What does the PAGA overhaul look like?

Will a PAGA deal result in fewer but better labor and employment lawsuits?

Both business and labor groups praised a deal announced Tuesday. It makes several key changes to California's 20-year-old Private Attorney General Act. These include reforms long sought by business groups, such as giving greater leeway for employers to fix problems and limiting the size of payouts. The revised law will also come with a one-year time limit and require that a worker filing suit must have suffered the labor violation they are alleging.

Meanwhile, labor groups appear happy they saved a state law that allows workers and their attorneys to sidestep mandatory arbitration agreements. The deal will also remove a business-backed initiative -- which would have repealed the law passed in 2003 -- from the November ballot.

The new law will also include a reform championed by PAGA supporters: allowing courts to order injunctive relief in PAGA cases.

"Today's agreement upholds the core worker protections of PAGA and creates an even stronger mechanism for courts to hold employers accountable by adopting the injunctive relief provisions of Assemblymember [Ash] Kalra's AB 2288," Kathryn Stebner, president of the Consumer Attorneys of California, wrote in an email.

The full Assembly passed AB 2288 last month. Ash Kalra, D-San Jose, told his colleagues that AB 2288 would result in better enforcement of state labor laws.

"This bill does not create a new cause of action," he said just before the 44-21 vote. "It only creates a new remedy that can be used at the court's discretion."

According to several sources, the main players during weeks of negotiations were the California Chamber of Commerce, the California Labor Federation and Gov. Gavin Newsom's office. A news release from Newsom's office also included quotes from Senate President Pro Tempore Mike McGuire, D-North Coast, and Assembly Speaker Robert Rivas, D-Salinas.

The new bill language will need to be in print by Monday, June 24 to pass by the June 27 deadline to remove an initiative from the November ballot. The Fix PAGA coalition pushing the initiative has pledged to take it off the ballot if the bill is signed in time.

Cliff M. Palefsky, a plaintiffs' attorney with McGuinn, Hillsman & Palefsky in San Francisco, responded favorably to the deal although he had not seen the details. He wrote in an email that it "seems like a reasonable compromise if it preserves employees' right to go to court and encourages voluntary compliance. Compliance with the law is the ultimate goal."

Chris M. Micheli, a partner with Snodgrass & Micheli LLC in Sacramento, said a legislative compromise would save both sides tens of millions of dollars by avoiding a costly campaign. He noted labor groups and the plaintiff's bar, facing many priorities on the November ballot, could not be comfortable with judicial wins.

"Just because they were successful in some of the court decisions doesn't mean they didn't have an incentive to reach a reasonable compromise," he said in a phone interview.

Micheli added the business groups, using the initiative as leverage, won a series of concessions in the deal. "On its face, it seems like a fair deal between business and labor," he said.

A series of recent court cases have reinforced that companies cannot escape PAGA cases by claiming preemption under the Federal Arbitration Act. 

On Monday, the U.S. Supreme Court rejected two writs of certiorari seeking review of two California state court rulings against Uber Technologies Inc. and Lyft Inc. that allow a plaintiff's claims on behalf of co-workers under the Private Attorney Generals Act to be decided in court. Uber Technologies Inc. v. Gregg, 23-645 (S. Ct., filed Dec. 12, 2023); Lyft Inc. v. Seifu, 23-769 (S. Ct., filed Jan. 11, 2024). 

Last year, the state Supreme Court ruled that workers who signed arbitration agreements were bound by them but that non-individual plaintiffs in PAGA lawsuits were not. Adolph v. Uber Technologies Inc., 2023 DJDAR 7311 (Cal. S. Ct., filed May 20, 2022). 

But even as plaintiffs and their attorneys racked up courtroom victories, including in the 9th U.S. Circuit Court of Appeals, the business groups' ballot initiative - which qualified for the ballot in 2022 and was scheduled to be decided by voters in November - threatened to repeal the PAGA law entirely. 

Brian W. Maas, an attorney and president of California New Car Dealers Association, said in a phone interview that "what helped spur things along was that there was a ballot initiative out there. Nothing focuses the mind like a deadline."

"It's a pretty historic combination of forces: the governor, labor, business," he said. "We've reached a fix on a 20-year-old legislative statute."

According to polling data shared by the Fix PAGA coalition, a legislative effort that works closely with the initiative campaign, Democrats, Republicans and independents all favor changing the law.

But Maas acknowledged that business groups faced a risk if they refused to compromise and placed their bet on the initiative. "Whenever you put something on the ballot, it's really expensive and you never can be sure the majority of voters will agree with us," he said.  

The deal allows labor groups to keep the law in place while making concessions to reduce its misuse.

Lorena Gonzalez, principal officer of the California Labor Federation, AFL-CIO, said in a news release, "We are happy to have negotiated reforms to PAGA that better ensure abusive practices by employers are cured and that workers are made whole, quicker." 

According to information released by parties close to the deal, the legislation will cap damages against employers who "act responsibly" and work to correct labor abuses, while allowing higher penalties against "employers who act maliciously." The amended law will also give increased "right to cure" protections for small employers, and require that 35% of payouts go to employees, up from the current 25%. Employees will only be able to sue for wrongdoing they personally experienced. 

Stebner, of the CAOC, wrote in her statement that "we've successfully negotiated a dangerous measure off the November ballot." 

Mariko Yoshihara, legislative counsel and policy director of the California Employment Lawyers Association, wrote that the agreement "averts a costly initiative battle and, importantly, upholds the core functions of PAGA," allowing workers to enforce their rights. 

"With an estimated 80% of workers forced to sign arbitration agreements, PAGA is often the only tool workers have to access the courts when their rights have been violated," Yoshihara added.

The deal, if approved by the Legislature, will also give voters one fewer complex initiative to understand this fall. Labor and progressive groups, meanwhile, will be able to turn their attention to a different initiative that would require voter approval for new taxes.

The state Supreme Court will announce a decision Thursday on a lawsuit asking justices to remove the tax measure from the ballot.