A new page for PAGA
Contributors
Arevik Sargsyan
The Private Attorneys General Act of 2004 (“PAGA” or “Act”), codified in Sections 2698 through 2699.6 of the California Labor Code, has become a key weapon for California’s enforcement of its Labor Code since PAGA’s enactment two decades ago. PAGA supplements the state’s enforcement efforts of violations of the Labor Code by deputizing employees who have been subject to alleged violations as proxies for the state itself to keep up with the ever-growing labor force in California. PAGA is a well-established, robust, and popular mechanism for plaintiffs to initiate lawsuits on behalf of others and the State of California for various types of penalties, particularly for violations of wage and hour rules and regulations.
Claims under PAGA skyrocketed in the wake of litigation affirming the use of class action waivers in arbitration agreements—a wave of PAGA claims, including “PAGA only” claims (with no corresponding class action) flooded the system. A ballot measure to repeal PAGA was set to be on the ballot in November 2024; however, a deal was reached in mid-June to reform PAGA whereby PAGA would be statutorily reformed and the ballot measure would be withdrawn. We now have PAGA 2.0, which aims to address some of the concerns raised by business groups.
History and purpose
The role of the LWDA
The California Labor and Workforce Development Agency (“LWDA”) is an agency that administers benefits and enforces labor laws. With respect to PAGA, the LWDA issues and collects civil penalties for certain violations of California’s Labor Code. Since the LWDA was unable to keep up with the growing workforce in California, PAGA was passed to allow employees to initiate a civil action against their employers on behalf of the state, to recover these penalties.[1] Employees must notify the LWDA of a PAGA violation, and may only file a lawsuit if the LWDA elects not to investigate or take action. If there is no response from the LWDA within 65 days of the notice, the employee may proceed with a lawsuit.
Aim of legislative enactment
Low staffing levels at the LWDA had not kept up with the growing economy and the legislature expressed concern about the agency having the resources to effectively enforce various labor laws and collect penalties as the workforce grew exponentially.
PAGA’s primary aim was enforcement of the Labor Code under the State’s police powers—not the protection of employees’ financial interests—given that aggrieved employees under PAGA only retained 25% the penalties, with 75% going to the LWDA.
The scope of PAGA
Scope of claims under PAGA
PAGA violations broadly fall into three categories: (1) violations of provisions specifically enumerated under Labor Code § 2699.5; (2) Health and Safety Violations pursuant to the Occupational Safety and Health Administration (“OSHA”); and (3) all other Labor Code provisions not included in the first two categories.
Common claims subject to PAGA include those for failure to provide meal and rest breaks, unpaid overtime, misclassification, failing to reimburse necessary expenses, and suitable seating.
Claims excluded from PAGA
PAGA does not create a private right of action to directly enforce wage orders or collect any underlying underpaid wages.[2] Further, there is no claim under PAGA for: (1) violating a “posting, notice, agency reporting, or filing requirement” of the Labor Code except mandatory payroll or workplace injury reporting;[3] (2) recovery of administrative and civil penalties in connection with workers’ compensation proceedings;[4] (3) alleged violations of California Labor and Workplace Development Agency's failure to act.[5]
Standing
Previously, any aggrieved employee could bring a PAGA claim for any other aggrieved employee of the same employer. An aggrieved employee was one who suffered at least one alleged violation subject to PAGA. There was no requirement that there be any commonality between the aggrieved employees. This issue has been addressed by the recent reforms.
Statute of limitations
PAGA claims can be brought up to one year after the date of the last infraction on which they are based. Employees must wait 65 days, the review period during which the LWDA can decide to intervene, before filing a lawsuit. The statute of limitations is tolled during the 65-day waiting period.
PAGA Civil penalties are available concurrently with statutory damages
Aggrieved employees who bring forth both PAGA claims and individual wage claims may concurrently recover civil penalties under PAGA and statutory damages in their individual capacities.
