California Labor Code 2699 Reform: What Employers Should Know About the 2024 PAGA Amendments

California’s 2024 PAGA amendments change employer obligations, lower penalties, and set faster resolution methods for labor disputes. Companies should check compliance policies, wage practices, and training to prevent costly Private Attorneys General Act claims.

By Brad Nakase, Attorney

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Table of Contents

1. Introduction

2. Background

3. Important clauses in the Labor Code 2699/PAGA amendments

4. Issues that might necessitate legal action or an additional PAGA amendment

5. What do you take away from this?

Introduction

Two legislative regulations (AB 2288, which amends Labor Code 2699, & SB 92, which amends Section 2699.3) were signed into law by Gavin Newsom (California Governor) on 1^st July 2024, with effect from that day. California’s Labor Code PAGA (Private Attorneys General Act), Cal. Labor Code 2699, is substantially reformed by the new law. Unless the complainant filed a PAGA notification prior to 19^th June 2024, the majority of these revisions will impact PAGA actions filed on or after that date.

Background

With effect from 1^st January 2004, PAGA enables “aggrieved workers” to file legal proceedings against their companies on behalf of the California State for suspected California Labor Code infractions. Successful workers and the state split the fines: 25% go to the “aggrieved employees,” and 75% go to the California LWDA (Labor and Workforce Development Agency).

Employers may be subject to significant civil fines under PAGA, which are determined by the number of workers and pay periods in which the relevant labor law infractions occurred. Attorney fees for victorious litigants are also authorized by PAGA.

The California lawmakers passed PAGA in order to “deputize” present and previous “aggrieved workers” as “private attorneys general” who would uphold the California Labor Law on behalf of the California State. This was done because the state’s enforcement agencies, such as the Division of Labor Standards Enforcement at the Department of Industrial Relations, didn’t have the resources necessary to pursue these types of violations.

However, the business community had concerns about misuses of the PAGA, such as the extraction of sizable settlements with companies for technical infractions that did not result in workers suffering any real harm. Filings under PAGA have skyrocketed over time.

The California Employee Civil Action Law & PAGA Repeal Initiative was put on the Nov 2024 ballot by California voters in response to PAGA abuses. It would have abolished PAGA and substituted the California Fair Pay & Employer Accountability Act for it. The filing procedure would have been transferred to the LWDA, and individual PAGA lawsuits would have been abolished.

Gavin Newsom (California Governor), along with legislative and corporate leaders, announced a major agreement to overhaul PAGA on 18^th June 2024. The legislature unveiled two fresh PAGA reform proposals (AB 2288 & SB 92) on 21^st June 2024. The two laws were unanimously approved by the legislature on 27^th June 2024, and the PAGA Repeal Initiative’s backers pulled it from the November 2024 ballot. After being signed into law by Governor Newsom on 1^st July 2024, AB 2288 & SB 92 went into effect right away.

Important clauses in the Labor Code 2699/PAGA amendments

The following are some of the PAGA reforms’ main provisions:

Standing

Two additional substantive restrictions on standing are imposed by the statute. In order to pursue a PAGA claim on behalf of additional allegedly harmed workers, a plaintiff must first have personally experienced every one of the Labor Code infractions.

Second, the statute stipulates that within a year of submitting a PAGA notice to the LWDA, the PAGA claimant must have directly experienced each alleged infringement. Workers represented by specific 501(c) (3) not-for-profit legal support organizations that meet the requirements according to Section 6213 of the Business & Professions Code and act as attorney of record for “aggrieved workers” are exempt from the law’s one-year statute of limitations.

PAGA penalty limitations

According to Labor Code 2699, the penalty for an infraction is $100 an employee every pay period, with some exceptions. The following are exclusions from this $100 fine:

A. Caps when an employer complies by taking “all practical steps”

In the past, PAGA contained provisions that allowed the employer to remedy the alleged infraction by carrying out every one of the following actions within a brief time frame: (1) abating every breach that the employee claimed was committed; (2) adhering to the fundamental statutes mentioned in the notification; and (3) drawing whole every worker who was wronged. Employers found it almost impossible to remedy the majority of infractions, even though a cure was promised.

Additionally, the measure lessens penalties for businesses that actively take “all feasible steps” to ensure compliance with the Labor Code and broadens PAGA’s cure procedures.

