Private Attorneys General Act Review – 2025

We expect this line of reasoning to continue to be litigated heavily in the coming year, with multiple appeals already filed as to rulings that follow the Balderas “headless” PAGA claim standard. That being said, in the interim, employers who face PAGA claims should be aware that courts may find their arbitration agreements unenforceable if the plaintiff has not brought an individual PAGA claim. V. New PAGA Reform Bills On June 27, 2024, the California Legislature signed off on two bills (AB 2298 and SB 92) resulting in significant reforms to the PAGA. Governor Newsom previously announced the deal between business and labor groups, which also meant the referendum to repeal the PAGA was not on the November 2024 ballot. The new reforms will bring sweeping changes to the PAGA. These changes aim to curtail many of the criticisms that have been levied at the PAGA from both groups. The changes apply to PAGA actions in which the PAGA notice was filed on or after June 19, 2024. It is anticipated that the changes will also have an immediate impact on litigation strategy in pending PAGA actions filed before that date as well. California Legislature Approves PAGA Reform Bills After Governor Newsom announced on June 18, 2024, that labor and business interests had inked a deal significantly altering the PAGA, the California Legislature quickly moved to approve two bills (AB 2288 and Senate Bill 92). Proponents of the initiative to repeal PAGA agreed to withdraw the referendum if the bills were passed within the deadline to withdraw the referendum. The bills were approved just in the nick of time — on June 27, 2024, which was both the deadline to withdraw the PAGA referendum and the date the two bills were passed. These changes include reforms to the penalty structure, new defenses for employers, standing requirements limiting the scope of PAGA actions, and a new “cure” process for both small and large employers, among other changes that will significantly impact litigation strategy for PAGA claims (and likely spawn new legal questions as the law is tested in the field and the courts.) The reforms do not alter the requirement that a claimant first file a notice with the Labor & Workforce Development Agency (LWDA) also known as an LWDA or PAGA notice. These reforms affect all PAGA notices filed on or after June 19, 2024, with some exceptions, described in further detail below. Penalty Structure Reforms One of the primary complaints from business interests, in particular small business interests, was that the PAGA’s penalty structure frequently resulted in potential penalties in the millions of dollars based on the barest of allegations, often of highly technical violations of the California Labor Code. Employers complained that these violations did not implicate any actual harm to employees and that there could be compounded penalties for so- called “derivative” claims. The compounding of penalties meant plaintiffs would try to stack multiple penalties based on the same alleged act or omission by an employer. The new PAGA reform measure addresses several of these complaints, eliminating some penalties altogether, limiting the availability of penalties for certain derivative claims, and clarifying how penalties are calculated. • Clarity on Initial vs. Subsequent Violations: Previously, PAGA penalties were set at $100 for “initial” violations of the Labor Code and $200 for any “subsequent” violations, unless otherwise prescribed by statute. The reforms removed the distinction between “initial” and “subsequent” violations — now the civil penalty for an alleged violation is $100 for each aggrieved employee per pay period. However, a court may reduce a penalty award in order to avoid an award that is unjust, arbitrary, and oppressive, or confiscatory. See Lab. Code § 2699(e)(2). Repeat offenders may be subject to higher penalties.

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