On June 18, Governor Gavin Newsom and legislative leaders announced an agreement with employers on reforms to the Private Attorneys General Act (PAGA), with corresponding legislation introduced on June 21. PAGA has been the subject of consistent challenges and has been criticized by business leaders and others for being excessively punitive, and a boon for plaintiffs' lawyers, with minimal benefits to employees. When PAGA's opponents were unable to influence legislative reforms, a coalition group that included former government labor officials drafted a ballot initiative that is set to take the matter directly to the voters this November.
If Assembly Bill 2288 and/or Senate Bill 92 are passed and signed into law by Gov. Newsom, proponents of the PAGA ballot initiative set for the November ballot have agreed to withdraw their measure by the June 27 deadline to do so. The PAGA ballot initiative as drafted would effectively eliminate PAGA as a tool for private litigants. The proposed legislation is a compromise resulting from months of negotiations between the Governor, labor organizations and business groups.
The PAGA reforms found in the legislation include:
- Penalties. To encourage compliance with labor laws, the bill would cap penalties at 30 percent of the applicable penalty amount on employers who quickly take steps to fix policies and practices, and make workers whole, after receiving a PAGA notice. Employers that take proactive steps to comply with the Labor Code even before receiving a PAGA notice would also face decreased penalties (with a maximum penalty of 15 percent of the applicable penalty amount). Alternatively, employers who act "maliciously, fraudulently or oppressively" in violating labor laws would face a new $200 per pay period penalty. Additionally, the legislation precludes various derivative penalties, which have often been used in PAGA cases to exponentially increase the potential penalties for the same underlying harm.
- Employee share. The amount of penalties allocated to employees under the statute would change, increasing from 25 to 35 percent.
- Expanded cure provisions to reduce litigation. The measure expands which Labor Code sections can be cured to reduce the need for litigation and provides for a more robust right to cure process through the Labor and Workforce Development Agency to reduce litigation and costs for small employers. And importantly, the legislation permits a court to limit the scope of claims presented at trial to ensure effective case management is also included. This provision appears to be a direct response to the California Supreme Court's opinion that trial courts do not have inherent authority to dismiss PAGA claims on the basis that they are too unwieldy or unmanageable to effectively try. For more information, please see our previous coverage on this case here.
- Injunctive relief. Courts would be granted the ability to provide injunctive relief to compel businesses to implement changes in the workplace to remedy violations.
- Standing. In order to bring a PAGA claim under the proposal, an employee must have personally experienced the alleged violations in the claim within the last year. This provision was in response to a 2018 California Court of Appeal case, which ruled that PAGA plaintiffs have broad standing to bring claims on behalf of other aggrieved employees for Labor Code violations that the representative plaintiff did not suffer, as long as the representative plaintiff suffered at least (and only) one violation of one Labor Code provision.
- Litigation cure processes for both small and large employers. In an effort to reduce litigation particularly against small employers (those with fewer than 100 employees), who have criticized PAGA as a shakedown tool given the potentially crippling effects of PAGA litigation, the LWDA will have more direct involvement in evaluating employers' pre-litigation cure efforts.
- State enforcement. To strengthen state enforcement, the Department of Industrial Relations would be given the ability to expedite hiring and fill vacancies to ensure effective and timely enforcement of employee labor claims.
- No retroactive effect. The new legislation will not have any effect on current PAGA legislation or on any matter where notice was given to the LWDA prior to June 19, 2024.
The agreement came on the heels of the U.S. Supreme Court's denial of certiorari in two cases involving PAGA.
In Uber Technologies Inc. v. Gregg and Lyft Inc. v. Seifu, the ridesharing companies attempted to persuade the courts that the Federal Arbitration Act (FAA) preempts PAGA claims, requiring dismissal of the nonindividual claims at issue. Having failed at the state level, Uber and Lyft filed writs of certiorari that were rejected by the justices.
To read AB 2288, click here.
To read SB 92, click here.
Why it Matters
Both sides claimed victory in the PAGA reforms. "We came to the table and hammered out a deal that works for both businesses and workers, and it will bring needed improvements to this system," Gov. Newsom said in a statement. "This proposal maintains strong protections for workers, provides incentives for businesses to comply with labor laws and reduces litigation."
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