[Update: The California Legislature passed AB 228 and SB 92 on June 27, 2024, and Governor Newsom signed both bills into law on July 1, 2024.]

The potential new law reforming the Private Attorneys General Act (PAGA) is set to bring significant changes to California’s labor landscape. If enacted, AB 2288 and SB 92 will apply to civil actions brought on or after June 19, 2024, introducing stringent standing requirements for plaintiffs and reducing penalties for employers demonstrating compliance with the Labor Code. This reform aims to curb frivolous lawsuits and provide more reasonable penalty structures. Key provisions include specific penalty amounts based on the nature of violations, caps on penalties for employers who take proactive compliance measures, and options for early resolution of claims. The proposed bill also emphasizes judicial discretion in managing cases and offers relief for employers who pay on a weekly basis. As the legislative process unfolds, Zaller Law Group will keep you informed on the bill’s progress and its implications for both employers and employees.

The new law modifying PAGA would apply to civil actions brought on or after June 19, 2024. 

If passed by the legislature and signed into law by the Governor, the new law would only apply to PAGA cases filed on or after June 19, 2024. 

New stringent standing requirement.

Under the proposed bill to reform PAGA, in order to bring a lawsuit against an employer under PAGA, the plaintiff is required to have “personally suffered each of the violations alleged” within the applicable statute of limitations, which is one year.  This is a major limitation, as plaintiffs were permitted to bring PAGA cases on behalf of all employees for violations that the plaintiff did not suffer for violations dating back further than one year. 

Reduction of PAGA penalties.

The proposed bill also sets forth specific penalties available to plaintiffs, and reduces penalties for employers who show that they have taken reasonable steps to comply with the Labor Code (thereby reducing frivolous lawsuits for technical wage and hour violations):

  • $25 for each aggrieved employee per pay period for violation of Labor Code Section 226 (wage statements).  If the alleged violation is under paragraph 8 of Section 226 regarding the name and address of the employer, the penalty is $25 only “if the employee would not be confused or mislead about the correct identify of their employer…”
  • $50 for each aggrieved employee per pay period if the alleged violation resulted from an “isolated, nonrecurring event that did not extend beyond the lesser of 30 consecutive days or four consecutive pay periods.” 
  • $200 for each aggrieved employee per pay period if (1) the agency or court issued a finding or determination to the employer that its policy or practice was unlawful or (2) the court finds that the employer’s conduct was “malicious, fraudulent, or oppressive.” 

Cap on penalties for employers taking reasonable steps:

The proposed bill also sets forth a framework to cap the penalties for employers who take reasonable steps to comply with the Labor Code.  If prior to receiving a PAGA notice required under Section 2699.3 or prior to receiving a request for records under Section 226, 432, or 1198.5 from the aggrieved employee or their counsel, the employer takes reasonable steps to be in compliance, the penalty is limited to no more than 15% of the applicable penalty.

Reasonable steps include conducting period payroll audits and taking action in response to those audits, having compliant policies, training supervisors on Labor Code compliance and appropriate corrective action with regard to supervisors. 

If within 60 days of receiving the notice of violation required by Section 2699.3, the employer takes all reasonable steps to prospectively be in compliance with all alleged violations in the notice, the civil penalty that may be recovered is capped at no more than 30% of the applicable penalty. 

The proposed bill also clarifies that courts have the discretion to reduce penalties. 

Prohibit stacking of derivative penalties:

The proposed bill also provides that an aggrieved employee can only recover one penalty for an underlying wage violation.  For example, an employee alleging that they were not paid all of their wages would be limited to one penalty, and would not be entitled to stack on additional penalties that this one violation would have created under Labor Code Section 201 (timing of payment of wages), 202 (waiting time penalties for late payment of wages), 203 (waiting time penalties for unpaid wages for employees who are terminated or quit), 204 (timing requirements for payment of wages), and 226 (wage statements).

The proposed bill also sets forth that the civil penalties recovered by aggrieved employees shall be distributed as follows: 65% to the Labor and Workforce Development Agency and 35% to the aggrieved employees. 

Provides for judicial discretion for trial management.

The proposed bill 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.

Provides relief for employers who pay weekly.

The proposed bill also reduces penalties by one-half for employers who pay weekly, rather than biweekly or semimonthly.  Because PAGA penalties are based on pay periods, employers who pay weekly effectively exposed to double the applicable penalties that could be assessed against them, i.e., weekly (52 pay periods) vs. semi-monthly (24 pay periods) or bi-weekly (26 pay periods).  If passed, the bill will rectify this issue for employers who pay weekly. 

New options for small and large employers to cure alleged violations early in the litigation process.

The proposed bill establishes a new Early Evaluation Conference that would be available to employers starting October 1, 2024, to resolve PAGA claims early in the litigation process:

Employers with under 100 employees:

For small employers, defined as those with fewer than 100 employees during the applicable period, there is an option to address alleged violations by notifying the Labor and Workforce Development Agency (LWDA) with a confidential proposal to cure the alleged violations. Upon notification, the LWDA may decide that the actions to cure were sufficient, or it can organize a settlement conference involving the plaintiff and the employer. The conference with the parties would determine whether the proposed cure is sufficient, what additional information may be necessary to evaluate the sufficiency of the cure, and the deadline agreed upon by the parties for the employer to complete the cure.  If the LWDA determines that the alleged violation has been cured, the aggrieved employee may not proceed with a civil action.

Employers with 100 or more employees:

Large employers, those with more than 100 employees, have a different process. They may request a stay and Early Evaluation Conference from the trial court. This request pauses all discovery and responsive pleading deadlines. A neutral evaluator would then review the employer’s plan for addressing the violations, supervise compliance with this plan, and assess the employer’s efforts to mitigate potential penalties. Additionally, employers can file a motion for the court to approve their cure plan, even if the plaintiffs or the neutral evaluator believe the efforts have been insufficient.

Zaller Law Group will continue to monitor and provide updates as the proposed bill makes its way through the Legislature this week, as it must be finalized by June 27, 2024.