2024 PAGA Updates

This article is part of our 2025 Labor & Employment Roundup. To read the other articles, click below:

Recent and Upcoming Legislation Impacting Employers in 2025
A Potential Avenue for Bypassing Class Waivers in Arbitration Agreements
Impact of a Second Trump Presidency on Biden-Era NLRB Decisions

California’s Private Attorneys General Act (PAGA) has been a costly challenge for employers, often leading to large settlements over minor labor code violations. Recent amendments now cap penalties for isolated violations, emphasize reasonable compliance efforts, and streamline claim resolution processes, offering employers new defenses and reducing litigation risks.

What this means for employers: Employers now have more tools to mitigate the risks associated with PAGA claims. By implementing proactive compliance measures such as regular audits, clear policies, and targeted training, businesses can limit potential liabilities.

California’s Private Attorneys General Act

California’s Private Attorneys General Act (PAGA) has long been a source of anxiety for employers, offering employees a potent mechanism to pursue labor code violations. Unfortunately, plaintiffs’ attorneys often exploit PAGA to generate significant attorney’s fees, leveraging even minor technical infractions into large penalty awards and settlements. This dynamic has made PAGA lawsuits a growing threat to businesses of all sizes. However, two recent amendments to Labor Code Section 2699(g)(1) and (g)(2) provide employers with new opportunities to mitigate potential liabilities and safeguard against costly litigation.

What is PAGA?

PAGA allows employees to sue on behalf of themselves and other “aggrieved employees” for Labor Code violations. Instead of pursuing claims through the Labor Commissioner, employees can file civil lawsuits seeking penalties for violations of wage and hour laws. PAGA was enacted to address the shortage of government resources to enforce labor laws effectively and are therefore considered law enforcement actions, and the employee plaintiff acts as a proxy for the California Labor and Workforce Development Agency (LWDA).

Under PAGA, an “aggrieved employee” is defined as any person who was employed by the employer who allegedly violated the labor code and against whom the alleged violations were committed. Before an allegedly aggrieved employee can file a PAGA lawsuit, they must notify LWDA of the alleged violations and give the agency an opportunity to investigate and take action. If the LWDA declines to pursue the violations, the allegedly aggrieved employee may can proceed with the lawsuit and may ultimately recover civil penalties for the alleged Labor Code violations.

PAGA’s penalty structure, which will be discussed more in depth later, has incentivized the plaintiffs’ bar to identify even trivial violations—like minor discrepancies in paystubs or meal period documentation—and transform them into substantial claims. Employers frequently find themselves settling these claims to avoid prolonged litigation, reputational harm, and excessive penalties.

The Amendments and What they Mean for Employers

Governor Newsom signed two amendments to PAGA into law on July 1, 2024.The first of the two amendments went into effect immediately and applied to actions brought on or after June 19, 2024.

The first amendment largely deals with the penalties that an aggrieved employee may recover against an employer. The amendment caps penalties for employers that take “all reasonable steps” to comply with the Labor Code once they become aware of a violation and also reduces the penalties for isolated violations. The law defines “reasonable steps” broadly, recognizing efforts such as:

1) Conducting regular payroll audits and addressing discrepancies;

2) Implementing clear, lawful practices and disseminating them effectively;

3) Training supervisors to ensure compliance with applicable labor laws; and

4) Taking corrective actions to address supervisory shortcomings.

Importantly, the reasonableness of these efforts will be evaluated on the totality of the circumstances, considering factors such as the employer’s size, resources, and the nature and duration of any alleged violations. While the sufficiency of these efforts has yet to be tested, the legislature specified that the existence of a violation, despite such steps taken, is insufficient to establish the employer’s failure to take such reasonable steps. This suggests that rather than take a punitive, mechanical approach to violations, deference may be more liberally given to an employer who can demonstrate their commitment to compliance with California Labor Laws.

In addition, employers will no longer be penalized more for simply choosing to process their payroll on a weekly, rather than bi-weekly basis with penalties that are calculated using a “per pay period” method. The amendment reduces the penalties for employers who process their payroll weekly so that they are equivalent to the penalties assessed on employers who process their payroll on a bi-weekly method.

The amendment also increases the percentage of recovered civil penalties that aggrieved employees are entitled to from 25% to 35%, and reduces the LWDA’s share from 75% to 65%.

Perhaps most importantly for employers, an aggrieved employee can now only bring an action for Labor Code violations that they allegedly suffered themselves during the time period in question. This is a substantial change from before, where aggrieved employees frequently brought actions and recovered penalties for a slew of violations they did not actually suffer, themselves.

The second amendment, which went into effect on October 1, 2024,  establishes a more streamlined process to resolve alleged violations. For employers with less than 100 employees, the amendment allows them submit a confidential proposal to the LWDA to correct one of more of their alleged labor code violations within 33 days of receipt of the PAGA notice. The LWDA will then determine if the proposal is sufficient. If the LWDA ultimately determines that an employer’s proposal is sufficient to correct the violations and an employer corrects the violations, it will issue a determination and the “aggrieved employee” cannot bring a PAGA action against the employer. However, it is possible for the aggrieved employee to appeal the LWDA’s decision in court. This process may allow smaller employers to avoid or reduce the scope of liability for penalties, and costly litigation (thought they would still be required to pay any underpaid amount paid to the allegedly aggrieved employees in order to correct a violation).

