Author, Jeremy Hoolihan, Account Executive, Rancho Mesa Insurance Services, Inc.

On July 1st, California Governor Gavin Newsom signed legislation to reform the Private Attorney’s General Act (PAGA). The legislation was enacted to help ensure workers retain a strong tool to resolve labor claims and receive fair compensation, while reducing shakedown lawsuits that hurt employers and employees.

The legislation signed was Assembly Bill 2288 (AB 2288) and Senate Bill 92 (SB 92). Newsom was quoted as saying, “This reform was decades in the making and it’s a big win for both workers and businesses. It streamlines the current system, improves worker protections, and makes it easier for businesses to operate.”

The key elements of the PAGA reform include:

Reform of Penalty Structure

• Increases the amount of allocated penalty money that goes to employees from 25% to 35%.

• It caps the penalty for employers who quickly take steps to fix policies and practices, and make workers whole, after receiving a PAGA notice. It also reduces the penalty for employers that act responsibly to take steps proactively to comply with the labor code before receiving a PAGA notice.

• Creates a new penalty ($200 per pay period) if an employer acted maliciously, fraudulently, or oppressively.

• Reduces the maximum penalty where the alleged violation was brief or where it is a wage statement violation that did not cause confusion or economic harm to the employee (i.e. misspelling of company name or forgetting to add “Inc.” on the pay statement).

• Penalties for employers who pay weekly are adjusted to meet other employers who pay on a biweekly or monthly basis. Previously, such employers were penalized at twice the amount because the penalties were accrued on a per pay period basis.

Reducing and Streamlining Litigation

• Expands which labor code sections can be cured to reduce the need for litigation and make employees whole quickly.

• It protects small employers by providing a more robust right to cure process through the state labor department (Labor and Workforce Development Agency) to ultimately reduce claim costs.

• For larger employers, it provides an opportunity for early resolution.

• Codifies that a court may limit both the scope of claims presented at trial to ensure cases can be managed effectively.

Improving Measures for Injunctive Relief and Standing

• It incentivizes or provides injunctive relief to employers to implement changes in the workplace to remedy labor law violations.

• It requires employees to personally experience any alleged violation prior to filing a claim.

Strengthening State Enforcement

• The administration will pursue a trailer bill to give the California Department of Industrial Relations (DIR) the ability to expedite hiring and filling vacancies to ensure effective and timely enforcement of employee labor claims.

PAGA claims have wreaked havoc on employers for decades. In fact, since 2013, there have been nearly $10 billion in court case awards. Unfortunately, due to significant attorney fees, only a small portion of these awards go to the workers. PAGA claims have impacted every type of business in California, including non-profits, family-run businesses, and even local governments. This PAGA reform should help change the long-term success of workers and businesses moving forward. 

While coverage for PAGA violations is limited at best from Employment Practices Liability policies, employers should review their wage and hour policy with their risk advisor and employment law attorney to mitigate the impact of potential fines.

To discuss your company’s potential exposure to PAGA claims , contact me at (619) 937-0174 or jhoolihan@ranchomesa.com.