July 2024

On June 18, 2024, California Governor, Gavin Newsom, announced that he reached an agreement with legislative leadership and business and labor groups to reform the Private Attorneys General Act (“PAGA”). The reforms to PAGA seek to strengthen worker protections and encourage employer compliance, while simultaneously limiting frivolous litigation against employers. Now, it is up to the Legislature to approve of this agreement.

The California Fair Pay and Employer Accountability Act qualified for the 2024 ballot. The ballot initiative sought to dramatically reform PAGA by, among other things, returning enforcement powers back to the state and removing the ability to bring private PAGA lawsuits. The announced agreement is intended to enact PAGA reforms and, if passed in the Legislature by June 27, 2024, would remove the Fair Pay and Employer Accountability Act from the ballot.

What is a PAGA Claim?

A PAGA claim is similar to a class action lawsuit. It allows aggrieved employees to file lawsuits to recover civil penalties on behalf of themselves, other employees, and the State of California for Labor Code violations. The default penalty for a violation of the Labor Code is $100 per employee per pay period for an initial violation and $200 per employee per pay period for each additional violation.

Proposed Changes to PAGA

The PAGA reform proposal aims to achieve four key things:

1. Reform the Penalty Structure

• Create a cap for penalties on employers who quickly fix policies and practices after receiving a PAGA notice;
• Create a cap for penalties on employers that take proactive steps to comply with labor laws prior to receiving a PAGA notice;
• Create new, higher penalties on employers who act maliciously, fraudulently, or oppressively in violating labor laws; and
• Increase the penalty money allocated to employees from 25% to 35%.

2. Reduce and Streamline Litigation

• Expand which Labor Code sections can be cured to reduce the need for litigation and quickly make employees whole;
• Protect small employers by providing a more robust right to cure process through the Labor and Workforce Development Agency (LWDA) to reduce litigation and costs; and
• Codify that a court may limit the scope of claims presented at trial.

3. Improve Measures for Injunctive Relief and Standing

• Provide injunctive relief to compel businesses to implement changes in the workplace to remedy labor law violations; and
• Require employees to personally experience the alleged violations brought in a claim.

Under current rules, established in the case of Adolph v. Uber Techs, Inc., a plaintiff only needs to be an aggrieved employee (someone employed by the alleged violator and against whom one or more of the alleged violations was committed) to have standing (i.e., the right to sue) under PAGA.

4. Strengthen State Enforcement

• Provide the Department of Industrial Relations (DIR) the ability to expedite hiring and fill vacancies to effectively and timely enforce employee labor claims.

Why was There Need for Change?

Business groups argue PAGA hurts virtually every industry and employer in California. A recent report found that since 2013, “employers have been forced to pay nearly $10 billion in PAGA court case awards,” however, due to high attorney fees and the fact that 75% of all PAGA penalty awards go to the State, workers receive only a small portion of the billions in penalties. The report also found that workers receive “three times more when their claims are reviewed by the state vs. cases filed with a court.” The stated intent of these reforms is to better serve employees while reducing shakedown lawsuits against small businesses.