First, a company will not be subject to any penalties for an alleged infringement if (1) they correct the alleged breach and (2) they take “all feasible steps” in accordance with the law, whether prior to or following getting a PAGA notification.

Second, the law limits the penalties that can be imposed on an employer to 15% of the fines requested, provided the business can show that it “has taken every reasonable measure to be in compliance” with the law before receiving a PAGA notification or a request for employee information.

Third, the statute limits the penalties that can be imposed to thirty percent of the fines requested if an employer can show that it “has taken every reasonable step to potentially be in compliance” with the regulations within sixty days of receiving a PAGA notification.

Last but not least, if an employer remedies the claimed wage statement violations while failing to take “all feasible steps” to comply with the regulations, the fines for wage statement breaches are limited by the law to $15 for each employee every pay period.

Additionally, the law gives instances of “reasonable steps” to follow the Labor Code 2699, such as:

Distributing legal written regulations,
Conducting regular payroll audits,
Offering training on Labor Code & Wage Order compliance, and
Taking disciplinary action against supervisors.

The extent to which an employer tries to take reasonable action will be “assessed by the entirety of the facts while taking into account the amount of resources available and size of the company, as well as the nature, seriousness, and length of the alleged infractions.” Courts will therefore take into account the employer’s size & financial standing, and plaintiffs will probably request discovery regarding these specifically pertinent topics. Notably, these requirements are not as likely to grant leeway to larger businesses.

The mere presence of a violation, regardless of the actions taken, is not enough to prove that an employer did not take all reasonable measures, according to the law. This is favorable for businesses because infractions of the Labor Code cannot demonstrate that all reasonable efforts were not made.

B. Maximum penalties for technical infractions of the wage statement regulations

Labor Code 2699 sets a $25 penalty per worker per period of pay for technical infractions of California’s wage statement specifications if the employee is able to “promptly and readily determine” the information they need from the salary statement in spite of the alleged inaccuracy.

In addition, the rule limits fines for solitary, nonrecurring errors lasting less than thirty days or four successive pay periods to $50 for each employee each pay period.

C. Standard for a two-hundred-dollar fine

According to the Labor Code 2699, there are two situations in which a court may impose the $200 fine per pay period. The first occurs if a court or agency had “issued a finding or the identification in the company that the procedure or practice that gave rise to the infraction was unlawful” within the five years prior to the purported violation. Second, if a court determines that the employer’s actions were “malicious, deceitful, or oppressive,” it may impose the $200 fine.

Because of this, plaintiffs’ lawyers will probably seek companies that have been sued for wage & hour breaches in the last five years, even if the claims were resolved or the class classification has been overturned.

Furthermore, the categories “malicious, fraudulent, and oppressive” are not defined under the law. California Civil Code Section 3294, which defines the phrases “malice,” “oppression,” and “fraud,” may be interpreted by California courts as referring to the same thing as the state’s general punitive damages provision. Employers may be able to rely on legal precedent that interprets Civil Code Section 3294(a), particularly protections for proper procedure guaranteed by the Constitution.

It’s unclear if “malicious, fraudulent, and oppressive” infractions will be subject to the same “clear and compelling” evidentiary threshold under Civil Code Section 3294(a).

D. Outlawing specific “derivative” PAGA fines

At the moment, PAGA plaintiffs frequently attempt to obtain penalties for purported underpayment of salaries and derivative charges for purported violations of wage statements, failure to provide wages on time while employed, and failure to give wages on time upon termination due to the same fundamental underpayment, i.e., penalized “waiting time.”

The statute would forbid an employee from pursuing derivative penalties for late payments unless the lack of payment was deliberate or willful, and in the case of wage statement complaints, unless the infraction was deliberate or knowing.

E. Limitations on possible fines for weekly-paying employers

PAGA penalizes businesses with weekly payroll plans twice as much as those having bi-weekly payroll plans, since it imposes fines according to the number of periods of pay in which employees violated the law.

If the worker’s typical pay period is weekly instead of semi-monthly or bi-weekly, the law relieves these companies by lowering the penalty by 50%.

Prompt resolution protocols

Additionally, for employers who want an early settlement, the statute includes new curative processes. Employers may submit a private plan to the LWDA to remedy the alleged infractions if they employ fewer than 100 employees over the one-year PAGA restrictions period. In order to try to find an early conclusion, the LWDA may then set up an agreement conference with the company and the plaintiff. The employee is able to bring a PAGA case in court if the LWDA finds that the employer’s plan is insufficient or if the LWDA does nothing.

