A New Dawn (Maybe) for California Employers: State and Business Groups Strike Deal on PAGA Reform

On June 18, 2024, Governor Newsom, in collaboration with legislative leaders, unveiled a landmark agreement to reform the Private Attorneys General Act (PAGA). The agreement comes before California voters could weigh in on the California Fair Pay and Employer Accountability Act, a measure set for the November 2024 ballot, proposing in large part to repeal PAGA. The terms of the deal struck between the state and business groups appears to meet somewhere in the middle. Proponents of the ballot measure have agreed to withdraw it once the Governor signs the reform deal into law. This long-needed reform may recalibrate the landscape of wage and hour enforcement in California and provide much needed relief to California employers.

Understanding the Reform

PAGA, which was enacted in 2004, deputizes employees to stand in the shoes of the state’s Labor and Workforce Development Agency (LWDA) to enforce violations of the California Labor Code. While intended to augment labor law enforcement, PAGA’s implementation led to a surge in litigation over the last two decades and is often criticized for its exploitative nature and disproportionate settlements benefitting plaintiff-side law firms more than workers.

The new reform agreement seeks to address these criticisms by introducing several changes:

If passed, the Amendment’s reformed penalty structure will:

• Encourage compliance with labor laws by capping penalties for employers who quickly act to rectify policy lapses and compensate employees accordingly, including after receiving a PAGA notice. 
• Cap penalties for employers that proactively ensure compliance with the Labor Code before receiving a PAGA notice.
• Create new, higher penalties on employers who act maliciously, fraudulently, or oppressively in violating labor laws.
• Increase penalties allocated to employees from 25% to 35%.

The Amendment aims to reduce and streamline litigation by:

• Increasing the number of labor code violations that can be cured, which is aimed at reducing litigation and expediting remedies for employees, which in turn, should afford significant relief to employers who would have otherwise been ensnared in litigation over violations that they could have remedied easily.
• Implementing a more robust right to cure process through the LWDA aimed likewise at resolving claims short of litigation.
• Codifying the limitation on the scope of claims presented at trial to ensure cases are manageable and adjudicated efficiently.

The Amendment also improves measures for injunctive relief and standing by:

• Allowing courts to compel businesses to implement workplace changes to remedy labor law violations.
• Mandating that employees must personally experience the alleged violations to bring a claim.

Implications for Employers

For California employers, this reform is a welcome, long overdue and needed change. The procedural updates aim to filter out meritless claims early, reducing the financial burden of defending against PAGA lawsuits and remove the incentive for employees to assert frivolous claims, leveraging unfair settlements against the cost of litigation. A stronger right to cure process through the LWDA should lead to more predictable and standardized enforcement of labor laws, moving away from inconsistent litigation outcomes and achieving PAGA’s initial goal, which is to bring employers into compliance with labor laws. Redirecting more settlement funds to workers rather than lawyers may decrease inflated settlements driven by attorney fees, aligning with PAGA’s original intent. The reform, however, does not address removing attorneys’ fees for enforcement, unlike the PAGA ballot measure, which remains the prevailing driver for expensive PAGA litigation.

Key Points for California Employers

While the reform marks noteworthy progress, its success will likely hinge on effective implementation. Employers should remain vigilant and adapt their compliance strategies to align with the new regulatory landscape when in effect. Engaging with legal counsel to understand the nuances of the anticipated reform will be crucial in navigating this transition smoothly. Employers should also consider:

• Monitoring changes in employment and related laws and how they may impact their business operations and compliance requirements.
• Updating internal policies and procedures to align with the new PAGA requirements to both avoid potential violations and to incentivize compliance.
• Working with employment counsel to understand the nuances of the reform and to develop effective strategies for navigating the new legal landscape.
• Monitoring how the LWDA enforces the new rules and making it a point to address any compliance issues that arise.

Stay tuned as we continue to monitor the implementation of these reforms and their impact on California’s employment landscape.

For more news and insights on employment law, visit the Mintz Employment Law Blog.  

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