Major Legislative Changes to PAGA for the First Time in Two Decades

On July 1, 2024, California’s Governor, Gavin Newsom, approved two new bills that give California businesses an opportunity to limit the amount of PAGA penalties to which they could be liable for under the California Labor Code. Assembly Bill 2288 (AB 2288) and Senate Bill 92 (SB 92) modify the statutory scheme known as the Private Attorneys General Act of 2004 (“PAGA”): Labor Code Section 2699, et seq. Importantly, both amendments only apply to civil actions brought on or after June 19, 2024, and are not retroactive.

The statutory scheme known as PAGA authorizes an aggrieved employee to bring a civil action, on behalf of the aggrieved employee and other current or former employees, to enforce a violation(s) of the Labor Code. Additionally, PAGA provides for a civil penalty to be assessed and collected by the Labor and Workforce Development Agency (“Agency”).

Prior to these amendments, a violation of a provision of the Labor Code allowed for a civil penalty of $100 for each aggrieved employee per pay period for the initial violation, and $200 for each aggrieved employee per pay period for each subsequent violation. Pursuant to PAGA, 25% of civil penalties recovered were distributed to aggrieved employees, while 75% of civil penalties recovered were required to be distributed to the Agency for the enforcement of labor laws.

Unfortunately, since its inception, attorneys have abused the PAGA scheme and not to the benefit of California employees. The amendments aim to improve PAGA’s overall effectiveness in making employees whole while still incentivizing employer compliance.

Biggest Changes to Labor Code Section 2699 (AB 2288)

Standing Requirement

Previously, PAGA statutes broadly identified an “aggrieved employee” as an employee who suffered at least one of the violations that the aggrieved employee is alleging on behalf of all of the other employees. However, the amended definition now requires that the aggrieved employee personally suffered each and every one of the violations alleged on behalf of the group. The “similarly situated persons” category is narrowed by the amendments by clarifying that a violation of the same provision was committed against the aggrieved employee and other current or former employees, rather than a violation of any provision of the Labor Code. These amendments limit standing requirements for plaintiffs, but will help employees and employers better understand the types of employees who may bring these claims and the appropriate members of a class.

Wages Owed With Interest

Amended Section 2699 also provides important changes for employee-owed wages. The Section now allows an aggrieved employee to recover any owed unpaid wages due for the past three years, plus 7% interest, liquidated damages, and reasonable attorney’s fees and costs. The steep interest rate increases an employee’s ability to quickly recover their unpaid wages.

“Cure” Updates and Penalty Reductions

One of the most significant changes to Section 2699 is an updated “cure” provision. For an employer who corrects the alleged violation(s) and quickly complies with the applicable Labor Code sections, civil penalty amounts may be reduced or negated altogether. This is a huge incentive for businesses and helps prevent future employee harm.

Examples of “curing” and penalty reductions include:

(1) If before receiving Section 2699.3 notice, the employer takes all reasonable steps to comply with provisions identified in the notice – a civil penalty may not be more than 15% of the penalty sought. (Labor Code Section 2699(g)(1).)

(2) If within 60 days of receiving Section 2699.3 notice, the employer takes all reasonable steps to comply with provisions identified in the notice – a civil penalty may not be more than 30% of the penalty sought. (Labor Code Section 2699(h)(1).)

(3) For a violation related to unpaid wages (Sections 201, 202, 203, and 204) that is neither willful nor intentional, or a violation related to paystubs (Section 226) that is neither a knowing or intentional failure to provide a wage statement, an aggrieved employee cannot collect a civil penalty in addition to also receiving a civil penalty for an unpaid wage violation. (Labor Code Section 2699(i).)

(4) For employers who cure (1) or (2) above, the employer will not be required to pay a civil penalty for that violation. For employers who cure (3) above, regarding violations of Section 226(a), the employer will not be required to pay a civil penalty for that violation. For employers who cure any other violations, the employer cannot be required to pay a civil penalty of more than $15 per employee per pay period for a one-year period. (Labor Code Section 2699(j).)

As specifically identified in the Code, proactive “reasonable steps” may include conducting periodic payroll audits and taking action in response to the audit’s results, disseminating written policies, training supervisors on applicable Labor Code and wage order compliance, and/or taking appropriate corrective action with regard to supervisors. (Labor Code Sections 2699(g)(2) & (h)(2).)

Other Revisions

Beyond wages owed and civil penalties, Section 2699 now allows for an aggrieved employee to receive injunctive relief as a remedy. Also, the Agency and a court are authorized to exercise discretion to assess a civil penalty or seek injunctive relief, including that a court may award a lesser amount than the maximum civil penalty. Lastly, the distribution percentage for recovered penalties changed to 35% for aggrieved employees and 65% for the Agency, allowing aggrieved employees to receive a larger share of the total recovered.

Biggest Changes to Labor Code Section 2699.3 (SB 92)

Written Notice Required

Of major importance, amended Section 2699.3 adds new procedural requirements for bringing PAGA claims: (1) a “confidential proposal to cure process” for small and midsized businesses, and (2) an “early evaluation conference” for larger businesses. Before filing a civil action, an aggrieved employee must first provide written notice of the alleged violation(s) to the employer by an online filing with the Agency and by certified mail to the employer.

Proposal to Cure (Employers with Less than 100 Employees Only)

Beginning on October 1, 2024, employers with fewer than 100 employees may, within 33 days of receiving notice from an aggrieved employee, submit to the Agency a “confidential proposal to cure” one or more alleged violations. Thereafter, the Agency will determine whether the proposed cure is facially sufficient or if a conference is necessary to determine if a sufficient cure is possible. However, if the Agency determines the proposed cure is not facially sufficient or does not act after the employer’s cure proposal, then the employee may proceed with a civil action.

Early Evaluation Conference (All Employers)

After an aggrieved employee initiates a civil action, an employer with 100 or more employees (and small and midsize employers) may, upon being served with a summons and PAGA complaint, file a request to stay the action and participate in an “early evaluation conference.” The Code outlines four aspects of a PAGA claim to be examined by the judge or neutral during an early evaluation conference: (1) whether any of the alleged violations occurred and, if so, whether the defendant has cured the alleged violations; (2) the strengths and weaknesses of the plaintiff’s claims and the defendant’s defenses; (3) whether plaintiff’s claims, including any claim for penalties or injunctive relief, can be settled in whole or in part; and (4) whether the parties should share other information that may facilitate early evaluation and resolution of the dispute. (Labor Code section 2699.3(f)(1)(B)(i)-(iv).) Upon completion of the conference, if the parties and neutral agree to a plan to remedy the violations and are satisfied those remedies are being carried out properly, then the parties will jointly submit a statement to the judge which will be treated as a proposed settlement.

After the agreement to cure, and not more than 45 days after the conference, the employer must complete the cure and provide a sworn notification to the aggrieved employee and Agency that the cure is completed. The Agency is required to verify whether the cure is complete within 20 days of employer’s notification of cure.

Agency’s Discretion

Despite the foregoing, the Agency still has discretion regarding whether it will investigate alleged violations. And employers are limited to curing violations of the same Labor Code provisions to only once in a 12-month period. Lastly, Section 2699.3 limits alleged violations to specific Labor Code sections rather than the Labor Code generally.

In sum, the reforms will help curtail needless litigation and promote enforcement of the State’s labor laws.

For more information or specific guidance, please contact Jennifer Morin or Katharine Smith.