Changes to PAGA – doing business in California
Arevik Sargsyan
by Arevik Sargsyan
As the fifth largest economy in the world, many foreign companies are drawn to California for conducting business. Some of the vagaries of California law are thus noteworthy for those who do business in the California market or wish to enter it. One of these is the Private Attorneys General Act of 2004 (PAGA), which allows employees to seek civil penalties for certain violations of California’s Labor Code, both individually and on behalf of others, as a proxy for the state. It was touted as a solution to the Labor and Workforce Development Agency’s (LWDA) incapacity to enforce violations itself given the state’s burgeoning workforce.
Interestingly, PAGA may apply to domestic and international companies with California employees, regardless of the location of the company. Most foreign corporations will create a US subsidiary to run business operations, and they may be subject to PAGA if they have employees in California. Even companies without a US subsidiary can be subject to PAGA if their employees work in California.
How does PAGA impact international companies?
Plaintiffs may invoke California conflicts-of-law rules to subject any domestic or international business with California employees to California laws regardless of its location. Courts in the US apply conflicts-of-law rules in disputes over which state’s or country’s law applies to a given issue.
California engages in a three-part analysis: (1) to determine whether there is a difference between the laws of each of the potentially affected jurisdictions; (2) to identify the interests of the different jurisdictions in enforcing their laws; and (3) if there is a conflict, to ultimately assess the strength of the interests to see which jurisdiction’s interest will be more impaired. [1]
Although the application of California wage and hour laws may vary on a statute-by-statute basis, California, which is strongly protective of employees, tends to favour the application of its own wage and hour laws for work performed in the state of California. Even a California company with employees who are not residents of California and who only work in California on a temporary basis may be subject to California wage and hour laws. [2]
Given that PAGA is unique to California, which is strongly protective of employees, California courts are likely to find that California’s interest in applying PAGA outweighs that of any other state’s or country’s interest. [3] Foreign companies with US subsidiaries that conduct business in the US and have California employees are thus likely to be subject to PAGA regardless of whether the subsidiaries are California-based. Additionally, foreign companies without US subsidiaries which have California employees, or which are named as defendants with their US counterparts, may also be subject to PAGA.
What are the newest reforms to PAGA?
PAGA has several new or changed components aimed at strengthening the rights of businesses.
Standing requirements are strengthenedAggrieved employees can now only sue for violations they personally experienced such as not being paid overtime correctly, or not receiving proper breaks. Previously, standing for one violation gave them standing for all.
The one-year statute of limitations is clarifiedPreviously, state courts varied in how they interpreted the one-year statute of limitations. An employee who suffered a violation, even if that violation took place prior to the PAGA period or was otherwise time barred, could be allowed to bring the claim for others. [4] This is now barred.
Employers may engage in early evaluation and cure violationsEmployers with less than 100 employees can submit a confidential proposal to the LWDA to cure alleged violations. Those with at least 100 employees can request an early evaluation conference, stay court proceedings, and indicate whether they intend to try to cure. Further, a greater number of violations are now subject to cure. PAGA penalties are reduced in many instances.
Employees receive a greater percentage of the penaltyEmployees will now receive 35% of the penalty or net settlement, a greater share than before. The state will receive 65%.
Penalties are capped when all reasonable steps are taken to ensure complianceIf an employer takes “all reasonable steps” to maintain compliance with the California Labor Code before a PAGA notice or a request for personnel records is made, PAGA penalties for violations will be limited to 15% of the applicable penalty amount. If an employer takes “all reasonable steps” to comply with the law within 60 days after receiving a PAGA notice, PAGA penalties for violations will be limited to 30% of the applicable penalty amount.
What are the concerns regarding implementation?
While these reforms are a step in the right direction, they will nevertheless lead to complex litigation.
Additional details about PAGA can be found in this article by Scali Rasmussen.
[1] Sullivan v. Oracle Corporation (2011) 51 Cal.4th 1191, 1202.
[2] Id. at 1206.
[3] See id. at 1202-1206.
[4] E.g., Johnson v. Maxim Healthcare Servs., Inc. (2021) 66 Cal. App. 5th 924.
XLNC member firm Scali Rasmussen, PCLos Angeles, CA, USAT: +1 213 239 5622Legal, Corporate Finance
Arevik SargsyanContact Arevik
Arevik is an Associate in Scali Rasmussen’s Litigation Department. She practices in the areas of labor and employment law, complex litigation, and automotive law. Prior to joining Scali Rasmussen, she worked on class actions and complex commercial litigation, assisting with multiple trials for high-profile clients and providing appellate preservation support.
