took all reasonable steps to comply with the provisions in a PAGA notice within 60 days of receiving the notice, the employer may only be liable for up to 30% of the maximum penalty. The term “all reasonable steps” includes, but is not limited to, the following:
  • Conducting an audit of alleged violations and acting in response to the results of the audit
  • Distributing compliant written policies regarding the alleged violations
  • Conducting trainings for supervisors and other managerial level employees on applicable Labor Code and wage order compliance
  • Taking corrective action against supervisors

When assessing the reasonableness of an employer’s conduct in remedying violations, factors to consider include the nature, severity, and duration of the alleged violations. The fact that a violation exists is not enough to show that an employer failed to take all reasonable steps.

• Reduced Penalties for Curing: The new statute sets forth cure provisions for Labor Code violations, most notably with respect to wage statement violations. According to the statute, to “cure” means that an employer “corrects the violation by the aggrieved employee, is in compliance with the underlying statute specified in the notice…and each aggrieved employee is made whole.” An employee is “whole” when the employee has recovered all owed unpaid wages dating back three years from the PAGA notice, plus seven percent interest, any liquidated damages allowed by statute, and reasonable lodestar attorneys' fees and costs.

If an employer fails to accurately state the name and address of the employer on the wage statement, it can cure by showing that it provided notice of the correct information to each aggrieved employee in writing. For other 226(a) violations, the employer may cure by issuing fully compliant wage statements to each aggrieved employee for each pay period in which the violation occurred going back three years from the time the employer was put on notice.

• Penalties for Unintentional Derivative Violations: In an attempt to prohibit employees from being doubly compensated, the new reform states that employees may not recover civil penalties for violations of Labor Code sections 201, 202, 203, and 204 that are neither willful nor intentional. Similarly, no penalties can be recovered for violations of Labor Code section 226 that were not knowing or intentional or for failure to provide wage statements.
• Standing: PAGA plaintiffs must have suffered the same harm as the other allegedly aggrieved employees. Specifically, they can only bring suit on behalf of employees “against whom a violation of the same code provision was committed.” For example, a plaintiff who only experienced rest break violations can now only seek penalties on behalf of other employees who also suffered rest break violations. Under the old version of PAGA, the same plaintiff could have brought claims on behalf of other employees for Labor Code violations they themselves did not suffer, as long as the plaintiff suffered at least one of the same violations.
• One-Year Statute of Limitations: Under the reformed version of PAGA, a plaintiff must have experienced the alleged Labor Code violations within the one-year PAGA statute of limitations.
• “Subsequent Violations”: The term “subsequent violation” is seen multiple times throughout PAGA when referring to penalty amounts. Prior to this reform, there was much debate about the exact meaning of the term. While employees argued that a “subsequent violation” was anything after the initial violation, employers interpreted the term to mean only those violations that persisted after a court or agency made the employer aware of the violation. The amended PAGA clarifies this point of contention, codifying the latter interpretation.
• Allocation of Civil Penalties: Aggrieved employees will now be entitled to 35% of PAGA penalties with the LWDA taking the remaining 65%. This is in contrast to the 25% that aggrieved employees would receive under the old version of PAGA.
• Modified Weekly Pay Penalties: Given that civil penalties under PAGA are calculated based on pay periods, employers with weekly payroll have always received the short end of the stick compared to those that issue paychecks biweekly or semimonthly. The reformed PAGA calls for reduction of penalties by one half if employers use a weekly payroll calendar.
• Reduced Wage Statement Penalties: If wage statement violations did not cause confusion or economic harm to employees, the penalties may be reduced. Specifically, violations of Labor Code section 226 where the employee can still easily decipher the contents of their wage statements carry a reduced penalty of $25 for each aggrieved employee per pay period. Other isolated errors occurring for 30 days, or four consecutive pay periods carry a penalty of $50 per employee per pay period. This reduction prevents employees from collecting high penalties for innocuous errors.
• Trial Court Management: Courts may now limit evidence at trial as well as the scope of claims tried in the name of manageability. Courts are also authorized to consolidate or coordinate civil actions filed under PAGA alleging legally or factually overlapping violations.
• New Penalty: For any violation for which the Labor Code does not explicitly set out a penalty, the default penalty is $100. However, a new $200 civil penalty will be assessed if (a) it was determined and the employer knew that the employer’s policy giving rise to the violation was unlawful or (b) the employer’s conduct was malicious, fraudulent, or oppressive.

What’s Next?

The amendments to PAGA reflect the state’s interest in protecting employees while also considering the stress that the statute has caused for employers. In the spirit of effectuating real reform, this new version of the popular statute rewards employers for attempted and actual compliance once on notice of potential violations. Nonetheless, employers should proactively revisit their wage and hour policies to ensure compliance with everchanging California laws.