For employers with 100 or more employees, the amendment allows them to file a request to participate in an early evaluation conference. The early evaluation conference is intended to determine whether the alleged violation(s) occurred, whether the employer has corrected these violations, the strengths and weaknesses of each party, whether the claims can be settled, and whether the parties should share any additional information to facilitate an early resolution. If the parties to a PAGA case request an early evaluation conference, then courts are required to stay the case and the parties must hold the early evaluation conference no later than 70 days after the Court issues a stay. These conferences can be valuable for employers because they can potentially lead to an early resolution of the case without having to go through a lengthy and costly judicial process.

“Headless” PAGA Cases

While the 2024 amendments to PAGA offer California employers some welcome relief from draconian PAGA remedies, California plaintiffs continue to thwart employer efforts to obtain early resolution of PAGA claims in arbitration and otherwise.  Enter the “headless” PAGA action.  “Headless” because the plaintiff prosecuting the case brings no claims of his own, only claims on behalf of other aggrieved employees.  The purpose of this tactic is to prevent employers from successfully petitioning the court for arbitration where the Plaintiff’s standing may be expeditiously resolved prior to expensive and time consuming class-wide discovery.  Plaintiff’s vigorously resist the early resolution of the Plaintiff’s standing because cost of defense is a significant driver of settlement value in PAGA actions.  Absent the threat of an early standing determination by a court or arbitrator, Plaintiffs are more likely to extract settlements from employers in bogus cases.

Some courts have been receptive to the tactic.  For example, the trial court in Leeper v. Shipt, Inc. and Target Corporation, denied Shipt’s and Target’s motion to compel arbitration on the grounds that Leeper’s “individual claims were alleged only to meet PAGA’s standing requirements for a representative action.”  Other courts have refused to permit Plaintiff’s to dodge their agreements to arbitrate. In Panossian v. Tesla Motors, Inc., the trial court granted Tesla’s motion to compel arbitration of Panossian’s aggrieved status on the grounds that Panossian had agreed to arbitrate all disputes, claims or causes of action and Panossian’s status as “aggrieved” under PAGA was a covered dispute.

Should employer’s fear the specter of a headless PAGA case?  We think not.  The Panossian Court’s decision is better reasoned and more consistent with SCOTUS and California Supreme Court authority.  Leeper is on appeal so we expect 2025 will bring clarity on the fate of the headless PAGA action.  See Leeper v. Shipt., Inc., et al., No. B339670, 2024 WL 4804593 (Cal. App. 2 Dist. Oct. 31, 2024).

How JMBM Can Help

Our firm offers a proactive, comprehensive approach to help businesses maintain compliance and minimize PAGA exposure. We assist employers with:

1. Policy Review and Updates: Outdated or non-compliant policies are red flags. For example, meal period policies that misstate eligibility can lead to costly penalties, since the source of resulting violations will be argued on a company-wide basis. We review and revise such policies to ensure they align with current labor laws. This may involve creating a new stand-alone policy or drafting an updated handbook to roll out.
2. Data Analysis: We analyze a sample of timecards, paystubs, and records to identify discrepancies. Even if your policies are compliant, incorrect practices (e.g., rounding errors) can lead to liability.
3. Execution Analysis: Using your policies and data as guidance, we then identify operational practices causing compliance gaps. For instance, you may have a correct meal period policy in your handbook, requiring employees to take 30-minute meal periods before the 5^th hour of work, but certain company departments prefer to take lunch together at a later time.
4. Recommendations and Corrective Actions: We provide tailored strategies to improve compliance, including rolling out new policies, training supervisors, and, when necessary, addressing backpay for violations.

Swift Action Post-Notice

The amendment also provides a lifeline for employers served with a PAGA notice or a records request. Employers have 60 days to implement corrective actions to reduce potential penalties to 30%. Immediate steps include:

• Conducting internal audits.
• Revising and implementing compliant policies.
• Providing targeted training or corrective measures.

Prompt action can not only reduce penalties but also demonstrate a good faith effort to comply with labor laws, further discouraging litigation. If you receive such a notice, we urge you to contact us immediately.

Conclusion

The 2024 PAGA amendment underscores the importance of proactive compliance and swift corrective action. By taking reasonable steps during regular operations, employers can significantly reduce potential liabilities and protect their businesses from litigation. JMBM is here to assist with policy updates, compliance audits, and any necessary corrective actions, ensuring your business is prepared for the challenges of California’s evolving labor landscape.

Contact us today to learn more about how we can help safeguard your business in the face of PAGA and other employment law challenges.

Authors: Cassandra Frias, Ricardo E. Diaz and Raef Cogan

About JMBM’s Labor & Employment Practice
JMBM’s Labor and Employment attorneys counsel businesses and management on workplace issues, helping to establish policies that address problems and reduce job-related lawsuits. We act quickly to resolve claims and aggressively defend our clients in all federal and state courts, before the Department of Labor, the NLRB, and other federal, state and local agencies, as well as in private arbitration forums. We represent employers in collective bargaining negotiations and arbitration.

This update is provided to our clients, business associates and friends for informational purposes only. Legal advice should be based on your specific situation and provided by a qualified attorney.