Agreement Between Business, Community and Labor Groups Will Create a Better, Fairer System for Workers and Employers
Governor Newsom signed the two PAGA reform bills – Senate Bill 92 (Umberg) and Assembly Bill 2288 (Kalra). How was the law reformed?
PAGA — the Private Attorneys General Act — was enacted in 2004 to allow individual workers to bring class-action-like claims against employers for monetary penalties due to Labor Code violations (that otherwise would be decided only on an individual basis with the Labor Commissioner).
The core elements of the reform package are:
| Increases the share employees receive from any penalty from 25% to 35%. | |
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| Requires the employee (plaintiff) to personally experience the alleged violations brought in a claim. Alleged violations must have occurred within the last year (presently, there is no time limitation). | |
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| Caps Penalties: For employers who proactively take steps to comply with the Labor Code before receiving a notice, the maximum penalty that can be awarded is 15 percent of the applicable penalty amount. Caps Penalties: For employers who take steps to fix policies and practices after receiving a PAGA notice, the maximum penalty that can be awarded is 30 percent of the applicable penalty amount. Reduces the maximum penalty where the alleged violation was brief or where it is a wage statement violation that did not cause confusion or economic harm to the employee (i.e., misspelling of company name or forgetting to add “Inc.” on the pay statement). Levels the playing field for employers who pay weekly by ensuring a penalty is adjusted. Previously, such employers are penalized at twice the amount because the penalty accrues on a per pay period basis. Creates a new penalty ($200 per pay period) if an employer acted maliciously, fraudulently, or oppressively. |
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| Employer Right to Cure. Expands which Labor Code sections can be cured, so employees are made whole quickly. Protects small employers by providing a more robust right to cure process through the state labor department (Labor and Workforce Development Agency) to reduce litigation and costs. Provides an opportunity for early resolution in court for employers. |
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| Codifies that a court may limit both the scope of claims and evidence presented at trial. |
PAGA has been reformed but the Fundamentals remain.
Most PAGA claims have been due to Labor Code violations — and mostly all are wage and hour issues.
PAGA actions are often brought in conjunction with other class action claims for unpaid wages related to overtime, minimum wage, and meal and rest break premiums. Wage statements are the primary reason for PAGA actions filed each year.
A prospective PAGA action starts with a notice of violations with supporting facts that is sent to both the employer and the Labor and Workforce Development Agency (LWDA).
The LWDA can decide whether to investigate the claims. If it does, it will notify the parties within 60 days of the employee’s notice. If the LWDA chooses not to investigate, an employee may file suit upon notice from the LWDA or after 65 days from the postmark of the employee’s notice if the LWDA remains silent. Then, litigation is on!
The Reform
Greatly expands the right to cure violations alleged in the LWDA notice, giving employers the chance to end litigation before it starts.
Provides employers with incentives to proactively and reactively take reasonable steps to remedy wage and hours issues to reduce penalties.
Created unique mechanisms for small and large businesses to prevent or delay litigation.
Took effect for any notices filed on or after June 19, 2024.
The law now reduces the default penalty structure for those Labor Code violations without specified penalties to $50, $100 or $200 depending upon circumstances.
The penalties are now split more in favor of the employees with 35 percent going to the employees and the remaining 65 percent to the LWDA, which should take away the trial lawyer incentive.
Penalties
The minimum penalty under PAGA is now $50.
This penalty will apply per aggrieved employee per pay period if the violation resulted from an isolated, nonrecurring event that did not extend beyond the lesser of 30 consecutive days or four pay periods.
For example, an employer that institutes a one-time production bonus for a month may miscalculate the regular rate of pay for overtime. If this happens, and the miscalculation isn’t recurring, it will be subject to this minimum penalty.
In other ordinary cases, the penalty will be $100 per aggrieved employee per pay period.
The penalty amount increases to $200 per aggrieved employee per pay period if either of the following occurred:
Within five years preceding the alleged violation, the LWDA or any court issued a decision to the employer that the practice giving rise to the violation was unlawful.
The court determines that the employer’s conduct was malicious, fraudulent or oppressive.
For example, if an employer rounded meal periods and lost a claim on that basis, and the new alleged violation was also related to meal period rounding, this would trigger aggravated penalties.
