Compromise Stops Effort to Repeal PAGA By Ballot Initiative

Compromise Stops Effort to Repeal PAGA By Ballot Initiative

A major threat to worker protections was defused this week when the California Assembly and Senate approved amendments to the California Private Attorneys General Act of 2004 (PAGA).  PAGA allows employees harmed by labor law violations to seek penalties on behalf of California’s Labor & Workforce Development Agency (LWDA).  A proposed November ballot initiative would have repealed it. Instead, the proposed amendments do not disturb PAGA’s function.  Instead, they limit certain penalties available under PAGA and provide employers with incentives to remedy violations.  The amendments reflect a compromise between worker advocates and large business interests, who authored the now-tabled initiative to repeal PAGA.

The November ballot initiative would have barred employees from seeking civil penalties for labor law violations committed against them or against their fellow employees.  PAGA is a crucial tool for enforcing worker rights, and its continued viability is good news for workers.

PAGA Background

The Legislature enacted PAGA because enforcement agencies, especially the LWDA, are overwhelmed by the volume of labor law violations that need redress. Some examples of labor law violations subject to civil penalties include the failure to pay overtime; failure to provide meal or rest breaks; failure to provide accurate wage statements; or failure to furnish an employee’s personnel file on request.

To supplement LWDA’s efforts to hold employers accountable, PAGA (as enacted in 2004) allows individual employees—referred to as representative plaintiffs—to file suit on behalf of the LWDA to collect civil penalties ranging from $50-$500 for each violation of labor laws, depending on the nature and frequency of the violations.  Further, an individual representative plaintiff can seek civil penalties in court for labor law violations suffered by other aggrieved employees who work for the same entity.  If the representative plaintiff prevails in court, the LWDA collects 75% of the civil penalty and 25% is allocated to the aggrieved employees.  This can result in substantial penalties for an employer who regularly underpays its employees, whose policies do not provide for state-mandated rest and meal breaks, or who otherwise overwork or undercompensate their employees.  By allowing a representative plaintiff to aggregate penalties for labor law violations, PAGA makes it possible to vindicate many workers’ rights in a single action and provide a powerful deterrent to employers who might try to save costs by exploiting their workers.

Given the risks that PAGA poses to non-compliant employers, employers repeatedly challenged the 2004 Act in state and federal courts with little success.  For instance, some employers required employees to sign arbitration agreements that purported to waive the employee’s right to bring a PAGA action.  After the California Supreme Court held that an aggrieved employee’s right to bring a PAGA action may not be waived in Iskanian v. CLS Transportation (2014) 59 Cal.4th 348, employers challenged that holding in federal court, eventually reaching the U.S. Supreme Court.  According to employers’ arguments, whether an employee can waive their PAGA claims in an arbitration agreement is a question of federal law governed by the Federal Arbitration Act (FAA).  If so, the state rule that PAGA claims cannot be waived would be preempted by the FAA.  The U.S. Supreme Court disagreed with this argument in Moriana v. Viking River Cruises, Inc. (2022) 596 U.S. 639, and disagreed with Iskanian in part.  Following Viking River, the California Supreme Court clarified a question of state law left open by the Court as to whether an employee who signed an arbitration agreement agreeing to arbitrate a PAGA claim for violations she experienced still has standing to assert PAGA claims based on violations other employees experienced.  In Adolph v. Uber Technologies (2023) 14 Cal.5th 1104, the California Supreme Court held that even when an employee’s claims based on violations she experienced are ordered to arbitration, that employee maintains standing in court as to the employer’s violations against other workers.

Earlier this year, the California Supreme Court rejected a procedural challenge that employers frequently raised in PAGA cases.  Employers asserted that courts could strike PAGA claims as unmanageable, based on an analogy to class action cases.  A court in a class action case may, in certain circumstances, strike a class action claim the court deems unmanageable.  In Estrada v. Royal Mills Carpets (2024) 15 Cal.5th 582, the California Supreme Court found that courts may not apply this reasoning in PAGA cases and do not have authority to strike PAGA claims as unmanageable.

Courts’ protection of workers’ PAGA rights led business interests to seek freedom from PAGA liability another way: its repeal by ballot initiative, leading to the present compromise.

