What Employers Should Know About Recent Changes to California’s PAGA Law
POSTED BY Angela A. Nelson
What is PAGA?
Since 2004, California’s Private Attorneys General Act (“PAGA”) has allowed an individual employee to “stand in the shoes of” the State to recover civil penalties from an employer for Labor Code violations—not only for violations against the single employee bringing suit, but for violations against all aggrieved employees.
In this way, a PAGA lawsuit is a representative action like a class action. However, PAGA actions do not play by the same rules as class actions.
How is PAGA different from a Class Action?
Because an employee bringing a PAGA action is (in theory) acting as a private attorneys general to enforce State laws, PAGA actions are not treated like traditional civil lawsuits. Instead, they are treated as administrative enforcement actions brought by the State.
For this reason, many of the limitations on class action lawsuits do not apply to PAGA actions. For example, PAGA actions cannot be waived, worker class certification and manageability requirements do not apply (meaning PAGA actions can claim to represent innumerable, largely unrelated workers), and even if the individual employee must arbitrate their individual claims due to arbitration agreements, they can still simultaneously pursue the representative PAGA action.
In addition to these differences, PAGA penalties accrue for each employee for each pay period that the employee worked within the one-year statutory period, allowing minor infractions to snowball quickly into oppressive claims for recovery. In practice, these compounded penalties can have devastating financial consequences for employers. For instance, a simple rounding error penalty of $100 per pay period can amount to $2,600 for a single employee in a one-year period; for a group of 100 employees, that same rounding error can rack up penalties of $260,000—and that is only one potential penalty.
At face value, PAGA actions appear to benefit employees, but PAGA actions actually tend to result in lower payouts for employees than class action suits. This is because in PAGA actions the majority of any recovered penalties go to the State, not the employees. In a class action, by contrast, the State does not take a cut of any award.
Because PAGA actions have become easier to file and litigate than traditional class actions, PAGA actions have been filed in greater numbers in recent years. Not only have there been more PAGA actions, but these actions have increasingly claimed to represent larger groups of workers, no matter how unrelated, to maximize penalties. This has resulted in lawsuits involving so many distant and unconnected issues that employers’ resources are unfairly stretched to the breaking point simply to respond. In short, employees (guided by their attorneys) have been using the kitchen sink approach to overwhelm employers. However, recent changes to PAGA legislation are meant to change this lopsided landscape.
What are the New Changes to PAGA?
Following significant concerns regarding the lack of safeguards applicable to PAGA actions, legislation was enacted by the California legislature to modify PAGA.
The modifications signed into law by Governor Gavin Newsom in July of 2024 apply to all PAGA actions filed on or after June 19, 2024.
The following are key changes made by the new legislation:
Only Violations Experienced by the Employee Can be Included.
An employee can now only bring a representative PAGA action on behalf of other aggrieved employees that suffered the same Labor Code violation as the employee bringing the PAGA action. Prior to the June 2024 changes, an employee could purport to represent any aggrieved employee that suffered any Labor Code violation, even if the employee bringing the action did not experience the same violations. This modification significantly alters the scope of PAGA actions in light of concerns regarding manageability and broad standing to bring claims unrelated to the representative employee’s own claims. While the employees still do not need to meet the stringent class certification requirements, this modification limits the scope of investigation and discovery.
Related or Derivative Penalties Cannot be Stacked.
If an employee recovers a civil penalty for an underlying wage violation, they cannot stack additional related or derivative claims for additional penalties (which was permitted prior to the June 2024 changes). For instance, an employer cannot be separately penalized for failure to timely pay wages upon separation and failure to pay those same wages during employment. The exception to this rule is if the employer acted willfully or intentionally.
Weekly Payroll Will No Longer Be Double Penalized.
Prior to the June 2024 changes, employers that paid employees weekly faced double penalties because PAGA penalties were based solely on the number of pay periods in which a violation occurred—essentially, because employees were paid 52 weeks a year rather than the 26 weeks common in biweekly or 24 weeks in semi-monthly payment schemes, employers utilizing a weekly payroll were getting hit for twice as many penalties. Many employers switched to a bi-weekly payroll to avoid the risk of such penalties, to the detriment of employees relying on more immediate pay periods. Now, penalties will not double merely because employers pay on a weekly basis.
Wage Statement Violation Penalties Are Reduced to $25.
Wage statement violations regarding missing required information on employee paystubs, which previously where penalized at a rate of $100 per employee per pay period, have been reduced to $25 per employee per pay period as long as the employees can promptly and easily determine the required information.
Increased Penalties for “Subsequent Violations” Are Limited.
Under PAGA, where a penalty was not provided for, the default for initial violations for each aggrieved employee is $100 per pay period, with subsequent violations of $200 per aggrieved employee per pay period. The June 2024 changes clarify that the subsequent violation amount of $200 only applies where either: (1) the court or the Labor Commissioner finds that the employer’s practice or policy violated the law within the last five years, or (2) a court determines that the employer acted “maliciously, fraudulently, or oppressively.”
Employers Can Take Reasonable Steps to Cap Penalties.
The new PAGA statute provides for a 15% cap on penalties where reasonable steps were taken by the employer before receiving a PAGA notice, and a 30% cap on penalties where reasonable steps were taken within 60 days of receiving a PAGA notice. Reasonable steps may include actions such as conducting regular payroll audits and taking responsive action, disseminating lawful written policies, training supervisor on Labor Code compliance, and taking corrective action with supervisors.
More Opportunities for Employers to Reduce Penalties.
An employer can cure violations on a much broader scale under the new law than under the previous law. Depending on the extent of an employer’s remedial efforts and steps taken to cure certain violations, penalties can be reduced anywhere from 70% to 100%.
Employees Will Get A Larger Share of Penalties.
While the State will still take the majority share of any awarded penalties under the new law, the employees’ share will increase from 25% to 35%.
The Takeaway
The 2024 changes to PAGA have introduced some guardrails to limit the extent of PAGA claims and to reduce the number of potential penalties employers face. Even more meaningfully, employers can now take remedial action to reduce penalties or cure violations when a PAGA action is filed.
Employers can take proactive steps to protect themselves by ensuring that supervisors are adequately trained, by conducting regular payroll audits and taking appropriate corrective measures, and by working with legal counsel. The Labor Code is nuanced, and violations can occur unintentionally.
For questions around PAGA changes and employment law, reach out to DP&F Employment Law partners Jennifer E. Douglas and Marissa E. Buck, or to attorney Angela A. Nelson, Litigation.