For all Labor Code section 226 wage statement violations, the penalty is $25 if:
| The accurate information could be determined on the wage statement; or | |
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| In the case of the employer’s name and address, the employee was not confused or misled by the entry on the wage statement. | |
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| Otherwise, if the accurate information could not be determined by the wage statement alone or there was no wage statement provided at all, the penalty reverts to the standard penalty under Labor Code section 226. |
If the employer takes “all reasonable steps” either prior to receiving a personnel records request or PAGA notice, or within 60 days of receiving a PAGA notice, the employer will only be subject to 15 or 30 percent of the penalties, respectively — even if a violation is found!
What are the Reasonable Steps?
Conducting periodic payroll audits or, in the case of a notice, a specific audit of the practice(s) that gave rise to the alleged violation(s).
Disseminating lawful written policies, such as: overtime pay/ meal and rest breaks/ makeup time/ timekeeping and off-the-clock work/ expense reimbursement/on-call or stand by work.
Training supervisors on applicable Labor Code and Wage Order compliance. Consider disseminating these sets of policies annually and obtaining separate acknowledgements for these policies.
Disciplining supervisors for failing to comply with the policies and training.
Supervisors must undergo training on your compliant wage and hour practices, especially in very sensitive areas within their control, such as meal and rest break compliance, off-the-clock work, and reporting time pay.
Supervisors must also be held strictly accountable for violations of your policies.
For example, if you discover that a supervisor is allowing leniency around the duration and timing of meal and rest breaks in violation of your policy, you must discipline the supervisor to take advantage of the “reasonable steps” penalty deductions.
Right to Cure
“Curing” a violation means that the employer: Corrects the violations alleged.
Is in compliance with the underlying Labor Code statutes (e.g., meal and rest break or unpaid/improperly paid overtime) specified in the PAGA notice; and
Ensures each aggrieved employee is made whole by paying:
| Any owed unpaid wages due under the underlying statutes dating back three years | |
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| 7 percent interest on the unpaid wages | |
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| Liquidated damages as required by statute (e.g., minimum wage violations) | |
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| Reasonable attorneys’ fees and costs determined by the LWDA or the courts. |
An employer that has taken “all reasonable steps” and chosen to “cure” the alleged violations is not subject to any PAGA penalties.
If the employer didn’t take “all reasonable steps” but chose to cure the violations, the penalties are capped at $15 per employee per pay period.
Rules for Small Business and Large Business
A small business is defined as one that employed fewer than 100 employees total during the period covered by the PAGA notice.
Small businesses, if they wish to cure some, or all, of the violations, may submit to the LWDA a confidential proposal of how they will cure.
This proposal must be submitted online and to the employee’s representative within 33 days of receipt of the PAGA notice.
A large business is defined as one that employed at least 100 employees in total during the period covered by the PAGA notice.
Large businesses may attempt to cure upon receipt of the PAGA lawsuit by requesting an early evaluation conference before litigation continues.
Although large businesses must wait for a full-fledged lawsuit to take advantage of early cure processes, the receipt of the PAGA notice should still spur a large business to evaluate “all reasonable steps” it may take to address the alleged violations as necessary to take advantage of the reduction of penalties to 30 percent of full value.
If the violation relates to the name and address of the employer’s legal entity, then the employer may cure the violation by providing a summary form to all aggrieved employees that includes correct information for all pay periods for which there was a violation.
For all other wage statement violations, the employer may cure by providing complete, accurate wage statements to all aggrieved employees for each pay period in which a violation occurred in the three years preceding the PAGA notice.
If you are a large employer for cure purposes, you cannot cure until a lawsuit is filed.
In the interim, you should work with legal counsel before any lawsuit is filed to conduct a damages audit of how much it would cost to cure some or all the violations.
Final Thoughts
Plaintiff attorneys will most likely investigate the alleged violations for merit before filing a claim. In the past, PAGA claims have been alleged in general conclusory language rather than factual language.
Plaintiff attorneys may require proof that employers have fully cured violations and made their employees whole. Defense attorneys may need to dedicate more hours to proving violations have been resolved and curing has taken place – i.e., an employer may save money on penalties but spend more with defense attorneys if an employee makes a PAGA claim.
