On June 18, 2024, California Governor Gavin Newsom, along with Senate President pro Tempore Mike McGuire and Assembly Speaker Robert Rivas, announced a tentative deal to reform several aspects of California’s Private Attorneys General Act (PAGA). This reform aims to address the rising litigation and burdens on businesses while ensuring fair labor practices. With the proposed changes, employers could see significant relief from the complexities and financial strains of current PAGA litigation. Although the specific legislation is still pending, these announced changes are expected to have a substantial impact on how PAGA operates.
For additional information regarding PAGA and to find out how this could impact your business, please contact our Managing Partner, Richard Liu, at richard.liu@consultils.com.
Understanding PAGA
The Private Attorneys General Act (PAGA) of 2004 empowers employees to file lawsuits against employers for labor code violations on behalf of themselves and other affected workers. Acting as private attorneys general, employees can seek civil penalties, with a portion going to the state and the remainder distributed among the employees. While PAGA has been instrumental in enforcing labor laws, it has also led to concerns over increased litigation and the financial burden on businesses.
Key Elements of the PAGA Reform
1. Employee Share of Penalty
Increased Allocation: The reform increases the share of penalties that employees receive from 25% to 35%, ensuring a fairer distribution of collected penalties.
2. Standing
Direct Experience Requirement: Only employees who have personally experienced the alleged violations can file claims, ensuring that cases are based on genuine grievances.
Time Limitation: Alleged violations must have occurred within the last year, introducing a time limit that previously did not exist.
3. Penalty Structure
Capped Penalties for Compliance: Employers who proactively take steps to comply with the Labor Code before receiving a notice will face a maximum penalty of 15% of the applicable amount.
Capped Penalties Post-Notice: Employers who rectify policies and practices after receiving a PAGA notice will face a maximum penalty of 30% of the applicable amount.
Reduced Penalties for Minor Violations: Penalties will be reduced for brief violations or wage statement errors that do not cause confusion or economic harm, such as minor clerical errors like misspelling a company name or omitting "Inc." on pay statements.
Adjusted Penalties for Weekly Pay: Employers paying weekly will benefit from adjusted penalties, preventing disproportionate penalties due to the per-pay-period accrual.
New Penalty for Malicious Conduct: A new penalty of $200 per pay period will be imposed if an employer acted maliciously, fraudulently, or oppressively.
4. Employer Right to Cure
Expanded Right to Cure: More sections of the Labor Code can now be cured, allowing employees to be made whole more quickly.
Protection for Small Employers: Small employers will benefit from a more robust right-to-cure process managed by the Labor and Workforce Development Agency (LWDA), reducing litigation and associated costs.
Early Resolution for Larger Employers: The reform provides an opportunity for early resolution in court for larger employers.
5. Strengthening the Enforcement Agency
Expedited Hiring: The California Department of Industrial Relations (DIR) will be empowered to expedite hiring and fill vacancies, enhancing the agency’s capacity to enforce employee labor claims efficiently.
6. Judicial Discretion (Manageability)
Court Authority: The reform codifies that courts may limit both the scope of claims and the evidence presented at trial, ensuring that cases remain manageable and focused.
7. Injunctive Relief
Provision for Injunctive Relief: Courts can mandate businesses to implement necessary changes in the workplace to rectify labor law violations, offering immediate solutions.
What It Means for Employers
The proposed PAGA reform brings several significant benefits for employers:
Reduced Litigation Costs and Burdens: Capping penalties for proactive compliance and quick issue resolution reduces financial strain and litigation costs.
Incentivizing Proactive Compliance: Employers are rewarded for adhering to labor laws with reduced penalties, fostering a predictable and equitable legal environment.
Enhanced Protection for Small Businesses: A robust right-to-cure process allows small employers to rectify violations without immediate litigation, reducing risk and costs.
Clarity and Manageability in Litigation: Courts can limit the scope of claims and evidence, ensuring cases remain focused and manageable, preventing broad or baseless claims.
Fairer Penalty Distribution: Increasing the employee share of penalties from 25% to 35% ensures a more equitable distribution, reflecting the actual impact on employees.
These changes aim to reduce the burden on employers while maintaining protections for employees' rights, ensuring fairer PAGA enforcement. Once the bill is made public, employers will be better positioned to understand the potential impact of these significant reforms.
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For additional information regarding PAGA and to find out how this could impact your business, please contact our Managing Partner, Richard Liu, at richard.liu@consultils.com.
Richard Liu, Esq. is the Managing Counsel of ILS. He serves clients as a management-side defense lawyer specializing in employment and business litigation. Richard is also an expert on litigation prevention and compliance. He regularly advises Fortune 500 companies and startups on employment, labor, and commercial matters.
Email: richard.liu@consultils.com | Phone: 626-344-8949
*Disclaimer: This article does not constitute legal opinion and does not create any attorney-client relationship.
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