In November 2024, Californians were scheduled to vote on a “PAGA Repeal Initiative,” which, if enacted, would replace the current Private Attorneys General Act (PAGA). Known colloquially as the “Sue Your Boss Law,” PAGA has incentivized employees to file lawsuits against employers on behalf of the State of California to seek “civil penalties.”

In a last-minute compromise to prevent the complete repeal of PAGA, Governor Newsom and state lawmakers have proposed legislation, expected to be enacted no later than June 27, that promises significant reforms to the current PAGA scheme.

Assuming that this PAGA reform bill passes, the following changes are to be implemented. Some of these changes include:

Reduction of Potential Penalties

In the proposed reforms to PAGA, penalties for violations of labor laws are set to undergo significant changes. Currently, PAGA imposes penalties starting at $100 per employee per pay period for initial violations, escalating to $200 for so-called “subsequent violations.” What constitutes so-called “subsequent violations” triggering these enhanced penalties has been uncertain since PAGA was enacted nearly two decades ago.

The new bill proposes to rectify this by instituting a flat $100 penalty per pay period for all violations.  Furthermore, the new bill could reduce this $100.00 penalty by up to 85% if an employer timely and proactively remedies alleged Labor Code defects. Additionally, the proposed bill establishes that a higher penalty for “subsequent violations” can be imposed only if a court or agency has issued a finding that within the last five years an employer has engaged in Labor Code violations or otherwise engaged in conduct that was malicious, fraudulent, or oppressive.

Adjusted Penalties for Different Payroll Frequencies

Under the current PAGA law, penalties are calculated per pay period, resulting in higher penalties on employers with more frequent pay schedules. The proposed PAGA reforms halve penalties for employers with weekly pay periods compared to those with less frequent schedules, aiming to provide more equitable penalty assessments across different payroll frequencies.

Limitation on Who Can File PAGA Claims

Current California Supreme Court rulings hold that PAGA allows plaintiffs to file claims on behalf of others for violations that the plaintiff did not personally experience. The proposed reforms, however, aim to do away with this laxity by restricting PAGA claims to those violations that a plaintiff had personally experienced.

Preclusion of Derivative Penalties

Current PAGA practices allow overlapping penalties for multiple violations under different sections of the Labor Code. The proposed reforms prohibit, in certain occasions, the combining of penalties for certain violations, aiming to prevent double-dipping in litigation and ensuring penalties are applied appropriately.

Furthermore, the reforms would not apply retroactively to ongoing litigation or violations reported before June 19, 2024.

In conclusion, it is important to note that the proposed legislation remains tentative, and its enactment into law is uncertain. That said, businesses should stay informed about these proposed reforms.

MNK Law will continue to monitor these legislative developments that could impact California employers and their legal obligations. For personalized guidance on managing compliance and legal risks, reach out to our team.