The law permits employers who employ over 100 individuals during the PAGA period to request a stay of proceedings in court and an “early evaluation meeting” with the court following the filing of a PAGA claim. This requires the court to postpone all deadlines for discovery and responsive pleadings. After the meeting is scheduled, the employer is required to provide a “neutral evaluator” with a confidential statement outlining the contested charges, the claimed infractions it hopes to correct, and the employer’s suggested course of action.

A response declaration must be submitted by the plaintiff, which must include the facts supporting each claimed violation, the penalties sought for each infraction, the total amount of legal fees paid as of the submission date, any compromise demands, and the rationale behind approving or declining the company’s cure proposal. The court views a plan as a secret resolution of that claim if the parties and the outside evaluator accept it and the employer corrects the alleged infringement.

The quick resolution measures do not go into effect until 1^st October 2024, in contrast to the other PAGA changes.

Manageability

To guarantee a successful trial, the law gives trial courts the authority to restrict the amount of evidence that can be used during the trial as well as the extent of any PAGA claim.

Since the statute doesn’t specify how and when judges should “limit the extent” of a PAGA action, this manageability clause is probably going to be the subject of a lot of litigation.

Relief through injunction

A PAGA plaintiff is permitted by law to request injunctive relief. What particular forms of injunctive remedy a judge may grant is still unknown, though. Measures to stop persistent wage and hour breaches, reimburse unpaid salaries, compel manager training, or mandate job advertisements are a few examples of potential injunctions.

Penalty share

Labor Code 2699 would boost the penalty amount for employees who have been wronged from twenty-five percent to thirty-five percent.

Issues that might necessitate legal action or an additional PAGA amendment

The following are among the possibly vague and/or unclear requirements in the new law:

Which type of “payroll audits” would be adequate?
How frequently are “periodic paychecks audits” required of an employer?
How may legal written policies be “disseminated”? Depending on the organization, this could entail putting on the intranet, sending out bulk emails acknowledging receipt to every employee, sending out updated policies or handbooks for employees.
What sort of “training” would be adequate? Employers might think about offering a mandatory one-hour webcast or live seminar on a number of arbitration risk areas, such as meal and rest times, the strict prohibition of working after hours, which can lead to termination, accurately recording time worked, the internal grievance and resolution procedure, updating handbooks with compliant regulations, etc.
What “corrective actions” should be taken in relation to supervisors, and when could they be required?
What kind of mistakes are considered “single, nonrecurring”?

In upcoming cases, courts will probably apply and interpret these phrases. In order to resolve any uncertainties, the legislature may also decide to change PAGA once more.

What do you take away from this?

If companies take “all reasonable steps” in accordance with the Labor Code prior to or within sixty days of getting a PAGA notification, they can drastically decrease penalties according to the new rule. Given the possibility of considerable reductions in PAGA fines, these cure clauses will therefore probably become an important aspect of reacting to PAGA actions. Employers are encouraged to be vigilant and consult with counsel as soon as possible by the legislation.

To maximize adherence to the California Labor Code & Wage Orders, employers should evaluate their wage and hour procedures and regulations and offer training. An employer should act quickly to complete the audit process and meet extremely strict timeframes if they seek legal advice after getting a PAGA notice. High-risk Labor Code infractions include the following, which employers should be especially aware of:

Whether meal breaks are given to staff as needed
Whether workers receive the necessary rest periods
Whether workers receive accurate and comprehensive wage statements
Whether workers are accurately keeping track of their time or if they are working without a clock
If workers receive reimbursement for essential charges and expenses associated with their jobs
Whether workers receive their pay on schedule
Whether the normal rate of pay is calculated with non-discretionary incentives added
The legality of wage deductions.

In order to get a far quicker resolution, we also advise employers to keep incorporating class or group action waivers into arbitration agreements. In Adolph v. Uber Technologies, the California Supreme Court ruled that plaintiffs who have their personal PAGA claims forced to arbitration retain the right to pursue the non-individual PAGA claims.

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California Labor Code 2699 Reform: What Employers Should Know About the 2024 PAGA Amendments

Introduction

Background

Important clauses in the Labor Code 2699/PAGA amendments

Issues that might necessitate legal action or an additional PAGA amendment

What do you take away from this?

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