California Labor Law Overhaul Sows Confusion Two Years Later

In California wage-and-hour litigation, few statutes have generated more uncertainty than the Private Attorneys General Act of 2004. Even after a legislative overhaul in 2024, courts are still wrestling with fundamental procedural and standing questions that shape employer risk.

‘Headless’ Actions

After PAGA deputized employees to act as private attorneys general, allowing them to file lawsuits on behalf of other employees without the need to certify a class, California employers have endured a 22-year wave of often massive lawsuits.

Even minor purported violations can balloon into high exposure representative actions because PAGA allows employees to pursue penalties on behalf of all “aggrieved employees,” creating an in terrorem effect that has led to frequent, high-dollar settlements.

Some employers responded by implementing arbitration agreements extending to PAGA claims. After the US Supreme Court’s 2022 ruling in Viking River Cruises v. Moriana and the California Supreme Court’s 2024 decision in Adolph v. Uber Technologies, California courts generally compel arbitration of an individual’s own PAGA claims and stay the non-individual claims.

The plaintiffs’ bar began framing their PAGA litigations as “headless” because an employee might lose standing to pursue non-individual PAGA claims if the arbitrator found that the employee didn’t suffer any Labor Code violations. In such claims, the individual plaintiffs weren’t seeking relief for themselves, but on behalf of the state and other allegedly aggrieved employees.

The rationale is that by not pursuing any individual PAGA claims in litigation, there is nothing for a trial court to compel to arbitration. And if plaintiffs can avoid arbitration of their individual claims, they can avoid an arbitrator ruling that they lack standing to pursue PAGA claims.

Whether “headless” PAGA actions are permissible is under review by the California Supreme Court in Leeper v. Shipt, Inc. The court’s decision will have a dramatic impact on pending and future PAGA litigation.

Reset, Not Resolution

State lawmakers changed the statute in 2024 following a well-funded ballot initiative that threatened to repeal PAGA and replace it with an entirely new mechanism: the Fair Play and Employer Accountability Act. The amendments sought to reduce baseless litigation, reward compliance by employers, and restore some balance to the enforcement system.

But as with every major statutory overhaul, the amendments created as many questions as they answered—and haven’t decreased PAGA lawsuits, at least not to date.

The amendments introduced a new defense: Employers who take “all reasonable steps” to comply with the Labor Code before receiving a PAGA notice may significantly reduce penalties.

But the statutory language begs the question—what qualifies as all reasonable steps?

The courts will need to decide:

• How much training is enough?
• Must audits be internal, external, or both?
• How frequently must employers review policies?
• Does good faith reliance on counsel qualify?
• Can a small employer satisfy the standard with fewer resources?
• What does “all” mean? Does it mean that an employer that takes some steps or many steps can’t rely on the defense if other steps could have been taken?
  

Resolving these questions will likely take years.

The 2024 amendments also expanded employers’ ability to “cure” violations, but the process is unclear.

Unresolved questions include whether an employer can cure alleged violations that are ongoing (such as meal period compliance), whether the cure should be individualized for each employee, what evidence is needed to establish a cure, and whether cures can apply retroactively.

The amendments further require that an employee bringing a PAGA claim must have experienced the same violation they seek to pursue on behalf of others.

But what counts as the “same” violation? For an employee who wishes to bring a meal period claim, is a late meal period the “same” as a short meal period? For wage statement claims, are wage statement formatting errors the “same” as wage statement claims based on missing or inaccurate information? For claims that employees weren’t paid for all time worked, is a claim that an employee did work off-the-clock responding to text messages the “same” as a claim that time-rounding resulted in employees not being paid for all time worked?

The amendments expressly authorized courts to limit or dismiss PAGA claims that can’t be “effectively tried,” which appears identical to the manageability requirements that some courts had adopted prior to January 2024. Courts must address what makes a PAGA claim unmanageable, whether employers must show prejudice, and whether courts can strike or dismiss claims entirely or if they may only narrow them.

Practical Guidance

The 2024 amendments create opportunities for employers—but only if they act. The most important steps employers should consider taking advantage of the amendments are:

• Building a documented compliance program
• Conducting a pre-litigation audit when a PAGA notice arrives
• Considering implementing arbitration agreements
• Preparing to litigate manageability issues early–and considering motions to bifurcate individual and non-individual claims

Twenty-two years after its enactment, PAGA remains one of the most complex and consequential statutes in California employment law. While the litigation landscape will continue to evolve as courts resolve issues regarding PAGA, employers who take proactive steps now will be best positioned to navigate the uncertainty ahead.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law, Bloomberg Tax, and Bloomberg Government, or its owners.

Author Information

Michael S. Kun and Kevin D. Sullivan are partners in the labor and employment practice group at Thompson Coburn.

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