Civil penalties under PAGA are separate from statutory damages, which were previously available to aggrieved employees in their individual capacities for wage and labor violations by their employers. Civil penalties under PAGA are awarded to the State, with the plaintiff-employee keeping a small percentage, and the statutory damages are awarded to the plaintiff-employee to compensate the employee for their injuries (i.e., paying the owed underlying wages). PAGA does not limit the employee’s right to pursue other remedies available under state or federal law “either separately or concurrently with an action taken under this part.”[6] Case law has clarified the distinction “between a request for statutory penalties provided by the Labor Code for employer wage-and-hour violations, which were recoverable directly by employees well before the [PAGA] became part of the Labor Code, and a demand for ‘civil penalties,’ previously enforceable only by the state’s labor law enforcement agencies.”[7]
Calculation of civil penalties
Under PAGA, civil penalties are calculated and issued per employee, per pay period. Previously, this penalized employers with weekly pay periods as it meant being subject to exponentially greater penalties in the same period, merely due to having a greater number of pay periods in the course of a year. PAGA provided for a default penalty of $100 per pay period for initial violations and $200 per pay period for subsequent violations unless the Labor Code specifically provides for a different penalty. There was substantial litigation over when the subsequent penalty rates applied.
PAGA trials
Likelihood of success at trial
Despite the recent surge in PAGA litigation, relatively few PAGA cases have gone to trial. According to a recent study, there have been 78 judgments in PAGA actions that have gone to trial over the last 20 years though data suggests that more than 78 judgments likely exist.[8] According to the data based on available judgments, trial courts found labor code violations in 70% of the cases.[9] However, since courts declined to award PAGA penalties in eight of the cases, the rate of success was 58.6%.[10]
Inaccurate wage statement claims were most likely to succeed at trial
Lawsuits alleging only inaccurate wage statement claims have a high rate of success.[11] Retaliation cases brought under PAGA also have a better track record.[12] Cases involving multiple forms of violations such as wage loss, break violations, and unreimbursed expenses are closer to an even distribution.[13] Suitable seating cases have resulted in a series of losses; however suitable seating cases very often result in a settlement, with both parties frequently deeming early resolution more favorable.[14]
Highest penalty awards at trial
The higher penalty awards have tended to come in cases with multiple, disparate violations. Despite being easier to prove, awards for paystub violations were low.[15] Courts look at the willfulness of the employer in deciding to exercise their discretion to lower awards—evaluating whether there is evidence of ill motive, whether there were prior complaints, the difficulties faced by the employer when trying to fix wage statements, and the lack of an “injury.”[16] Trial courts exercised their discretion to reduce penalties in 55% of cases where violations were found.[17] The extent of the reductions varied widely, depending on the circumstances.[18]
Stacking of PAGA penalties
There has been great debate regarding whether and to what extent PAGA allows for stacking of penalties. Courts have stacked PAGA penalties by awarding more than one civil penalty for an aggrieved employee during the same pay period for independently wrongful conduct.[19] Plaintiffs’ counsel also tend to request that PAGA penalties be stacked by awarding multiple penalties for a single course of conduct. This issue has been addressed by the recent reforms.
The evolution of PAGA and newest reforms
PAGA has been heavily criticized due to the ease with which aggrieved employees can bring forth PAGA claims, particularly PAGA-only claims, to squeeze out settlements, which foremost benefit Plaintiffs’ counsel.
The Act has undergone amendments since its inception to address ongoing criticisms. The most recent 2024 reforms to PAGA have sought to make practical, common-sense changes in an effort to save the Act from a complete repeal.
Evolution of PAGA
The first round of PAGA amendments occurred in 2004, less than 2 months after it went into effect. These amendments attempted to make it more difficult to bring frivolous PAGA suits while preserving the purpose of the Act as a key tool for enforcement of wage and hour laws. Pursuant to the 2004 amendments to PAGA, an aggrieved employee who sought PAGA penalties would need to first outline the facts and theories for the alleged Labor Code violations in a letter addressed to the LWDA.
