California employers have new ways to defend and mitigate claims under the California Private Attorneys General Act, or PAGA, now that two PAGA reform bills were enacted into law following extensive negotiations between business and labor groups and legislators. Gov. Gavin Newsom signed the two bills — SB 92 and AB 2288 — on July 1, but they became effective retroactively on June 19.
Both employers and employees stand to benefit from the reforms. Now, for example, employers who take all reasonable steps to comply with labor laws or cure (fix) potential violations after receiving a PAGA notice are entitled to substantial reductions in maximum penalties. As part of this, employers have gained more opportunities to detect and cure violations that they were not aware of.
On the other hand, PAGA penalties will increase for any employer who is found to have acted “maliciously, fraudulently, or oppressively,” and employees will now receive a greater share of the penalty amount — with correspondingly less going to attorneys.
PAGA – a history of poor results for employers and employees
Enacted in 2004, California’s PAGA was intended to resolve employee labor disputes more efficiently by allowing employees to file claims against their employers for Labor Code violations “suffered” by the employee and with the intent to recover civil penalties owed to the state for those violations. In this way, employees took on the state’s role in enforcing the Labor Code.
Because employees could file class action-type suits on behalf of their co-workers — even for minor violations, such as an incorrect address on a paystub — the penalties for employers could mount swiftly. Penalties are imposed per employee per pay period, so even an employer with just 20 employees could end up paying over $1 million in penalties for multiple violations that occurred over a year. On top of these civil penalties, employers are obligated to pay attorneys’ fees for successful employee-plaintiffs.
Problematically, employees who sued for these Labor Code violations did not have to prove that they themselves, let alone all other employees of the “class action lawsuit,” suffered any harm from the violations.
When penalties were awarded, attorney fees and other costs were taken out first and then employees were entitled to share just 25% of the remaining award amount, while the California Labor Workforce Development Agency collected 75%.
In her testimony before the Senate Judiciary Committee on behalf of AB 2288, CalChamber Senior Policy Advocate Ashely Hoffman stated:
“What was once a well-intentioned law has unfortunately been manipulated by certain trial attorneys at the expense of workers, businesses and nonprofits who serve our most vulnerable Californians.” She added that the bill’s reforms “address employers’ concerns, but also ensure that California workers can feel confident that there is robust labor law enforcement against the bad actors.”
The new PAGA: Key takeaways for employers and steps they should take
The reforms create general caps, caps for employers’ proactive compliance and caps for remediation for PAGA penalties as summarized in the National Law Review.
Aside from introducing penalty caps and greater opportunity to cure violations, the reformed PAGA now requires the employee-plaintiff to have personally experienced or suffered the employer’s alleged Labor Code violations. Additionally, the employee must file their case within one year of the alleged violation.
An article by CalChamber summarizes the key reforms for employers and how, under the reformed PAGA, they can now take reasonable steps to comply with the Labor Code to significantly reduce their penalties even after receiving a PAGA notice. Those reasonable steps to comply include:
- Conduct payroll audits and act on those audits based on the results.
- Have written policies in place related to wage and hour practices and ensure those policies are distributed and enforced.
- Be aware of applicable wage orders and ensure practice policies are in line with those wage orders.
- Train managers on Labor Code requirements and basic wage and hour rules, and take necessary corrective action with personnel who may be involved with violations of wage and hour rules.
- Document all efforts to take corrective steps.
Describing how employers can use payroll audits to demonstrate compliance and limit exposure, the article’s author provides this example: “If an employer finds through their audit that they don’t have a practice in place to ensure that employees are getting late meal period premiums paid, then they should take action immediately.”
Learn more:
- SB 92: Labor Code Private Attorneys General Act of 2004 (amended)
- AB 2288: Labor Code Private Attorneys General Act of 2004 (amended)
- Episode 200 of The Workplace: A podcast by CalChamber explaining PAGA reform