Now that California’s Private Attorney General Act (PAGA) reforms are in full effect, businesses – big and small – should be aware of key changes in labor law enforcement and the monetary penalties that accompany them.
Signed into law on July 1, 2024, the new legislation aims to alleviate the substantial financial burden PAGA has imposed on California businesses while enhancing protections for workers against malicious violators.
However, the reforms only apply to PAGA claims made on or after June 19, 2024. Claims based on PAGA notices submitted to the Labor and Workforce Development Agency (LWDA) before June 19, 2024 will continue to be governed by the previous framework.
As discussed below, the reforms include: (1) restricting an employee’s standing to bring a PAGA claim, (2) providing employers with chances to limit or avoid penalties both prior to and after receiving notice of alleged violations, and (3) setting caps on PAGA penalties in specific circumstances. These amendments are codified in California Labor Code section 2698 et seq.
Stricter Standing Requirements. An employee must now have personally suffered every wage-and-hour violation they allege in their PAGA claim, whereas before an employee had standing to bring all violations even if they personally suffered just one violation. Employees must also bring their PAGA claims within the one-year limitation period applicable to PAGA claims. These requirements significantly narrow the scope of potential lawsuits and may reduce the number of claims filed.
Opportunities to Cure Violations. Employers can cure PAGA violations by paying any unpaid wages from the past three years, along with liquidated damages, interest, and reasonable attorney’s fees. The reforms also cap penalties for employers who take “all reasonable steps” to comply: 15% of the maximum penalties if done before receiving a PAGA notice, and 30% of the maximum penalties if completed within 60 days after. Reasonable steps include payroll audits, compliance training, and corrective actions, all of which are evaluated based on the totality of circumstances. Businesses must maintain correction of all violations to keep their eligibility for any reduction in penalties.
All businesses sued under PAGA can also participate in an early evaluation conference to assess the validity of claims, potential for settlement, and the reasonableness of compliance efforts. Submissions for this conference are confidential. Additionally, small and medium-sized businesses (under 100 employees) can submit a proposal to cure violations within 33 days of receiving a notice. If accepted by the LWDA, this proposal can prevent a PAGA action from being filed, with certain exceptions.
Note – As a practical matter, it may not always make economic sense for an employer to cure past violations. Negotiating a lower settlement amount may be the better option depending on the circumstance.
Penalties. The new law reduces the default to $100 per violation. However, a $200 penalty will be imposed if the employer violated the same statute within the last five years or if the employer is found to have acted maliciously, fraudulently, or oppressively in violating the statute. Courts are given the discretion to both lower and increase penalties beyond the maximum caps.
The reforms also introduce caps on penalties for certain violations. For instance, there is a $25 penalty per pay period for failure to provide accurate wage statements and a $50 penalty per pay period if the violation resulted from an isolated, nonrecurring event that did not extend beyond the lesser of 30 consecutive days or four consecutive pay periods. Importantly, the new law now reduces penalties by half if the pay period is on a weekly basis. The intention is to balance the amount of penalties regardless of whether employees are paid on a weekly or biweekly basis. There is no equivalent increase of penalties for employees paid on a monthly basis.
Finally, the reforms clarify that derivative or stacking of PAGA civil penalties cannot be imposed for violations of Labor Code provisions related to timely payment of current or final wages if those violations are “neither willful nor intentional,” nor for noncompliant wage statement violations that are “neither knowing nor intentional.”
Note – Penalty stacking of labor code violations may still be permitted if the lawsuit is filed as a class action.
TAKEAWAYS
Businesses should thoroughly review their labor practices to ensure compliance with California labor laws. To reduce the risk of PAGA lawsuits, employers are encouraged to conduct periodic payroll audits, address any issues identified during audits, implement lawful written policies, train supervisors on Labor Code and wage order compliance, and take corrective action when supervisors fail to follow labor laws.
Courts will evaluate whether employers took “all reasonable steps” based on these practices, taking into account their resources and the nature, severity, and duration of any violations.
While these reforms aim to create a more balanced approach to labor law enforcement in California, their full impact remains to be seen. Businesses should remain vigilant in their compliance efforts and stay informed about the evolving legal landscape surrounding PAGA claims.
Nathanel Ghinghis is an associate attorney with the law firm of Dunn DeSantis Walt & Kendrick. Nathanel focuses his practice on civil litigation, with an emphasis on labor and employment, commercial and business disputes, and product regulatory compliance.
Dunn DeSantis Walt & Kendrick provides a broad spectrum of legal services to businesses of all sizes, from small, local start-ups and non-profits to large, national companies.
You can find additional information and resources related to helping business owners and their businesses on the DDWK website.