The 2016 amendments to PAGA extended the waiting period for filing a PAGA complaint with the aim of increasing LWDA’s oversight and involvement. The 2016 PAGA amendments required that notice of any proposed settlement of a PAGA action be provided to the LWDA in addition to any court order or judgment awarding or denying civil penalties. Further, the 2016 amendments expanded PAGA’s cure provisions, allowing employers the option to cure only limited technical violations, such as certain types of wage statement violations, before the plaintiff may file suit.
Newest reforms
On July 1, 2024, Governor Newsom signed SB-92 and AB-2288 into law, revamping PAGA to allow for a reduction of penalties, encouraging cure and remediation over litigation, tightening standing requirement, awarding a greater share of the penalties to the plaintiff-employee, codifying and strengthening the manageability requirement, expanding remedies, and incentivizing audits, among other things.
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New reforms are not retroactive
The recent reforms apply to new PAGA cases filed after June 19, 2024 (and only where the LWDA Notice was sent on or after that date).
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One year statute of limitations clarified
The statute of limitations for PAGA claims is one year. Before the reform, state courts varied in how they interpreted this. An employee that suffered a Labor Code violation (and was ever “aggrieved”)—even if that violation took place prior to the PAGA period or was otherwise time barred —could be allowed to bring the claim for others.[20] Further, plaintiffs brought PAGA suits and argued that the limitations period never ended even though they were terminated years ago because there were “continuing violations” as to current employees.[21] Under the new reforms, such arguments are barred; PAGA plaintiffs must have suffered violations within the one-year statute of limitations period.
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No stacking of derivative penalties
The reforms bar stacking of penalties for violations that stem from the same payroll or policy error such as derivative penalties under Labor Code sections 201, 202, 203, 204, and 226 (though additional penalties can be sought for failure to provide a wage statement or if the violation is knowing or intentional).
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Early evaluation and cure provisions
There is a separate process for small and large employers to cure violations. Those with less than 100 employees in the PAGA period can submit a confidential proposal to the LWDA to cure alleged violations and engage in a back-and-forth as to the same. Those with at least 100 employees in the PAGA period can request an early evaluation conference, including requesting a stay of court proceedings and a statement regarding whether they intend to try to cure. A neutral evaluator is then assigned by the court to try to help resolve the matter. Note that notice and cure provisions can only be used once in a 12-month period for the same type of violations.
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More Labor Code violations are curable; caveat: making ‘whole’ is a high bar
Although a greater number of violations are now subject to cure, including failures to provide meal and rest breaks or pay premiums for the same, failure to pay minimum wage or overtime, failure to reimburse expenses and expanded portions of the wage statement law.
Previously, failing to list the correct entity name and address could subject an employer to great penalties. While this was curable, the reform clarified that this can be cured by providing written notice to each aggrieved employee rather than issuing new wage statements for every applicable pay period, which is a relief.
However, to fully cure, the employer must also make the employee “whole,” which means not only paying them in full to recover any unpaid wages due in the prior 3 years, but also 7% interest, liquidated damages required by statute and reasonable lodestar attorney’s fees and costs. If the wages are disputed, the employer can pay sums sufficient to cover unpaid wages as determined by the Court of LWDA.
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Only those who have suffered a specific violation have standing to raise that specific violation in a PAGA suit on behalf of other aggrieved employees
Prior to the new reforms, an aggrieved employee or former employee could initiate a PAGA lawsuit against an employer for violations they did not suffer.[22] Any aggrieved employee subjected to a PAGA violation could bring a case for any other aggrieved co-worker for any type of PAGA violation—even if the aggrieved employee bringing the case did not personally suffer all of the alleged violations. Now, an aggrieved employee is only one who has “personally suffer[ed] each of the violations alleged.” In other words, if an employee bringing a PAGA suit did not suffer a rest break violation, they cannot seek penalties for rest break violations under PAGA. This is a big win in limiting the scope of a PAGA case. However, the new standing requirement does not apply to existing nonprofit legal aid organizations, incentivizing plaintiffs’ lawyers to associate with nonprofits in bringing forth claims.
