California’s Private Attorneys General Act (PAGA) has become a significant, and often abused, tool for employees seeking to file lawsuits against their former employers for alleged Labor Code violations. In fact, since its inception, PAGA has operated as a cudgel against employers, extracting large settlements to avoid potentially catastrophic judgments made possible under the law. However, some relief has finally arrived. On July 1, 2024, Governor Gavin Newsom signed two complementary bills which reform PAGA in several meaningful ways – Assembly Bill (AB) 2288 and Senate Bill (SB) 92. AB 2288 and SB 92 take effect immediately and apply to PAGA lawsuits filed on or after June 19, 2024. Here’s what you need to know about these new reforms and what they mean for employees, employers, and Professional Employer Organizations (PEOs).
What is PAGA?
PAGA, enacted in 2004, empowers employees to act as private attorneys general to enforce California’s wage and hour laws. This means that they can file lawsuits to recover civil penalties on behalf of themselves, other employees, and the state of California for Labor Code violations. The intended purpose of PAGA was to supplement the state’s limited resources for enforcing labor laws by enabling private citizens to take complimentary action.
The Need for Reform
Over the years, PAGA has faced significant criticism from the state’s business community. Employers have argued that PAGA lawsuits often lead to frivolous claims and hefty settlements, benefiting attorneys more than the employees. In 2023, employees filed 5,117 PAGA lawsuits, the most on record. In just the last three fiscal years, the state of California’s Labor and Workforce Development Agency (LWDA) has received approximately $375 million in civil penalties. A recent report, California Private Attorneys General Act of 2004, Outcomes and Recommendations by Baker & Welsh, LLC, states that the average settlement of a PAGA case is over $1 million. The growing volume of PAGA lawsuits, concerns about the law’s effectiveness and fairness, and the debilitating impact PAGA lawsuits have on employers, have prompted calls for reform for years.
AB 2288 and SB 92: Key Provisions
AB 2288 introduces several changes to streamline PAGA claims:
- Pre-Filing Requirements: Before filing a PAGA claim, employees must provide written notice to the employer, detailing the specific violations. Employers have a chance to cure certain violations within a specified period, potentially reducing the number of lawsuits.
- Standing requirement: PAGA plaintiffs can only represent aggrieved employees for violations that they themselves actually suffered. Courts had held that an employee could bring a PAGA action for all violations on behalf of all aggrieved employees whether or not they suffered those violations—they needed only suffer one violation of any type to represent all employees for all violations. This is no longer the case. Now, a plaintiff must have “personally suffered” the alleged violation to sue for that violation.
- Statute of Limitations: AB 2288 amends the statute of limitations for filing PAGA claims to clarify the one-year time frame. PAGA plaintiffs must have personally suffered violations within the one-year statute limitations period in order to bring a claim. Previously, this was not the case, allowing individuals to serve as PAGA plaintiff’s even if their alleged violations occurred prior to the one-year statute of limitations.
- Increased Transparency: The bill requires more detailed reporting on PAGA settlements and outcomes. This transparency aims to provide insights into the effectiveness of PAGA and ensure accountability.
- Enhanced Employee Protections: AB 2288 strengthens protections against retaliation for employees who file PAGA claims or participate in related proceedings.
SB 92 complements AB 2288 by addressing procedural aspects and enforcement mechanisms. Key provisions include:
- Judicial Oversight: SB 92 grants courts more oversight in approving PAGA settlements. This ensures that settlements are fair and reasonable, protecting the interests of employees.
- Attorney Fee Caps: To address concerns about excessive attorney fees in PAGA cases, SB 92 imposes caps on the amount attorneys can recover. This aims to ensure that settlements primarily benefit the employees.
- Mediation Requirements: SB 92 introduces mandatory mediation for certain PAGA claims, encouraging parties to resolve disputes outside of court. Mediation can expedite resolutions and reduce litigation costs.
- Administrative Funding: SB 92 allocates additional resources to the Labor and Workforce Development Agency (LWDA) for handling PAGA claims. This aims to improve the efficiency and effectiveness of the PAGA process.
There are few additional relevant provisions to keep in mind:
- A good faith dispute can eliminate certain penalties, including: (1) failure to pay all wages due and owing upon termination or separation (known as “waiting time penalties”); (2) failure to timely pay wages; and (3) wage statement violations that were not willful or intentional.
- Combined or compounding penalties may be reduced. Courts are now permitted to reduce “stacked” penalties for violations arising from the same payroll error for failure to timely pay wages upon separation, failure to timely pay wages during employment, and other derivative wage statement violations.
- In a variety of circumstances, employers can rely on good faith arguments to reduce the penalties due for technical wage statement violations.
Implications for Employees and Employers
The reforms introduced by AB 2288 and SB 92 are designed to protect employees’ rights while ensuring that PAGA remains a viable tool for enforcing labor laws. The increased transparency, judicial oversight, and protections against retaliation strengthen employees’ positions in PAGA claims. However, the stricter statute of limitations and the pre-filing requirements mean employees must act promptly and thoroughly when identifying and reporting violations.
Employers should find relief in the opportunities to cure certain violations before a PAGA claim is filed, potentially reducing litigation risks. The caps on attorney fees and mandatory mediation can also help manage costs associated with PAGA lawsuits. However, employers must remain vigilant in maintaining compliance with labor laws to avoid potential claims and leverage the opportunities provided by the new reforms.
Impact on PEOs
PEOs play a critical role in managing human resources, payroll, benefits, and compliance for many small to mid-sized businesses. With the new PAGA reforms, PEOs will need to adapt their practices to ensure that their clients remain compliant. Here’s how AB 2288 and SB 92 specifically impact PEOs:
- Enhanced Compliance Requirements: PEOs will need to ensure that their client companies are fully aware of and comply with the new pre-filing requirements. This involves thorough documentation and timely responses to potential violations. PEOs will need to implement or enhance systems to monitor compliance with labor laws proactively.
- Training and Education: PEOs should consider providing training and resources to their client companies about the changes brought by AB 2288 and SB 92. This should include educating clients on the new statute of limitations, the importance of detailed reporting, and the procedures for curing violations within the allowed timeframes.
- Legal Support and Mediation: Given the mandatory mediation requirements introduced by SB 92, PEOs should prepare to assist their clients in navigating the mediation process. This will involve working with knowledgeable attorneys to provide guidance during mediations and ensuring that any settlements are fair and reasonable.
- Increased Administrative Duties: With the new reporting requirements, PEOs will need to maintain comprehensive records of compliance activities and PAGA-related interactions. This transparency is crucial to avoid potential penalties under the new legal regime and to ensure that PEO’s clients can demonstrate compliance with the new regulations.
- Risk Management: PEOs should evaluate and possibly enhance their risk management strategies. This includes reviewing and updating contracts with client companies to clearly outline responsibilities and liabilities concerning PAGA claims and compliance with AB 2288 and SB 92.
Conclusion
The passage of AB 2288 and SB 92 marks a significant step in the ongoing evolution of PAGA. These reforms aim to balance the interests of employees and employers, ensuring that labor laws are enforced effectively while reducing the potential for abuse. PEOs play a pivotal role in this new landscape by helping their client companies navigate these changes and maintain compliance. The new era of PAGA is here, and understanding its implications is crucial for navigating California’s complex labor law environment.
We will continue to monitor these new developments and provide updates as necessary. For more information on how these reforms may affect your business, or PAGA litigation in general, please contact any attorney in Kahana Feld’s Labor & Employment Counseling and Litigation practice group.