June 18, 2024

PAGA Reform Brings Long Sought Improvements for Employers

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.