On June 18, 2024, California Gov. Gavin Newsom and several labor and business groups came to an agreement regarding the future of the highly contentious California Private Attorney General Act known as PAGA. The agreement proposes to pass bipartisan legislation amending the statute. Should the legislation pass, the agreement would successfully halt a November ballot initiative for the voters which proposed eliminating PAGA altogether. To date, the agreement has been welcomed by businesses who have long criticized widespread, abusive, and costly PAGA litigation. Although the proposed amendments add to a business's quiver of possible defenses, it remains to be seen how effective these will be, and we do not expect the amendments to halt the avalanche of PAGA litigation statewide.
A Brief History of PAGA
PAGA was passed in 2003 and permitted employees to bring lawsuits against their employers on behalf of the state for alleged violations of the California Labor Code. It also provides that workers are entitled to a quarter of any monetary penalties recovered, while the remaining 75% of recovered funds go to the California Labor and Workforce Development Agency, which is ostensibly tasked with enforcing the state's various wage laws. Under PAGA, plaintiffs lawyers are also entitled to recover their attorneys' fees and costs, which typically range between 25% and 33% of the total settlement.
Over the years, many have correctly criticized PAGA, claiming that it doesn’t serve the employees it is meant to protect, and, in reality, only pads the pockets of plaintiff's lawyers who use it to file abusive group litigation to the detriment of businesses and the public at large (who in turn pass on added expenses to consumers). Proponents argue that the law is necessary because California's relevant agencies lack adequate resources to enforce workplace laws. They argue this private enforcement mechanism effectively deputizes private actors to pursue the State's interests.
However, PAGA has been a growing source of contention amongst the business community and even courts over the last two decades, as the volume of PAGA cases proliferated dramatically, and its fiscal and other impacts materialized. Many became disenchanted by the sheer volume of such cases, and the scant evidence presented despite the sweeping size and scope of the matters, which often forced employers to settle simply to avoid sizeable and uncontrollable litigation expenses.
Details of the Agreement
- Reform Penalty Structure: The proposed measures purport to promote legal compliance by capping civil penalties for employers who swiftly address and rectify policies and practices, and compensate workers after receiving a pre-suit PAGA notice. Under PAGA, an employee wanting to file a PAGA lawsuit must send the state notice of that intent, and identify the alleged violations. Only after that may an employee actually file suit. The new proposed legislation is meant to incentivize employer compliance in response to such a notice, and thereby enhance legal compliance and, in theory, decrease the number of PAGA suits filed. The cap on penalties also extend to employers who proactively ensure compliance with the Labor Code before receiving any PAGA notice. At the same time, the measures introduce higher penalties for employers who violate labor laws with malicious, fraudulent, or oppressive intent. Furthermore, the amendment also calls for a larger portion of the recovered penalties to go to employees, increasing that allocation from 25% to 35%.
- Reducing and Streamlining Litigation: The proposed measures also purport to expand the range of Labor Code sections that an employer can cure in response to a pre-suit PAGA notice, thereby reducing the need for litigation, and allowing employees to be made whole more quickly. They also protect small employers by establishing a more robust right-to-cure process through the Labor and Workforce Development Agency (LWDA), aiming to reduce litigation and associated costs. Additionally, the measures codify that a court may limit the scope of claims presented at trial to ensure cases can be managed effectively, which has long been a thorny procedural and due process topic for employers and courts alike.
- Improving Measures for Injunctive Relief and Standing: The proposed measures allow courts to grant injunctive relief, compelling businesses to implement workplace changes for any alleged labor law violations. Additionally, the proposed amendments significantly modify PAGA's standing requirements. Previously, an employee had standing to pursue recovery for any Labor Code violation in existence, whether they personally suffered such a violation or not. The new amendment materially alters that, restricting an employee to pursuit of alleged violations that only he or she has personally suffered.
The agreement will be presented to the California Legislature and must be printed by June 24 in order to remove the initiative from the ballot on time. It seems highly likely these measures will pass. The relevant stakeholders have been actively and aggressively negotiating this to avoid the November initiative, which, it seems, the state, labor groups, and plaintiff's attorneys were concerned might pass and end the law altogether.
Although these are necessary revisions to a widely abused law, it remains to be seen how effective they will be. Perhaps the biggest modification is the elimination of representative standing for party-plaintiffs. As PAGA presently exists, a plaintiff need only allege they suffered but one Labor Code violation, of any type, in order to pursue any and all Labor Code violations for others, whether they personally suffered these or not. This form of "representative" standing is a steep departure from ordinary jurisprudential standing requirements, and one California voters previously rejected 20 years ago under a former version of the Unfair Competition Law (Bus. & Prof. Code section 17200 et seq.). That law too originally let purportedly interested parties pursue harms for others that they themselves had not personally suffered.
But, like PAGA, that form of representative standing led to widespread abuse, and was eliminated via ballot initiative. The modified standing limitation under PAGA will certainly help employers, and provide an appropriate, long overdue, and potentially meaningful defense. It effectively brings PAGA in line with customary standing requirements existing at law. But, we suspect plaintiff's attorneys will simply add more employees as party-plaintiffs, thereby expanding the category of violations they can facially pursue under the new law. This in turn will put added pressure and emphasis on groupwide discovery, possibly significantly increasing discovery, litigation costs, and operational disruption to businesses.
The proposed cure provisions may also be Pyrrhic and illusory. On their face, an employer must present pre-suit proof of total cure and compliance as to all alleged violations for all implicated employees. In a pre-suit situation, on a very compacted timeline, and in a highly contested environment on a hotly disputed and potentially dispositive issue, this threshold may, in practice, be extremely difficult if not impossible to achieve. This is particularly true in cases involving sizeable employee groups, which they often do. If the bar for cure is too high, an employer's ability to preempt litigation through pre-suit compliance may exist in name only.
This article originally appeared on Wood Smith Henning & Berman LLP.
About the Authors:
Ahllam H. Berri is a partner at Wood Smith Henning & Berman LLP. aberri@wshblaw.com
Valen M. Hermiz is a partner at Wood Smith Henning & Berman LLP. vhermiz@wshblaw.com
Jason C. Ross is a partner at Wood Smith Henning & Berman LLP. jross@wshblaw.com