PAGA – Where We Are Today

In this edition, we delve into a crucial piece of legislation impacting California employers—the Private Attorneys General Act (“PAGA”)—and recent changes to the law.  

What is PAGA? 

PAGA allows employees to sue their employers for labor code violations. Essentially, it deputizes employees to enforce labor laws that the Labor and Workforce Development Agency (“LWDA”) might not pursue. When an employee brings a PAGA claim, they do so on behalf of themselves, other aggrieved employees, and the state. Plaintiffs initiate PAGA actions by giving written notice to the LWDA and the employer of specific Labor Code violations. If the LWDA intends to investigate them, it must notify the parties within 65 days. If the LWDA does not respond or declines the claim, the employee can proceed with a lawsuit. 

PAGA plaintiffs who prove violations of certain labor laws, such as unpaid wages, overtime, and meal-and-rest-break violations, can obtain penalties. The default penalty is $100 per employee per pay period.  

PAGA has been a topic of significant debate. Critics argue it has led to an increase in frivolous lawsuits and substantial legal costs for businesses. In contrast, proponents believe it is essential for protecting workers’ rights, especially when state-enforcement resources are limited.  

New PAGA Standing Requirements – AB 2288 and SB 92 

On July 1, Governor Newsom signed two bills to reform PAGA—Assembly Bill 2288 and Senate Bill 92.  

Previously, an employee who had suffered any Labor Code violation could sue on behalf of themselves and other current or former employees, even if those employees experienced different violations. In other words, an employee who allegedly suffered overtime violations could bring a PAGA claim on behalf of employees who suffered meal or rest-break violations. Now, with some limited exceptions, employees can only sue on behalf of those who suffered the same violation.  

This shift significantly limits PAGA’s claims and discovery to those relating to the plaintiff’s experience. Additionally, the plaintiff must have suffered the violation within the statute of limitations, clarifying previous uncertainty about pursuing otherwise time-barred claims.  

Cure Provisions 

Until now, PAGA offered limited opportunities to cure alleged violations to avoid penalties, mainly in cases involving certain wage-statement issues. The new reforms expand the range of Labor Code sections that can be cured. 

The term “cure” means that the employer corrects the violation, complies with the relevant statutes, and makes the affected employees “whole.” Employees are made whole when they receive:  

• all unpaid wages owed, as specified in the employee’s notice, for up to three years before the notice date,  
• 7% interest,  
• any applicable liquidated damages, and  
• reasonable attorney’s fees and costs determined by the LWDA or court.  

The cure provisions also changed for wage-statement violations. Previously, only two types of wage-statement issues could be cured: failure to include the dates for which the employee was paid and failure to list the correct employer’s name and address. The reforms expand the cure provisions to all wage-statement violations. First, for violations relating to the employer’s name and address, they can be corrected by simply sending written notice with the corrected information to each affected employee. This can be a summary notice specifying the correct details for each pay period when the violation occurred. Employers do not need to issue new paystubs for these violations. 

For all other wage-statement violations, employers must issue corrected paystubs for each pay period during which the violation occurred in the prior three years. But employers who customarily provide paystubs in digital form can meet the requirement by making the corrected paystubs reasonably accessible in a digital or computer-generated record.  

Wage Statement Cure Provisions 

If curing only wage-statement violations, the employer has 33 days from the PAGA notice’s postmark date to fix the alleged violation. The employer must notify the employee or their representative by certified mail and file online with the LWDA, describing the actions taken. If the violation is cured within this period, the employee cannot sue.  

If the employee disagrees that the violation has been cured, they must notify both the LWDA and the employer in writing, detailing their reasons. The LWDA must review the employer’s actions within 17 days and inform both parties of its decision by certified mail. The LWDA may extend the cure period by three business days. If the LWDA finds the violation unresolved or does not provide a timely response, the employee can sue. If the LWDA finds the violation cured but the employee disagrees, the employee can appeal the decision to the superior court. 

Small Employers 

Starting October 1, 2024, employers who employed fewer than 100 employees in total during the period covered by the PAGA notice may avoid litigation by following certain cure procedures. Specifically, they have 33 days from receiving a PAGA notice to submit a confidential proposal to the LWDA outlining their plan to cure. If the cure appears sufficient on its face, or if a conference is needed to assess whether a sufficient cure is possible, the LWDA may schedule a conference with the parties within 14 days. This conference, to be held within 30 days, will evaluate the proposed cure’s adequacy, identify any additional information required, and set a mutually agreed-upon deadline for completing the cure.  

If the LWDA determines the employer’s cure is insufficient or does not act on the proposal, the employee can file a lawsuit 65 days after sending the notice. This time can be extended by the LWDA, but no longer than 120 days.  

The employer must complete the agreed-upon cure by the deadline, but no later than 45 days after the conference, and provide a sworn notification to the employee and LWDA that the cure is completed, along with a payroll audit and check register if payment is involved. This notification must include any additional information needed to assess the cure’s sufficiency. The LWDA will verify completion within 20 days of receiving the employer’s notification. If the review process extends beyond the 65-day period, the statute of limitations for the alleged violations will be tolled until the procedure has been completed.  

If the LWDA initially finds the violation has been cured, it will inform the employee and, upon the employee’s request, schedule a hearing within 30 days. The LWDA will issue a final decision within 20 days of the hearing on whether the cure is sufficient. If found adequate, the employee cannot sue. But if the employee disagrees with the LWDA’s decision, the employee can appeal to the superior court. Any payments made to cure the violation, excluding penalties, will be deducted from any future judgment if the court finds the LWDA’s decision was incorrect. An employer’s cure or proposal to cure does not constitute an admission of liability and is considered a confidential settlement offer. 

