Paving the Way for California PAGA Reform: AB 2288 and SB 92

At a Glance

• PAGA plaintiffs will need to have personally experienced the alleged Labor Code violations they are seeking to pursue on a representative basis in order to have standing.
• Trial courts will have the power to limit both the scope of PAGA claims and the evidence presented at trial to ensure the claims can be effectively and manageably tried.
• There will be a new penalty structure under PAGA.
• The new law will allow PAGA plaintiffs to seek injunctive relief for the first time.
• The new law will allow more Labor Code violations to be cured than previously permitted and will provide for a more robust right-to-cure process for employers wanting early resolution of PAGA claims.
• The amendments to PAGA will apply to actions brought on or after June 19, 2024 (unless the plaintiff gave notice to the LWDA prior to that date). Further, the early resolution provisions will become operative on October 1, 2024 (except that the 33-day cure deadline available to employers prior to the amendments will remain in place until October 1, 2024.)

California Gov. Newsom is expected to sign new legislation — Assembly Bill (AB) 2288 and Senate Bill (SB) 92 — that substantially reforms the Labor Code Private Attorneys General Act of 2004 (PAGA) The legislation, which was negotiated among Gov. Newsom, legislators, and labor and business groups, provides employers with new and powerful tools for addressing and defending PAGA claims, moving forward. As a result of this new law, the initiative to repeal and replace PAGA, which was scheduled to appear on the November ballot in California, has been withdrawn. The key provisions of the reform legislation are summarized below.

Standing

With respect to standing, the legislation will impose two major limitations:

First, AB 2288 (which amends Section 2699 of the Labor Code) provides that plaintiffs will need to have personally experienced the alleged Labor Code violations they are seeking to pursue on a representative basis in order to have standing. This standing provision is a positive development for employers, as it abrogates the Sixth District Court of Appeal’s decision in Huff v. Securitas Security USA Services, Inc., which allowed a PAGA plaintiff to recover PAGA penalties for Labor Code violations affecting other employees, even if the plaintiff did not suffer those same violations themself, so long as the plaintiff suffered at least (and only) one Labor Code violation. There is an exception to this new standing requirement for PAGA actions brought by certain nonprofit legal aid organizations.

Second, AB 2288 expressly provides that a PAGA plaintiff must have personally experienced each alleged violation within one year of filing a PAGA notice with the Labor Workforce Development Agency (LWDA) in order to have standing. This change, in turn, is a response to the Fourth District Court of Appeal’s decision in Johnson v. Maxim Healthcare Services, Inc., which plaintiffs have used to argue that a PAGA action could be premised on a Labor Code violation even if the alleged violation suffered by the plaintiff occurred outside of the one-year statute of limitations period.

Manageability

In Estrada v. Royalty Carpet Mills, Inc., the California Supreme Court held that trial courts do not have inherent authority to strike (in practice: dismiss) PAGA claims on manageability grounds, but specified that courts can and should use other tools within their power to manage PAGA cases. AB 2288 explicitly endorses trial courts’ power to limit both the scope of PAGA claims and the evidence presented at trial to ensure the claims can be effectively and manageably tried.

Penalties

AB 2288 imposes a new penalty structure under PAGA. Specifically:

1. An employer who (1) cures an alleged violation and (2) takes “all reasonable steps to be prospectively in compliance” either before or within 60 days of receiving a notice of a claimed PAGA violation will not be liable for any penalty. Examples of such reasonable steps include, but are not limited to, conducting periodic payroll audits and taking action in response to the results of those audits, disseminating lawful written policies, training supervisors on applicable Labor Code and Wage Order compliance, and/or taking appropriate corrective action with regard to supervisors as needed. Whether or not the employer took reasonable steps will be a decision left to the discretion of the court, which can take into account factors such as the size and resources available to the employer, and the nature, severity and duration of the alleged violations.
2. Penalties will be capped at 15% of the applicable penalty amount if an employer demonstrates that it “has taken all reasonable steps to be in compliance” with the law prior to receiving a PAGA notice or a request for personnel records.
3. Penalties will be capped at 30% of the appliable penalty amount if, within 60 days after receiving a PAGA notice, an employer “has taken all reasonable steps to prospectively be in compliance with all provisions identified in the notice.”
4. Penalties will be reduced by 50% if an employee’s regular pay period is weekly rather than biweekly or semimonthly, equalizing the potential penalties for employers who pay employees on a weekly basis as opposed to every two weeks or twice a month.
5. Penalties will be capped at $15 per employee per pay period if an employer cures the alleged violations but does not take “all reasonable steps to prospectively be in compliance” with the law.
6. Penalties for wage statement violations under Labor Code Section 226 that do not cause injury will be capped at $25 per employee per pay period. Note: there is no cap on penalties for a failure to provide wage statements.
7. The penalty for isolated errors that do not extend beyond the lesser of 30 days or four consecutive pay periods will be capped at $50.
8. PAGA’s heightened penalty of $200 will be assessed only after (1) a court or agency “has issued a finding or determination to the employer that its policy or practice giving rise to the violation was unlawful” within the five years preceding the allegation violation, or (2) the court determines an employer acted maliciously, fraudulently or oppressively.
9. Employees may not receive penalties for “derivative” violations (in other words, PAGA penalties when an employee has already received penalties for the underlying violation) for (1) failure to timely pay wages at termination (i.e., Labor Code §§ 201-203); (2) failure to timely pay wages during an employment (i.e., Labor Code § 204) if the violation was neither willful nor intentional; or (3) wage statement violations (i.e., Labor Code § 226) that are neither knowing or intentional, or a failure to provide a wage statement.
10. The share of penalties allocated to the LWDA will decrease from 75% to 65%.
11. Aggrieved employees’ share of penalties will increase from 25% to 35%.