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Wage statement cure - separate process
Prior to the new PAGA reform, two types of wage-statement violations were amenable to a cure: (1) failure to list the inclusive dates of the period for which the employee is paid and (2) failure to list the name and address of the legal entity that is the employer. The first violation can now be cured if an employer provides a brief written notice of the correct information to each individual aggrieved employee, identifying the correct information. To cure all other violations, an employer must provide aggrieved employees with the corrected wage statements for each pay period in which a violation occurred for the prior three years. Further, electronic provision of corrected wage statements is appropriate pursuant to the new reform.
On or after October 1, 2024, if the only violation at issue is a wage statement violation, employers are mandated to follow a separate cure procedure. Employers are required to cure the wage statement violation and give written notice, via certified mail, to the PAGA plaintiff followed by filing the notice online to the LWDA. The filing to the LDWA must describe the steps taken to cure within 33 calendar days of the postmark date of the PAGA notice. If the violations remain uncured within 33 days, the PAGA plaintiff may sue in court.
If the employee disputes the cure of the wage statement, they must file with the LWDA a written notice with the specific grounds supporting their position and send the notice to the employer. Within 17 calendar days of the receipt of such a notice, the LWDA must review the employer’s cure and issue a written notice of its decision to both employee and employer. The LWDA has discretion to allow the employer three more business days to cure an outstanding violation. If the LWDA ultimately decides the violation was not cured or fails to provide a notification of its decision, the PAGA plaintiff can file suit. If the LWDA decides the violation was cured but the employee disagreed, the employee may appeal the decision to the superior court.
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PAGA penalties reduced in many instances
The new reforms provide for reduced penalties in various instances:
- There is a reduced $50 penalty per pay period per aggrieved employee for isolated violations (when an employer can show the issue is isolated and nonrecurring—the lesser of 30 consecutive days or four consecutive pay periods.)
- If a wage statement violation under Labor Code section 226 does not harm the plaintiff (i.e. the employee could promptly and easily determine from the wage statement alone the accurate information required to be provided, or, the missing employer identity information is not confusing or misleading), the only civil penalty applicable is $25 per employee per pay period.
- Weekly pay period penalties are reduced by half to address the inequality of “per pay period” penalty amounts when an employer does not have biweekly or semi-monthly pay periods. (For instance, many service technicians are paid weekly and a $100 violation would mean $400 per month per aggrieved employee, which is now reduced to $200 per month - as it would be for semi-monthly pay periods).
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Employees receive a greater percentage of the penalty
Employees will now receive 35% of the penalty or net settlement, and the LWDA will receive 65%, compared to the previous 25/75 split.
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Manageability requirement codified
Employers were previously using manageability arguments to limit the scope of PAGA claims as unwieldy and unmanageable. Before the PAGA reform, there were conflicting holdings in Estrada v. Carpet Royalty Mills, Inc., and Wesson v. Staples the Off. Superstore LLC, on whether a court may dismiss a PAGA claim before trial on manageability grounds. The California Supreme Court held that PAGA claims cannot be dismissed before trial on the basis that the evidence is unmanageable at trial—the evidence presented could be limited to ensure manageability. The new PAGA reform codifies that employers may effectively argue that plaintiffs must be able to manageably present evidence before and at a PAGA trial, which should give the courts the extra bode of confidence they need to limit the evidence presented.
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Injunctive relief is now available
Injunctive relief is an expanded remedy. The law permits, but does not require, an employee to seek injunctive relief under PAGA.
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Penalties are capped when employers take “all reasonable steps” to ensure compliance
If an employer is found to have taken “all reasonable steps” to maintain compliance with the California Labor Code before a PAGA notice or a request for personnel records under Section 226, 432, or 1198.5 is made, PAGA penalties for violations will be limited to 15% of the applicable penalty amount.