Early Evaluation Conference for Large Employers 

An employer who employed at least 100 employees in total during the period covered by the PAGA notice may, upon receiving a PAGA lawsuit, request an early evaluation conference and stay the litigation. This request can be made either before or with the employer’s first response or appearance in the case. The evaluation conference assesses whether the alleged violations occurred and if the employer has remedied them; evaluates the strengths and weaknesses of both the plaintiff’s claims and the defendant’s defenses; explores the possibility of settlement, including penalties or injunctive relief; and determines if sharing additional information could facilitate early resolution. 

A defendant requesting an early evaluation conference must state whether they plan to cure any of the alleged violations, specify what violations they will cure, and identify the allegations they dispute. 

Once a large employer seeks a conference—and if requested—the Court will stay the proceedings and issue an order to: 

• Schedule a mandatory early evaluation conference within 70 days; 
• Direct a defendant that intends to cure violations to confidentially submit their proposed plan to the neutral evaluator and serve it on the plaintiff within 21 days;  
• Direct a defendant that is disputing any violations to confidentially submit a statement to the neutral evaluator and serve it on the plaintiff, detailing the basis and evidence for the disputes;  
• Direct the parties to appear at the conference; and  
• Direct the plaintiff to submit a confidential statement to the neutral evaluator and defendant, within 21 days, that addresses the factual basis for each alleged violation, the amount of penalties claimed and the basis for calculation, the amount of attorney’s fees and costs, any settlement demand, and the basis for accepting or rejecting the employer’s proposed cure plan. 

If the neutral evaluator approves the employer’s cure plan, the employer must present evidence within 10 calendar days (or a longer period if agreed upon by the parties or set by the evaluator) that the cure has been completed. Failure to do so may lead the court to terminate the “early evaluation conference” and lift the stay.  

If the evaluator and parties agree that the employer has cured the violations, they must submit a joint statement to the court, which, if all violations have been cured, the court will consider as a proposed settlement. If any violations remain in dispute, the court may defer considering the parties’ agreement until after the dispute is litigated.  

If the evaluator or plaintiff does not agree the employer has cured the alleged violations, the employer can file a motion—with evidence of the correction—asking the court to approve the cure.  

The early evaluation process will not exceed 30 days unless extended by mutual agreement of the parties. All statements or evidence submitted for purposes of the early evaluation conference and all discussions at the early evaluation conference are treated as confidential settlement communications. 

New PAGA Penalties 

Previously the default penalty was $100 for the initial violation and $200 for a subsequent violation. The new rules made the following changes: 

• Reduces the penalty to $25 per employee per pay period for minor wage statement violations.  
• Reduces the penalty to $50 per employee per pay period if the alleged violation resulted from an isolated, nonrecurring event that did not extend beyond the lesser of 30 consecutive days or four consecutive pay periods. 
• Clarifies that the $200 penalty only applies if (1) in the five years before the alleged violation, an agency or court found or determined that the employer’s policy or practice was unlawful, or (2) the court finds that the employer’s actions leading to the violation were malicious, fraudulent, or oppressive. 
• Clarifies that a good-faith dispute can eliminate PAGA penalties for three specific violations: (1) failure to pay all wages upon or shortly after separation (waiting-time penalties), (2) failure to pay wages on time, and (3) wage-statement violations (except when no wage statement is provided).  
• Caps penalties for employers who take “all reasonable steps” to comply with the law. The statute defines “all reasonable steps” to include (but are not limited to) (1) conducting an audit and acting in response to the results of the audit, (2) disseminating lawful written policies, (3) training supervisors on applicable Labor Code and wage-order compliance, or (4) taking appropriate corrective action with regard to supervisors. The cap is 15% if they took all reasonable steps before receiving a PAGA notice or request for records, and 30% if they take these steps within 60 days of receiving a notice.  
• Employers that cure a violation and take “all reasonable steps” to comply avoid penalties. And employers that cure wage-statement violations are also not liable to pay a penalty for that violation. Any other employers that cure a violation but do not take “all reasonable steps” to comply will still have to pay a penalty capped at $15 per employee, per pay period.  

Other Notable Provisions In the Amended Law 

• Derivative Penalties: An employee who recovers civil penalties for a core wage violation (such as minimum wage or unpaid overtime) cannot also seek civil penalties for derivative claims, such as for waiting-time penalties (unless willful or intentional), or failure to provide a compliant wage statement (unless knowing or intentional).  
• Penalty Allocation: Previously, penalties were distributed with 75% going to the State of California and 25% to the aggrieved employees. Now aggrieved employees get 35%.  
• Penalty Reduction: Employers who pay employees weekly will see a 50% reduction in applicable per-pay-period penalties. This change addresses a prior inconsistency, where calculating penalties per pay period subjected employers who paid more frequently to higher potential penalties solely due to their payment schedule. 
• Plaintiffs now have the ability to obtain injunctive relief.  

Conclusion 

AB 2288 and SB 92’s reforms mark a significant shift in the way PAGA claims are handled and how penalties are determined. By tightening the requirements for bringing claims, expanding the opportunities for employers to cure violations, and adjusting penalties, these changes increase fairness and proportionality in PAGA litigation. On the other hand, the PAGA reforms are extensive, and they may increase disputes because of the ambiguities in the rules and complexities in the cure process. Employers might find themselves in prolonged legal battles despite compliance efforts. Ultimately, while the reforms provide a framework for more balanced enforcement, their long-term impact will depend on how effectively both employers and the courts navigate the new complexities.

Best,

Keith W. Carlson and Nima A. Jalali