Since 2004, California’s Private Attorneys General Act (PAGA) has granted plaintiff attorneys representing employees the ability to “stand in the shoes of” the state’s Attorney General and file lawsuits against employers, on behalf of plaintiff employees and other aggrieved employees. PAGA lawsuits generate the recovery of civil penalties for employers’ violations of California’s Labor Code and had few defined rules, with most employers finding it nearly impossible to rid themselves of a PAGA claim without paying a sizable settlement.
Employers complained that PAGA resulted in excessive plaintiff attorneys’ fees but provided minimal benefit to aggrieved employees, and nearly no rights or benefits to employers. Historically, PAGA settlements provided an award of attorneys’ fees and costs to the plaintiff attorney and 75% of any remaining PAGA settlement was paid to the California Labor Workforce Development Agency (LWDA). Only 25% of the remainder would be paid to employees.
As of July 1, 2024, Governor Newsom signed new legislation reforming the PAGA. This PAGA reform now offers benefits to both employees and employers and applies retroactively to cover all PAGA notices submitted on or after June 19, 2024.
Some of the significant changes brought about by the PAGA reform law include the following:
Employees Must Now “Personally Suffer” from the PAGA Violations Alleged on Behalf of Themselves and Other Aggrieved Employees
One of the most significant changes the PAGA reform introduces is the limitation that employees can bring PAGA claims only for Labor Code violations they “personally suffered.”
This change significantly benefits employers. Before the reform, employees who suffered at least one Labor Code violation were permitted to file a PAGA claim on behalf of aggrieved employees for any Labor Code violation, even if they did not personally experience the same violation.
The PAGA reform legislation requires the plaintiff employee to have personally suffered all Labor Code violations alleged, and further provides that the employee must have experienced all of the alleged violations within one-year prior to filing a PAGA notice.
This new requirement and statute of limitations period greatly reduces the potential scope of PAGA claims that may be asserted against employers.
PAGA’s New Penalty Structure Reduces Employer Penalties
Prior to Governor Newsom’s enactment of PAGA reform laws, the PAGA penalty consisted of $100 per employee, per pay period, for an employer’s initial violation of the Labor Code, and $200 per employee, per pay period, for each subsequent violation.
Now, for PAGA notices filed as of June 19, 2024, the default penalty for Labor Code violations is capped at $100 per employee, per pay period. However, this cap can be further reduced when any of the following situations apply:
- If the Labor Code violation pertains to inaccurate wage statements, the penalty is reduced to $25 each pay period in which a violation occurred, so long as the aggrieved employee(s) can still easily determine from the wage statement alone accurate information required under Labor Code section 226(a), such as the employee’s gross wages, pay rate, and total hours worked in the pay period.
- If the Labor Code violation pertains to the failure to accurately list the employer’s name and address on wage statements, the penalty is reduced to $25 each pay period in which a violation occurred, if the employee can nonetheless identify the correct name of the employer.
- In cases where a violation resulted from an isolated, nonrecurring event that did not extend beyond the lesser of 30 consecutive days or four (4) consecutive pay periods, the civil penalty is capped at $50 per employee, per pay period.
The new PAGA reform also reduces penalties by 50% for employers who pay employees weekly. Before the PAGA reform, an employer who issued payroll weekly had twice as many pay periods which doubled their potential PAGA penalties.
On the flip side, while PAGA reform undoubtedly offers great benefits to employers by capping penalties, it also creates new, higher penalties for employers who act maliciously, fraudulently, or oppressively in violating California’s labor laws. In such cases, the PAGA penalty rises to $200 per aggrieved employee, per pay period.
Employers Can Further Reduce PAGA Penalties by Taking “All Reasonable Steps” to Comply with the Labor Code
The new PAGA reform includes a cap on penalties where an employer has taken “all reasonable steps” to comply with the Labor Code provisions. This cap varies depending upon whether the employer has already received a PAGA notice. Specifically:
- When an employer proactively takes all reasonable steps to comply with the Labor Code before receiving a PAGA notice or a request for personnel records, a 15% cap is placed on penalties.
- When an employer takes all reasonable steps to comply with the Labor Code within 60 days after having received a PAGA notice, the PAGA places a 30% cap on penalties.
Whether an employer has taken “all reasonable steps” to comply with the Labor Code will be determined by looking at the totality of the circumstances, but may include any of the following actions taken by employers:
- Conducting periodic payroll audits and taking remedial action when necessary;
- Disseminating lawful written policies;
- Training supervisors on applicable Labor Code and Wage Order compliance; or
- Taking appropriate corrective action with regard to supervisors.
Employers Who “Cure” PAGA Violations May Further Reduce or Even Eliminate PAGA Penalties
The new PAGA legislation provides employers with the opportunity to cure many more Labor Code violations than before, including:
- Failure to provide meal or rest breaks
- Overtime violations
- Minimum wage violations
- Failure to reimburse employees for necessary expenditures
- Wage statement violations
To properly cure any of the above violations, an employer must make each aggrieved employee “whole.” For all violations, except for wage statement violations, an employer can make employees whole and cure the violation by paying:
- Each employee an amount sufficient to recover any owed unpaid wages due to the employee under the statutes specified in the employees’ PAGA notice, dating back three years from the date of the PAGA notice;
- 7% interest;
- Any liquidated damages as required by statute; and
- Reasonable lodestar attorney’s fees and costs, to be determined by the LWDA or the court.
With regard to wage statement violations, an employer can cure the violation by:
- Providing written notice of the correct wage statement information to each aggrieved employee if the violation pertains to the employer’s failure to accurately list the employer’s name and address on wage statements; or
- For incorrectly itemized wage statements, by providing, at no cost to the aggrieved employees, a fully compliant, itemized wage statement or reasonable access to a digital record of the fully compliant wage statement for each pay period during which a violation occurred, dating back three years from the date of the PAGA notice.
When an employer cures a wage statement violation, the PAGA penalties for the wage statement violation are eliminated completely. For all other cured Labor Code violations, PAGA penalties are capped at $15 per aggrieved employee, per pay period. However, employers who cure Labor Code violations and take “all reasonable steps” to comply with the Labor Code provisions are not required to pay any PAGA penalties for those violations.
Employees Stand to Receive a Greater Portion of PAGA Penalties
Aggrieved employees will also receive an increased portion of both PAGA settlement and penalty funds. The reform legislation has increased the portion of funds that will be distributed to employees from 25% to 35% and reduced the amount of funds flowing to the LWDA from 75% to 65%. Thus, 10% of the funds that previously would have been remitted to the State, will instead be provided to employees covered by the PAGA settlement or judgment.
Takeaway
PAGA’s new reform legislation significantly benefits employers by limiting the scope of claims an employee can bring against the employer, limiting the statute of limitations, and providing substantial opportunities to remedy and reduce, or even eliminate, PAGA penalties.
This PAGA reform legislation is designed to offer the greatest benefits to employers that proactively identify and fix violations. To stay proactive and in compliance with ever changing California law, it is important for employers to regularly ensure that their policies and practices are up to date.
Kennedy McCarthy & Rumm, LLP is experienced in helping employers identify potential Labor Code violations through audits of employment practices and policies and offering guidance on how to take immediate corrective action following the identification of potential violations of the law. The best way to prevent a future PAGA claim is to take steps now to identify whether the employer’s practices are in compliance with California law.
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