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9 Potential Changes for California Employers if PAGA Reform Becomes Law

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A reform on PAGA, or the California Private Attorneys General Act, was recently proposed. 

If this legislation is passed, it would result in an overhaul that limits the types of employees who can bring claims, gives employers a better chance to cure mistakes, reduces possible penalties, and boosts procedural mechanisms that would reduce claims in court. This reformed proposal stems from extended discussions between the California government, business groups, and labor advocates, and it is acting in response to an existing PAGA-related proposition that could appear on the upcoming November 2024 ballot.

As the PAGA reform bill is sent to the California Legislature, here are nine proposed changes that employers need to be aware of.

1. Significant Reduction Of Possible Penalties

Currently, PAGA has a civil penalty of $100 per pay period for each aggrieved employee’s initial violation. For a while now, employers have expressed concern over the penalty’s amount and how it fails to consider good-faith attempts to remain in compliance with applicable California wage and hour law. However, the new proposed legislation gives relief, removing the term “initial” and alternatively applying a $100 per pay period penalty for all violations subject to various reductions. 

2. Clarification On Permittance of Heightened Penalties

The current PAGA has a penalty of $200 per pay period for each subsequent violation. The term, subsequent violation, is not currently defined; however, the Ninth Circuit Court of Appeals ruled in 2021 that subsequent violations occur only after an employer receives notice from a court or agency that a practice is unlawful. The new proposed legislation eliminates the “initial/subsequent” dichotomy and states that a $200 per pay period penalty shall be assessed when any agency or court has issued a finding or determination to the employer within a five-year time frame.

3. Reduction In Civil Penalties For Cured Violations

In the new proposed legislation, related civil penalties for employers that cure violations are reduced. Employers undertaking the required “reasonable steps” shall not be required to pay a civil penalty for an underlying violation. This policy provides relief and incentives for employers to possibly cure various violations.

4. Additional Limitations Of Potential Penalties For Weekly Payroll

An inequity of PAGA has always been that employers with weekly payroll calendars were penalized twice as much as those with bi-weekly payroll calendars, despite the actual frequency of violations being the same. However, the proposed legislation provides much needed relief to these employers by reducing the penalties by half if the regular pay period is weekly, as opposed to bi-weekly or semi-monthly.

5. Substantive Limitation On Standing

In 2018, at a California Court of Appeal case, a PAGA plaintiff brought claims on behalf of others for alleged Labor Code violations that they themselves never suffered. This plaintiff had to at least suffer one Labor Code violation. The new proposed legislation limits an individual’s ability to pursue relief for employees who haven’t suffered the same violation. 

6. Empowering Courts To Limit Scope Of PAGA Claims Before Trial

Early this year, the California Supreme Court decided that a trial court could not dismiss an entire PAGA lawsuit on manageability grounds. What does this mean? Manageability is a factor in class action certification, where courts assess whether the common issues in a case predominate over individual issues and whether a class action is a superior method of adjudication compared to individual lawsuits. The proposed legislation responds to this decision by codifying a trial court’s ability to limit evidence at trial and, more importantly, ensure that the claim can be effectively tried.

7. Preclusion Of Various Derivative Penalties

The proposed legislation has language prohibiting employees from trying to combine various PAGA penalties for violations of California Labor Codes in sections 201, 202, 203, 204, and 226.

8. Separate Cure Processes For Small and Large Employers

The proposed legislation creates new cure processes for small and large employers.

An employer with fewer than 100 employees may submit a confidential proposal to cure one or more of the alleged violations within 33 days of receiving a notice from the LWDA. Employers with 100 or more employees are entitled to seek an early evaluation conference in court once the PAGA lawsuit is filed. 

9. No Retroactivity & Increased Penalties for Employers

Any reduced penalties set in the reform measure will not be applicable to any pending litigation matters before June 19, 2024.

Additionally, the reform measure also increases certain penalties and precludes employers from gaining the benefits of amendments based on certain conduct.

What Are The Next Steps to Take?

It’s important for employers to continue monitoring the legislation and keeping track of whether these groundbreaking changes become law. Employers should also immediately take steps to prepare their organizations for these potential upcoming changes.