Injunctive Relief

The new law will allow PAGA plaintiffs to seek injunctive relief for the first time.

Cure Provisions

The new law allows more Labor Code violations to be cured than previously permitted and provides for a more robust right-to-cure process for employers wanting early resolution of PAGA claims. Specifically:

1. Employers will be able to cure violations of Labor Code Section 226 (wage statement violations — the ability to cure violations previously existed as to some, but not all, wage statement violations), Section 226.7 (failure to pay meal/rest period premiums), Section 510 (overtime violations) and Section 2802 (expense reimbursement violations) by correcting the violations alleged, complying with the underlying statutes specified in the notice, and making each aggrieved employee whole through payment of all wages due under the specified statutes going back three years from the date of the notice, plus 7% interest, any liquidated damages as required by statute, and reasonable attorneys’ fees and costs. To cure a wage statement violation, an employer must provide accurate wage statements to each aggrieved employee for each pay period during which a violation occurred during the three years prior to the date of the notice (except that, if the only deficiency on the wage statement was an incorrect name or address of the employer, the employer need only provide written notice of the correct information to the employee).
2. Small employers (those with under 100 employees during the PAGA period) may, within 33 days of receipt of an employee’s PAGA notice, submit to the LWDA a confidential proposal to cure one or more of the alleged violations. The LWDA may set a conference with the parties to determine, among other things, (1) whether the proposed cure is sufficient, (2) what additional information may be necessary to evaluate the sufficiency of the cure, and (3) the deadline for the employer to complete the cure. If the LWDA determines that the employer’s proposal is not sufficient or does not act upon the employer’s cure proposal, the employee may proceed with filing a PAGA action in court.
3. Large employers (those with more than 100 employees during the PAGA period) may, after a PAGA claim is filed in court, file a request for an “early evaluation conference” and a request for a stay with the court, requiring the court to stay all discovery and responsive pleading deadlines. Once the conference is set, the employer must submit a confidential statement to a “neutral evaluator” that details (1) the alleged violations the employer disputes, (2) the basis and evidence for disputing those violations, (3) the alleged violations the employer intends to cure, and (4) the proposed plan for curing those violations. The plaintiff must then submit a confidential statement in response that includes (1) the factual basis for each of the alleged violations, (2) the amount of penalties claimed for each violation and the basis for that calculation, (3) the total amount of attorneys’ fees incurred to date, (4) any demand for settlement of the case in its entirety, and (5) the basis for accepting or rejecting the employer’s proposed plan for curing any or all alleged violations. If the conference is successful (i.e., the neutral evaluator and parties agree to a proposal and the employer submits evidence demonstrating that the violations have been cured), then the parties’ submission is treated as a proposed settlement pursuant to the terms and procedures set forth in PAGA. Notably, if the neutral evaluator or plaintiff does not agree that the employer has cured the alleged violations, the employer may file a motion for the court to approve the cure, and may submit evidence showing correction of the alleged violations.

Effective Dates

AB 2288 and SB 92 provide that the amendments to PAGA will apply to actions brought on or after June 19, 2024 (unless the plaintiff gave notice to the LWDA prior to that date). Further, the early resolution provisions will become operative on October 1, 2024 (except that the cure provisions under the law prior to the amendments remain in effect until October 1, 2024.) For additional information regarding cure provisions, see SB 92, which amends, repeals and adds Section 2699.3 of the Labor Code.