Hunton Employment & Labor Perspectives

Business and labor groups in California have reached a tentative legislative deal to preserve—but reform—the State’s much criticized law known formally as the California Labor Code Private Attorneys General Act of 2004, Cal. Lab. Code § 2698, et seq. (“PAGA”).  Governor Gavin Newsom announced the deal on Tuesday.

PAGA’s supporters say the law is needed as a backstop to understaffed and underfunded state regulators, notwithstanding reports that California has hundreds of millions of dollars sitting in a fund earmarked for that purpose.  PAGA’s critics have argued the law provides the plaintiff’s bar with a vehicle to extract large attorneys’ fees awards from dubious and expensive lawsuits, that provide little benefit to workers.  They also argue the law has been unfairly weaponized against large, law-abiding companies with coffers to pay inflated settlements, rather than bad actors who knowingly disadvantage employees, and much has been written about the negative impact of PAGA on small businesses in California.

Based on those criticisms, among others, business groups backed an initiative eligible for the November ballot that they say would repeal and replace PAGA.  According to Governor Newsom, the proponents of the PAGA ballot initiative have agreed to withdraw their measure if the recently reached deal is timely signed into law.

While the bill’s text does not yet appear to be available, Governor Newsom’s announcement touts the following features of the deal, among others:

• Standing: Requires the employee to have experienced the alleged violations personally.
• Reducing Litigation: Expands the Labor Code sections that can be cured to reduce the need for litigation and make employees “whole” more quickly.
• Streamlining Litigation: Codifies a court’s ability to limit the scope of claims presented at trial to facilitate manageability.
• Reforming PAGA’s penalty structure:
  • Encourages compliance with labor laws by capping penalties on employers who quickly take steps to fix policies and practices, and make workers whole;
  • Creates new, higher penalties on employers who act maliciously, fraudulently or oppressively in violating labor laws; and
  • Ensures that more of the penalties go to employees by increasing their allocation from 25% to 35%.

Advocates for employers and employees alike are sure to scrutinize the proposed statutory text.  We will continue to monitor the situation and provide updates as developments warrant.