California PAGA Reform: A New Era for Employers and Employees

On July 1, 2024, California Governor Gavin Newsom signed AB 2288, a landmark reform to the Private Attorneys General Act (PAGA). This reform, supported by the Society for Human Resource Management (SHRM), introduces significant changes to penalties and cure provisions, creating a more balanced approach for both employers and employees. As an HR outsourcing company, we are excited to share how these changes benefit you and your business.

Structure of Penalties

New Penalty Caps for Compliance

The reform introduces a 15% cap on penalties for employers who take reasonable steps to comply with the law before receiving a PAGA notice or a personnel records request. If you can demonstrate proactive compliance efforts, such as conducting payroll audits, disseminating lawful policies, and training supervisors, the penalties are capped at 15% of the potential amount.

For employers who take steps to comply after receiving a PAGA notice, there is a 30% cap on penalties. This incentivizes you to quickly rectify any violations upon notice, minimizing financial exposure.

Enhanced Penalty Provisions

An enhanced penalty of $200 for subsequent violations will only apply if a court or agency determines that the employer’s conduct was malicious, fraudulent, or oppressive. This alignment with California’s punitive damages standard underscores the importance of promptly addressing any violations identified by a court or agency.

Additionally, if violations occur for less than 30 days or four consecutive pay periods, the maximum penalty available is set at $50. Courts also have the discretion to reduce penalties to avoid unjust outcomes, considering the facts and circumstances of each case.

Expanded Cure Provisions

AB 2288 overhauls PAGA’s cure provision, offering more opportunities to address violations before facing liability. The most frequently alleged violations under PAGA, including issues related to wage statements, meal/rest period premiums, overtime, and expense reimbursement, can now be cured before any penalties are imposed.

For small employers (defined as having fewer than 100 employees), the California Labor & Workforce Development Agency will arrange settlement conferences to facilitate early resolution of alleged violations. Larger employers can request a stay and early neutral evaluation from the court to assess whether their corrective actions sufficiently address the alleged violations, potentially precluding further PAGA claims.

Injunctive Relief and Compliance

The new legislation permits courts to impose injunctions, requiring employers to take specific actions or refrain from certain practices. This highlights the critical role of HR in ensuring compliance with court orders.

Key Provisions Include:

• Penalty Caps: Penalties are capped at 15% or 30% depending on the timing and extent of compliance efforts.
• Robust Right to Cure: More violations can now be cured, with specific mechanisms for small and large businesses.
• Changes in Standing: Plaintiffs must have personally experienced the alleged violations and file their case within one year.
• Nonprofit Exception: A narrow exception is provided for certain nonprofits.

Steps to Limit Exposure

As your HR outsourcing partner, we are committed to helping you significantly reduce your exposure to PAGA penalties by ensuring compliance with the following steps:

• Conducting Payroll Audits: Regular CSM-Audits help identify and address potential Labor Code violations, such as unpaid overtime and meal/rest break issues. Engage in the audit and consider implementing recommendations.
• Implementing Written Policies: Ensuring that wage and hour policies are lawful, distributed, and enforced via Handbook Courses in EGLearn.
• Providing Training: Training supervisors on Labor Code requirements and wage and hour rules via EGLearn.
• Corrective Action: Addressing non-compliance by supervisors through coaching, training, or disciplinary action via EGForce.
• Providing Professional Consultations: Engage early and often with our expert team on current or trending wage and hour topics via HROD.

Conclusion

The signing of AB 2288 marks a significant step towards creating a fairer legal environment for California businesses while maintaining strong protections for workers. By incentivizing proactive compliance and introducing mechanisms to address violations early, this reform aims to reduce frivolous litigation and promote better outcomes for all parties involved.

As your trusted HR outsourcing partner, we are here to help you navigate these changes and ensure your business remains compliant with the new regulations. For more information and resources on how to implement these compliance measures, please reach out to our team. We're here to support you every step of the way.