For two decades, California’s Private Attorneys General Act (PAGA) has posed significant challenges for employers in the state. Last month, Governor Gavin Newsom signed a legislative compromise to overhaul PAGA, in response to a ballot measure that sought to eliminate it. While this reform is intended to ease some of PAGA’s more burdensome and punitive aspects, it is unlikely to deliver the relief that businesses might expect.
Primarily, PAGA has empowered private litigants to sue employers on behalf of themselves and other “aggrieved employees” to recover civil penalties under the California Labor Code, which were previously exclusive to the California Labor Commissioner. The overhaul aims to reduce litigation by allowing employers more opportunities to remedy violations before penalties are imposed.
Historically, the California Supreme Court has differentiated PAGA representative actions from traditional class actions, allowing employees certain advantages that make defending PAGA claims particularly difficult for employers. For example, employers have faced doubled liabilities under PAGA as penalties are determined per pay period, disadvantaging those who pay employees weekly compared to those who pay bi-weekly or semi-monthly. Fortunately, the recent reform addresses this.
Nonetheless, the frustrations for employers continue. PAGA has permitted plaintiffs to stack civil penalties on top of statutory penalties already allowed under the labor code, thus magnifying potential settlement values and assessed damages in lawsuits. Plaintiffs could pursue claims for widespread wage and hour violations, even for infractions they did not suffer directly, which represented a significant departure from traditional class action requirements.
On the positive side, the reform includes provisions that require representative plaintiffs to have personally suffered each alleged violation within the past year. This marks a shift towards the stricter standing requirements seen in conventional class actions. Moreover, the amendments expand the range of labor code violations that employers can cure to avoid penalties and lower some penalty structures and amounts.
However, the legislative compromise involves notable trade-offs. For instance, the amended PAGA allows courts to impose an increased $200 per aggrieved employee penalty if the employer’s conduct is found to be malicious, fraudulent, or oppressive. Additionally, the reform gives courts discretion to award more than the maximum penalty if doing otherwise would be “unjust, arbitrary and oppressive, or confiscatory.”
These changes suggest that while some aspects of PAGA litigation may become more manageable, new areas of contention are likely to emerge. Employers will now need to navigate the increased penalties for malicious conduct and the possibility of discretionarily augmented awards. Consequently, these adjustments may spur more legal battles as both sides test the new provisions of the compromise. For a more detailed analysis of the impact of these changes, you can read the full article by Keith Rasher at Bloomberg Law.