California Governor Announces PAGA Reform Deal Reached, Removing Ballot Proposal

06.20.2024

On June 18, 2024, Governor Newsom’s office announced that the pending ballot initiative to repeal PAGA (the Private Attorneys General Act) would be removed from the November ballot, due to a “negotiated deal,” reforming PAGA in a way that, “works for both business and workers,” and will “bring improvements to this system.” This package was, per Politico, negotiated over several weeks “behind the scenes.” This is similar to recent FAST Act reforms that were removed from the ballot, and also negotiated behind the scenes, and benefitting some parties more than others.

PAGA is, by its own terms and origin, a “bounty hunter statute,” where penalties can be sought against an employer in the name of the State. This is in addition to multiple avenues of relief that already exist under California law to recover damages, obtain injunctive relief, and recover attorneys’ fees. Individual employees are seldom, if ever, motivated by PAGA. Their attorneys, in contrast, are motivated to collect statutorily provided fees. And the State is motivated by being able to collect 75% of any penalties achieved via resolution or any judgment. PAGA is truly a statutory mechanism, available only in California, that was designed to generate funds for the State and the Plaintiff’s bar. It is otherwise superfluous and wholly unnecessary. Any notion that “the system,” however defined, needs PAGA, is severely misguided and unsupported by any meaningful data.

And, though certain proposed reforms were made, it is unclear how, or if, the reform package will curtail unnecessary and often frivolous litigation, or how the State will fund, for example, intended hiring of staff for its Labor & Workforce Development Agency (LWDA) office. The Governor’s press release may be viewed here: Governor Newsom & legislative leaders announce agreement on PAGA reform | Governor of California The newly proposed PAGA reform package is subject to approval by the Legislature.

Complete details have not been made available, however some of the proposed reform items are reported to include:

Changes in Allocation of Any Penalties Recovered – The proposal increases the employee minority share to 35%, from 25%, with the State to collect 65% instead of 75%.

Changes to Standing & Statute of Limitation on Claims – The proposal will require the named representative to actually have experienced each alleged Labor Code violation he/she is pursuing (reversing the Huff v. Securitas Sec. Servs. decision, which allowed a plaintiff to file claims for violations experienced by other employees), and to have experienced them within the last year. (reversing the Johnson v. Maxim Healthcare Services decision, which permitted claims based on older violations which occurred outside the actual statute of limitations under the “continuing violation doctrine”).

Capped Penalties – Penalties are proposed to be capped at (1) a maximum of 15% of any applicable penalty amount for employers who take steps to proactively comply with the Labor Code before receiving notice, and (2) a maximum of 30% of any applicable penalty amount for employers who take steps to fix the alleged violations post-notice.

Reduced Penalties – The proposal will reduce the maximum penalty where the alleged violation(s) was/were brief or where it is comprised of a wage statement that did not cause confusion or economic harm.

Changes to Weekly Pay Penalties – As penalties accrue on a pay period basis, the proposal aims to eliminate penalties on a per-pay-period basis for employers that pay on a weekly basis, as compared to employers whose regular payroll payments are in the form of bi-weekly or semi-monthly payments, by allowing for an adjustment of any penalties to be the same/similar.

Addition of New Penalties – The proposal adds to the litany of penalties already available by providing for a new $200 per pay period penalty where an employer acted maliciously, fraudulently, or oppressively.

Addition of Remedies – The proposal will add injunctive relief to the remedies available under PAGA.

Right to Cure Expansion – The proposal is said to expand the right to cure by expanding some areas of the Labor Code which can be subject to cure and providing a route to do so via the LWDA.

Early Resolution – The proposal reportedly provides a mechanism for exploring early resolution for “larger employers,” so as to avoid litigation costs.

Manageability – The proposal will aim to allow the courts to determine and more directly address the manageability of PAGA actions, and limit their scope of claims, evidence for trial, etc., in response to the Estrada v. Royalty Carpet Mills, Inc. decision, wherein it was determined that the court lacked inherent authority to dismiss “unmanageable” PAGA claims.

Bolstering/Involvement of the State’s Enforcement Agency – The proposal is slated to pursue relief to give the California Department of Industrial Relations (DIR) the ability to expedite hiring and filling of vacancies for the enforcement of Labor Code claims against employers.

The full text of and details surrounding the newly announced reform package are unclear, as are the details of how the newly reformed statute would work moving forward. It is also too early to tell how the reform law will be interpreted when tested in courts throughout the State - which it surely will be, assuming the Legislature approves it.

Additional questions are sure to arise. A couple will include: when will it take effect, and will the revised provisions (or some of them) be retroactive in effect? We do not yet know the answers to these questions, though they are important for all California employers.

While there are many uncertainties, one thing is clear – given the potential “capped penalties” for employers who take steps to proactively comply with the Labor Code before receiving notice, periodic audits of policies, practices, and other records became a much more valuable tool for employers to utilize.

We will continue to monitor this development, and will provide additional commentary here on AALRR’s website. Please do not hesitate to email or call the authors or your usual counsel at AALRR if you have any questions about the above, if you would like to discuss PAGA or related wage and hour issues, or if you would like to discuss how AALRR can assist in your efforts to audit your policies, practices, and other relevant records.