Weintraub attorneys Shauna Correia and Lukas Clary as they discuss the new PAGA reform, offering insights on how it impacts California employers and steps they can take to stay compliant in the latest episode of “California Employment News.” Watch this episode on the Weintraub YouTube channel and listen to this podcast episode here.

Hi, thank you for joining us for this installment of the “California Employment News”, an informative video and podcast resource offered by the Labor and Employment Group at Weintraub Tobin. I’m Shauna Correia, and I’m joined today by my partner, Lukas Clary, and today we’re here to discuss the new Private Attorney General Act or PAGA reform. Lukas, can you start us off by giving a little bit of background about the PAGA?  

Yeah, thanks, Shauna. PAGA is the Private Attorneys General Act. It’s a California statute that allows employees to step into the shoes of the government effectively as private attorneys general to enforce labor laws and seek penalties for violations of the California Labor Code. These can be brought on behalf of not only the aggrieved employee who is bringing it but as representative actions on behalf of other employees and the state itself. While just about any violation of the labor code could give rise to a PAGA lawsuit, the ones we most commonly see range from wage-related violations such as non-compliant overtime practices and missed meal and rest breaks to more minor things like paycheck the employer’s address or legal name is missing from the paycheck, or the last four digits of the employee’s social security number or a similar ID is missing. Regardless of what the error is, the existing penalties are fairly uniform. $100 per employee per pay period for initial violations and $200 per employee per pay period for subsequent violations. While that might not seem like a huge amount, when you multiply it across the workforce and across the one-year statutory lookback period that applies to these lawsuits, PAGA lawsuits can often add up to well into the six figures and sometimes even seven figures in liability or more, plus your own legal fees.   While this was enacted with good intentions back in 2004, in practice, PAGA has been a bit of a nightmare for California employers. In the overwhelming majority of these lawsuits, the alleged violations at issue did not occur because a malicious employer was trying to skirt the rules. Instead, particularly with technical violations such as missing information on the wage saving, employers typically do not even realize they were out of compliance until litigation is underway. And by that point, it’s too late. With very limited exceptions, existing law has not allowed employers to cure the violations and avoid the penalties. These lawsuits have sometimes presented an existential crisis for employers who did not even realize they were doing anything wrong. And the way the law has been structured, 75% of all recovered PAGA penalties are turned over to the state, with the remaining 25% going to the employee. Plaintiffs’ lawyers also take a cut of the employee’s recovery before it is turned over to them. That can be anywhere from 25 to 35% of the amount. In the end, despite substantial liability to the employer, each degree of employee does not see much of the recovery at all.   For years, employers have been trying to get PAGA of reform and have had just about no luck. One last-ditch effort at reform in the form of a measure on the ballot this coming November seemed to offer some promise, but with no guarantees it would pass. Enter the California legislature and an 11th-hour bill in place of this ballot measure. Shauna, why don’t you tell about the bill?  

Yeah, so the new PAGA reforms bills were meant to redress concerns that the act was being abused with, as you said, small business owners facing unreasonably large penalties or paying huge settlements for minor technical or isolated violations of the labor code. The major amendments to the PAGA alter the standing requirements for employees to bring a suit against their employer and revamp the penalty system. The original law allowed for employees to bring a civil action against their employers on behalf of themselves and other current and past and potentially future employees for any and all labor code violations, even if the employee bringing the case only suffered one type of violation, such as they didn’t receive a meal period premium. They could bring a PAGA claim for all sorts of different labor code violations. Now, only employees who personally suffered each of the alleged violations within the relevant statute of limitations will be able to bring a civil suit against their employer for those types of claims. Now, employees can still file a civil suit on behalf of other aggrieved employees, but only if they also suffered a violation of the same labor code provision.   The revisions to the PAGA’s statute also changed the existing penalty system. The revisions also change the existing penalty system. While the original penalty of $100 per aggrieved employee per pay period still applies, the penalties now can be modified depending on prior employer conduct or the amount of harm. If the alleged violation just resulted from an isolated and non-recurring event, the civil penalty will be reduced to $50. Now, penalties will also be reduced for basic wage statement violations like you mentioned. Rather than the $100 penalty, it’s reduced to $25 for these certain types of technicalities that are wage statement violations that didn’t really cause harm. The new law also incentivizes proactive employer compliance. If the employer, prior to receiving a PAGA notice, had been taking reasonable steps to comply with the labor code, such as doing audits, having compliant policies, and giving training, then the civil penalties will be capped at 15% of what they might have otherwise been fined. Then the penalties would also be capped at 30% if the employer takes reasonable steps to comply after they’ve gotten a PAGA notice within 60 days.   If the employer takes reasonable steps to be compliant and they cure any violations, then the employer will not have to pay any PAGA penalties. And likewise, if the employer found not to take reasonable steps in advance but still goes and cures the violation after they get the notice, then the PAGA penalty will be limited to $15 per pay period. So as you can see, it’s a substantial reduction in potential penalties that could be recovered if the employer makes efforts to comply with the labor code. These changes, however, are not going to apply to PAGA lawsuits that are already pending as of June 19. They’ll only be for future lawsuits that are filed afterward. As you can see, the PAGA reforms are not going to entirely eliminate all PAGA lawsuits or the frivolous ones that really only benefit plaintiffs’ attorneys and put money in the state’s pockets and not in the employee’s pockets. But I think it’s a step in the right direction.  

Lukas, do you have any suggestions for what employers might want to do in response to these changes?  

Yes, definitely, so look, with everything that you just summarized, Shauna, all in all, this is a very good thing and a rare victory for California employers. But as you said, that does not mean employers should let their guard down. PAGA has been reformed, it has not gone away. We still expect to see lots of PAGA lawsuits filed, and we still expect to see litigation that will be necessary to answer some of the questions that the new law raises. Also, as Shauna just said, employers currently who are currently engaged in PAGA or who have already received letters alleging PAGA violations will not be afforded the relief of this new bill because it is not retroactive. It’s only for things filed after June 19, 2024. So what employers should do is you should still be diligent in ensuring that your wage and hour practices are compliant, particularly around meal and rest breaks, overtime, and payroll practices, which are the most common things that give rise to PAGA lawsuits. Employers should consider auditing their wage and hour practices, working with their legal counsel as necessary to identify and cure any issues to take advantage of that reduced liability that Shauna was talking about.   Employers should also train supervisors, HR professionals, and payroll specialists on labor code compliance. Then if an employer does receive a pocket letter, should immediately take advantage of the cure period that Shauna, you were discussing by working with legal counsel to remedy any violations. All of these steps can help eliminate or at least mitigate potential pocket liability.  

Those are all really great tips, Lukas. And of course, we’re here to help employers with all of these tips. So feel free to contact us proactively. You can also continue to find installments of California Employment News on our blog at www.thelelawblog.com or wherever you listen to your favorite podcast. Thanks for joining. We’ll see you next time.