After months of negotiations, California Gov. Gavin Newsom announced on June 18, 2024, that the Fix PAGA coalition and labor advocates have reached an agreement to reform the Private Attorneys General Act (PAGA). This agreement aims to curb frivolous litigation and excessive penalties against employers while still safeguarding employees’ rights. Below is a summary of some of the key changes:

Standing Requirements

One of the notable changes is the standing requirement for plaintiffs. Going forward, plaintiffs must have personally experienced the Labor Code violations they are alleging. This change reverses the Huff v. Securitas Sec. Servs. decision, which allowed plaintiffs to file claims for violations experienced by other employees. Previously, attorneys could file cases on behalf of any employee they could retain, regardless of whether the employer had actually violated the law. This means that in the future, the scope of PAGA lawsuits will be restricted to the specific types of violations that the named plaintiff can demonstrate they personally experienced.

Statute of Limitations

Another significant amendment addresses the statute of limitations. Claims must now be based on violations within a one-year statute of limitations. This move directly tackles the Johnson v. Maxim Healthcare Services decision, which permitted claims based on older violations under the “continuing violation doctrine,” implying that once aggrieved, always aggrieved. The amendment clarifies that distant wage and hour violations alone will not grant a plaintiff standing to maintain a PAGA claim.

Weekly Pay Periods

The new reforms also tackle the inequity faced by employers who pay their employees weekly, such as farm labor contractors. Under the previous PAGA framework, penalties were calculated based on the number of pay periods, putting weekly-paying employers at a disadvantage compared to those who pay biweekly or twice a month. With this amendment, any penalties owed by an employer who pays weekly will effectively be cut in half.

Case Manageability

Judicial discretion on manageability is another aspect of the reform. The changes clarify that courts have the inherent authority to limit the scope of claims and evidence presented at trial. This is a response to the Estrada v. Royalty Carpet Mills, Inc. decision, which found that courts lacked inherent authority to dismiss unmanageable PAGA claims.

Penalty Caps

Penalty caps based on employer conduct have also been introduced. Penalties will be capped at 15% for employers who take proactive compliance steps before receiving a notice and 30% for those who do so afterward. Additionally, there will be reduced penalties for minor, non-systemic, or non-harmful violations, and limitations on stacking penalties for derivative violations.

Right to Cure

The employer’s right to cure more violations has been expanded, providing early resolution opportunities, particularly benefiting smaller employers. This amendment allows employers to address issues proactively without facing immediate punitive measures.

Looking Forward

While these amendments aim to balance reducing litigation abuse with maintaining employee protections, they may not apply to pending PAGA claims. The reforms will only affect cases with notice letters submitted to the LWDA on or after the law’s effective date (to be determined).

Although the exact language of the reform bill is still pending, these negotiated changes promise a significant improvement to the existing law.

For immediate release: June 18, 2024

Legislation to be introduced this week

Sacramento – Today, the Fix PAGA coalition, representing non-profits, social justice advocates, family farmers, health care providers and businesses, announced their support for legislation to reform California’s broken Private Attorneys General Act (PAGA). The agreement was announced by Governor Gavin Newsom, Senate President pro Tempore Mike McGuire and Assembly Speaker Robert Rivas after months of discussions between labor advocates and the coalition.

If passed by the legislature, the legislation would reform PAGA to ensure workers retain a strong tool to resolve labor claims and receive fair compensation, while limiting the shakedown lawsuits that hurt employers and employees.

“This package provides meaningful reforms that ensure workers continue to have a strong vehicle to get labor claims resolved, while also limiting the frivolous litigation that has cost employers billions without benefiting workers,” said Jennifer Barrera, President & CEO, California Chamber of Commerce. “We thank Governor Newsom, Senate President pro Tempore McGuire and Assembly Speaker Rivas for navigating this agreement, and we encourage the legislature to pass this package quickly.”

“PAGA’s lawsuit-first approach has really hurt community-based organizations like those we represent, jeopardizing services and supports for Californians with disabilities,” said Barry Jardini, Executive Director, California Disability Services Association. “This legislation can help our members focus on services rather than lawsuits that threaten our ability to support California’s most vulnerable.”

The core elements of the reform package are:

Employee Share of Penalty

Increases share employees receive from any penalty from 25% to 35%.

Standing

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).

Penalty

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. Presently, such employers are penalized at twice the amount because penalties accrue on a per pay period basis.

Addresses derivative claims.

Creates a new penalty ($200 per pay period) if an employer acted maliciously, fraudulently, or oppressively.

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 larger employers.

Strengthening Enforcement Agency

The Administration will pursue a trailer bill to give the California Department of Industrial Relations (DIR) the ability to expedite hiring and filling vacancies to improve and expedite enforcement of employee labor claims.

Judicial Discretion (Manageability)

Codifies that a court may limit both the scope of claims and evidence presented at trial.

Injunctive Relief

Allows for injunctive relief.

A recent report found that since 2013 there have been nearly $10 billion in PAGA court case awards, but due to significant attorney fees, workers receive only a small portion of these awards. PAGA hurts virtually every industry and employer in California, including non-profits, local governments, family-run businesses and others.

“There is near universal consensus that PAGA is broken and not working for workers or employers,” said Brian Maas, President, California New Car Dealers Association and proponent of the PAGA reform initiative that is eligible for the November ballot. “We need sensible reforms to fix the broken system. We support this legislative reform and encourage lawmakers to swiftly pass the measure before the June 27 deadline to finalize ballot measures for November.”

“Small businesses throughout the state have been targeted by frivolous PAGA lawsuits for decades, even forcing some restaurants to shut down,” said Jot Condie, President & CEO, California Restaurant Association. “We support this reform which will reduce shakedown lawsuits against small businesses while providing strong protections for workers.”

“The abusive litigation that PAGA enables is contributing to the loss of small family farms and the movement of agricultural production away from California. We applaud Governor Newsom for shepherding this important reform effort and urge the Legislature to pass it,” said Dave Puglia, President & CEO, Western Growers Association

The legislature will consider the PAGA reform legislation as early as this week. The deadline for measures to be withdrawn from the November 2024 ballot is June 27, 2024. If the PAGA compromise measure is passed and signed by the Governor prior to June 27, the Fix PAGA coalition will remove it’s November 2024 PAGA reform measure from the ballot.

###