California Private Attorneys General Act Reform: What Employers Can Do Now

By Swerdlow Florence Sanchez Swerdlow & Wimmer

September 25, 2024

Over the last 20 years, California employers have found out the hard way that the California Private Attorneys’ General Act of 2004 (“PAGA”) can turn even the most minor Labor Code violation into an expensive and time-consuming headache. The civil penalties potentially imposed on California employers for Labor Code violations under PAGA are often disproportionally higher than the scope and severity of the violations themselves. However, for the first time since PAGA was enacted, California employers are finally receiving some relief in the form of new common-sense reform. The goal of this reform is aimed at curtailing the rampant frivolous and overbroad claims, while also creating clearer punishments for repeat offender employers.

Changes Benefiting Employers

1.    Standing Limits
For all PAGA actions brought before June 19, 2024, PAGA allowed an aggrieved employee to bring a civil action on behalf of themself and on behalf of other current or former employees to enforce a violation of any provision of the Labor Code that provides for a civil penalty collectable by the Labor Workforce Development Agency (“LWDA”), regardless of whether or not the employee bringing the action was subject to that same violation. For example, an employee that missed a meal period could also seek civil penalties for missed rest breaks on behalf of other current or former employees who experienced those violations, even if the employee bringing the claim never personally missed a rest break.

With few exceptions, under the reformed PAGA statute, for any new PAGA actions brought on or after June 19, 2024, an aggrieved employee only has standing to bring PAGA claims for the type of violations that they personally suffered, and they can bring that PAGA claim on behalf of themself and other current and former employees who also experienced that particular violation. For example, an employee whose sole violation suffered was a missed meal period can only bring a PAGA claim for missed meal periods.

2.    New Penalty Limits
Prior to this reform, if the Labor Code did not set a specific civil penalty for a violation, PAGA imposed default civil penalties of $100 per employee per pay period. Under the reformed PAGA statute this $100 can be reduced to $50 per employee per pay period if the violations were caused by “an isolated, non-recurring event that did not extend beyond the lesser of 30 consecutive days or four consecutive pay periods. Some penalties can be reduced to $25 per employee per pay period for some technical wages statement violations.

Additionally, prior to this reform, because the default PAGA penalties are paid per employee per pay period, employers who paid employees weekly ultimately paid double the amount of default penalties than those employers who paid every other week or twice a month. The reformed PAGA statute has removed this disadvantage for those employers who pay weekly, and expressly states that any default PAGA penalties paid per employee per pay period will be reduced by one-half for those paid weekly.

Further, for many claims brought on or after June 19, 2024, the reformed PAGA caps penalties at 15% of the total penalty if the employer can show that it took “all reasonable steps” to maintain compliance with the Labor Code before the employer received the prerequisite notice of the violation sent to the LWDA or employee’s request for payroll or personnel records. Additionally, the reformed PAGA caps penalties at 30% of the total penalty if an employer shows that it took “all reasonable steps” to remedy any alleged violation and that it made each aggrieved employee whole, within 60 days after the employer was served with the LWDA notice. The reformed statute gives examples of what “all reasonable steps” could look like but makes it clear that the reasonableness of the steps depends on the individual circumstances, such as the employer’s size and nature, and the duration and severity of the alleged violation. Reasonable steps can include auditing potential payroll practice, remedying any problems, distributing written policies, training supervisors, and taking appropriate corrective action.

In light of the potential to reduce liability for Labor Code violations, employers should take preventative measures such as conducting periodic audits to prevent any violations ahead of receiving an LWDA letter or employee records request. If an employer receives an LWDA letter or employee records request, the employer should act quickly and take reasonable steps to cure any violations within 60 days.

Employees Will Receive Greater Percentage of Civil Penalties

Prior to the reform, PAGA required 75% of the civil penalties recovered by the aggrieved employees to be turned over to the State, with only the remaining 25% to be distributed to the aggrieved employees. Now, only 65% of the civil penalties recovered by the aggrieved employees must be turned over to the State, with the remaining 35% to be distributed to the aggrieved employees.

Steps Employers Can Take Now

Employers should take advantage of the new caps on PAGA penalties by taking all reasonable steps to comply with the Labor Code. Examples employers should consider include:

•    Conducting wage-and-hour audits to ensure compliance with the wage-and-hour laws such as the rules regarding meal and rest breaks, overtime pay, and reimbursement practices.
•    Update written policies to comply with applicable laws.
•    Take corrective action when supervisors or employees do not comply with company policies and/or wage-and-hour laws, and pay employees for any amount the audit reveals they should have received but didn’t.
•    Provide training to HR and managers to ensure all supervisors and managers understand California’s wage-and-hour requirements, including meal and rest periods, overtime, timekeeping and record retention.
•    Document all of the steps the employer takes to comply with the Labor Code.

Conclusion

These reforms to PAGA clearly create a direct incentive for employers to exert their best efforts to comply with the Labor Code. If you have any question about the changes to PAGA, or would like help taking steps to comply with the Labor Code, please do not hesitate to contact your SFSSW attorney.

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