Additionally and alternatively, if an employer is found to have taken “all reasonable steps” to comply with the law within 60 days after receiving a PAGA notice, PAGA penalties for violations will be limited to 30% of the applicable penalty amount.
Whether an employer took reasonable steps is evaluated by the totality of the circumstances. Reasonable steps may include, but are not limited to:
- disseminating lawful written policies,
- conducting regular payroll audits and addressing issues,
- training management on compliance, and
- taking corrective action regarding supervisors.
Concerns about implementation
Although the reforms are a step in the right direction, they are far from perfect. They leave many questions open as to their implementation and despite best intentions about encouraging compliance, will nevertheless lead to complex litigation.
Best practices to stay compliant
Still, it is a crucial time for employers to review their practices, policies, and procedures to ensure compliance and take advantage of the reforms.
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Conduct regular audits
In order to stay compliant with PAGA, employers should conduct regular audits to assess common PAGA violations such as unpaid overtime or meal and rest break issues. Employers should also audit their internal practices such as paystubs, job descriptions, pay transparency practices (job postings, records, etc.) If potential issues are preemptively identified and addressed, employers can avoid hefty penalties and showcase genuine effort in complying with the Act. Further, when employers ascertain a violation actionable under PAGA, they should take immediate corrective action and document it.
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Create and effectuate written policies
Next, create and effectuate written policies regarding wage and hour practices. Whether it be holding new training sessions, revising or instituting new policies, or disciplining for multiple violations, you should establish such policies, share the policies with all your employees in written format, and make a steadfast effort to comply with the policies.
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Maintain records
Maintain and preserve any and all applications, personnel, membership, or employment referral records and files for a minimum period of four years after the records and files are initially created or received, or for employers to fail to retain personnel files of applicants or terminated employees for a minimum period of four years after the date of the employment action taken.
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Train management and employees
Regularly train management and employees to ensure compliance with legal requirements. Remind management regarding anti-retaliation laws.
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Review and monitor on a regular basis
Employers should put in place a plan to review and monitor their policies, practices, and procedures on a regular (at least annual) basis to ensure compliance going forward.
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Engage experienced counsel with industry-specific knowledge
Employers should consult experienced counsel for help with compliance and implementation and keep abreast of industry-specific regulations.
While the new reforms do not solve all of PAGA’s problems, and in fact, create some new ones which are sure to be litigated, they do offer some relief and some strategies to employers and Defendants in responding to these claims.
[1] Lab.C. § 2698; Howitson v. Evans Hotels, LLC (2022) 81 Cal. 5th 475, 481.
[2] Thurman v. Bayshore Transit Mgmt., Inc. (2012) 203 Cal. 4th 1112, 1132.
[3] Lab.C. § 2699(g)(2).
[4] Lab.C. § 2699(m).
[5] Lab.C. § 2699(f)(3).
[6] Lab.C. § 2699(g)(1); Caliber Bodyworks, Inc. v. Sup.Ct. (Herrera) (2005) 134 Cal. 4th 365, 375.
[7] Caliber Bodyworks, Inc. v. Sup.Ct. (Herrera) (2005) 134 Cal. 4th 365, 377.
[8] Jennifer Kramer, et. al, PAGA at 20: What Happens When Cases Go to Trial?, California Labor & Employment Law Review, July 2024, at 2.
[9] Id.
[10] Id.
[11] Id.
[12] Id.
[13] Id. at 3.
[14] Id.
[15] Id.
[16] Id.
[17] Id. at 4.
[18] Id.
[19] Id.
[20] E.g., Johnson v. Maxim Healthcare Servs., Inc. (2021) 66 Cal. App. 5th 924.
[21] Id.
[22] Huff v. Securitas Sec. Servs. USA, Inc. (2018) 23 Cal.App.5th 745.