Present Changes to PAGA

The compromise reached by workers advocates and the business interests who sponsored the repeal initiative will change certain features of PAGA, while keeping its primary enforcement mechanism intact.  The amendments will apply to any PAGA action brought after June 19, 2024 and should not affect any pending PAGA cases.

Among the changes to PAGA are the following:

• The statute of limitations is now one year for all PAGA claims. (AB-2288 (2023-2024), enrolled Labor Code § 2699(c), Cal. Code Civ. Pro. § 340.)
• Aggrieved employees will now receive 35% of any penalty recovered in a PAGA action, rather than the 25% previously available, and the LWDA will receive 65%. (AB-2288, enrolled Labor Code § 2699(m).)
• The statutes now expressly require a representative plaintiff to have “personally suffered” each violation she alleges other employees suffered. (AB-2288, enrolled Labor Code § 2699(c)(1).)  This means that, for example, a representative plaintiff who was denied meal or rest breaks and paid no premium can seek penalties for other employees denied breaks and premiums; but if another employee was denied safety equipment, the representative plaintiff cannot seek penalties for that denial unless she too was denied safety equipment.
• If an employee provides notice of a violation to the employer and LWDA of certain violations including lost wages, the employer may cure the violation by paying the wages owed and 7% interest within 33 days. (AB-2288, SB-92 (2023-2024), enrolled Labor Code §§ 2699(d), 2699.3(c).)
• Businesses that employ fewer than 100 employees can stay a PAGA suit for an early evaluation to negotiate settlement and provide the employer an opportunity to cure violations. (SB-92, enrolled Labor Code § 2699.3(f).)
• Employers who violate the Labor Code but then take “all reasonable steps” to comply with the Code before receiving an aggrieved employee’s LWDA notice will be subject to only 15% of the penalty otherwise available. (AB-2288, enrolled Labor Code § 2699(g).)
  • This provision does not apply where a court or agency found that an employer’s “policy or practice giving rise to the violation was unlawful” within the prior five years, or where the court finds an employer’s conduct was malicious, fraudulent or oppressive. In those instances, the penalty for violation is $200 per pay period.  (Enrolled Labor Code §§ 2699(g), (f)(2).)
• An employer who pays employees weekly is subject to 50% of the penalty per pay period imposed on employers who pay their employees bi-weekly or semi-monthly. (AB-2288, enrolled Labor Code § 2699(o).)
• The civil penalty for an inaccurate wage statement is reduced to $25 per pay period in certain instances, which will limit employees’ ability to recover penalties for wage statements that are inaccurate because of denied overtime wages, e.g. Previously, aggrieved employees who were denied wages in violation of the Labor Code could seek a penalty for both the underlying violation and the resulting erroneous wage statement.  (AB-2288, enrolled Labor Code § 2699(f)(2)(A)(i).)

The authority of courts to “limit the evidence to be presented at trial or limit the scope of any claim” filed under PAGA to “ensure that the claim can be effectively tried” is codified.  (AB-2288, enrolled Labor Code § 2699(p).)  This does not disturb the holding in Estrada, instead confirming that courts have broad power to manage PAGA cases without granting authority to strike claims entirely.

Effects for Workers

The changes to PAGA are not in themselves good news for workers.  A statute of limitations of only a year will not be enough for many employees to identify violations of law and file suit, and fewer workers will be able to recovery from a limited period.  Some of the effects of the law will have to play out in practice.  For instance, the new law rewards employers who fix their labor law violations quickly, which will benefit workers if it means that employers are quick to remedy labor law violations when they are identified; but it will not benefit workers if employers are more responsive to strong deterrents that have been limited by the amendments.

However, the fact that PAGA is changing, rather than facing repeal in November, is good news.  Employees are the best-positioned to know when and how their rights are being violated, and PAGA remains an important tool to maximize enforcement of labor laws.

If an entity like your company is involved in systemic wage and hour violations, it can be held accountable under the California Labor Code and PAGA. Given the changes to PAGA, it is imperative to bring these PAGA claims to court promptly. If you believe that you have experienced wage and hour violations at your company, please contact Bryan Schwartz Law, P.C.