On June 18, 2024, Governor Newsom announced that a compromise had been reached to reform California’s Private Attorneys General Act (PAGA).  The negotiations were brought about by a ballot measure to repeal PAGA this November. PAGA cases have been increasing astronomically against California employers, exposing them to huge penalties, and on average PAGA cases settle for $1.1 million.  This reform package introduces several key elements that impact employees and employers alike, focusing on penalties, standing requirements, employer rights to cure, and strengthening enforcement mechanisms. While many details are still yet to be disclosed, here are a few core elements of this reform package and understanding of what they mean for both sides of the employment equation.

Standing Requirements

The reform package introduces more stringent standing requirements for employees (plaintiffs) bringing claims. Under the reform, an employee must have personally experienced the alleged violations to file a claim. Additionally, these alleged violations must have occurred within the past year. This is a significant change from the previous framework, where there was no time limitation. This measure aims to prevent frivolous claims and ensure that only current and directly impacted employees can pursue legal action.

Penalty Adjustments

The new reforms also introduce several changes to the penalty structure:

  • Caps on Penalties: Employers who proactively comply with the Labor Code before receiving a notice will face a maximum penalty of 15% of the full potential penalty amount. For those who take corrective steps after receiving a notice, the cap is set at 30%.
  • Reduction for Minor Violations: The maximum penalty is reduced for minor infractions, such as brief violations or wage statement errors that did not cause confusion or economic harm (e.g., omission of employer’s full corporate name on the employees’ pay stubs).
  • Equity for Employers Paying Weekly: The reform addresses the issue where employers who pay weekly were penalized more heavily since the PAGA penalties were calculated on a per pay period basis. Now, penalties will be adjusted to ensure fairness with employers who pay on other methods other than weekly. 
  • New Penalty for Malicious Acts: A new penalty of $200 per pay period will apply for employers who act maliciously, fraudulently, or oppressively.
  • Addresses Stacking of Penalties for Derivative Claims: The reform will also address a plaintiff’s ability to stack multiple penalties for labor code violations that occurred because of one violation. 

Employer Right to Cure

The reform package expands the Labor Code sections that employers can cure to reduce or eliminate potential penalties altogether. 

Strengthening Enforcement Agency

The package also sets out to expedite hiring and filling vacancies within the California Department of Industrial Relations (DIR), thereby improving and expediting the enforcement process. Strengthening the enforcement agency is crucial for ensuring that labor laws are upheld efficiently and effectively.

Employee Share of Penalty

The reform package also increases the share of penalties employees receive from labor law violations. Previously, employees were entitled to 25% of any penalty awarded, and the state of California would receive the other 75%. With the new reform, this share has been increased to 35% to the employees. 

Judicial Discretion (Manageability)

The reform also provides powers to courts to limit both the scope of claims and the evidence presented at trial. This provision gives judges the discretion to manage cases more effectively.

Injunctive Relief

Finally, the reform package allows for injunctive relief, providing courts with the power to issue orders that prevent ongoing violations.

The reform still must be drafted into a bill, passed by the legislature, and signed by the Governor by June 27.  It is expected that this will be accomplished given the support behind this PAGA reform deal.  If this deadline is met, the ballot measure to repeal PAGA will be taken off of the November 2024 ballot.  We will continue to monitor any developments on the PAGA reform deal, be sure to subscribe for any updates.