By now, you should all be aware of the new PAGA Reform, as I have been harping on it since the law passed back in June. The PAGA Reform will be most useful to compliant employers, who can reduce their potential PAGA penalties by 85% if they implement the compliance measures listed in the statute.
The PAGA Reform rewards employers who have tried to do the right thing, by recognizing the following specific compliance measures: (1) compliant written policies, (2) manager training on wage and hour practices, (3) regular payroll audits to catch any potential problems or mistakes, and (4) quickly acting on and curing any mistakes detected.
Since the announcement of this Reform, I have had several clients reach out to me to review their policies, forms, and new hire documentation. In every instance, I have caught issues with onboarding and other employee documentation – everything from problematic offer letters to missing Labor Code 2810.5 forms (which are required for EVERY non-exempt/hourly new hire in California).
But a related issue has arisen, and it is one that will take on more significance as the plaintiff-side attorneys really grasp the impact of this PAGA Reform.
As many employers recall, the prevalence of PAGA cases has soared with the growing trend of employers to implement arbitration agreements with class action waivers. While employers have still had to deal with the monster that PAGA has become, for over a decade now, we have had a magic wand to eliminate wage and hour class actions – and that is the class action waiver. Its use was blessed by the California Supreme Court in the 2014 decision of Iskanian v CLS Transportation, which confirmed the viability of class action waivers contained in an arbitration agreement in the employment context. That same Supreme Court decision determined that these waivers did not bar an employee from bringing a PAGA lawsuit, where the state of California was also a party and the key beneficiary of most of the penalties (75%) in any PAGA judgment or settlement.
The rest is history, of course, and we saw SCOTUS question the Iskanian holding in 2022 with the Viking River Cruises decision, followed by the California Supreme Court clarifying the impact of class action waivers in PAGA cases in Adolph v Uber (2023). California attempted to temper the growing use of arbitration agreements in the workplace with AB 51 back in 2020, but that law faced immediate legal hurdles based on FAA challenges and ultimately never took effect.
All of this context brings us to 2024, where the use and abuse of PAGA litigation grew so large, California stepped back in and rewrote the law. But never forget, as bad as PAGA had become, the REALLY big scary monster lawsuit is STILL the wage and hour class action. The statute of limitations on PAGA suits is one year, where a class action can reach back for FOUR years. These cases are complicated and costly, and their defense will generally cost substantially more than a PAGA case.
When PAGA first came onto the scene back in 2004, we generally saw the claims tacked onto a class action lawsuit to add a few more dollars to the settlement. The popularity of “stand-alone” PAGA lawsuits has only grown in the last several years, as more employers adopted class action waivers. But now that PAGA has been substantially watered down by the Reform, watch for employee-side lawyers to look for more opportunities to file the larger and more robust class action lawsuits.
This was my long lead up to the real focus of this article. In the last few months, I have encountered several instances where the employer HAD implemented a compliant arbitration agreement with an enforceable class action waiver, but for some reason, THE NAMED PLAINTIFF/EMPLOYEE NEVER SIGNED THE ARBITRATION AGREEMENT!
I know I have written about this in here before, but the importance of having that document signed can determine if you are forced to defend a potential eight or nine figure class action. Yes, we might still be left with a PAGA suit, but under the new rules. And sometimes, because of the MUCH shorter statute of limitations, PAGA suits cannot even be brought.
Recently, I have seen situations where (a) some employees were given the employee handbook and others randomly were not, (b) the arbitration agreement was only in English and the employee spoke Spanish, (c) the named plaintiff in the lawsuit had only worked for the employer for ONE DAY and had not yet signed the onboarding documents, and (d) the employer had implemented a compliant handbook containing an arbitration agreement, but were only having new hires sign it. In every one of these cases, the employer was required to face a class action lawsuit, where that lawsuit could have been avoided.
We have yet to really see the impact of the new PAGA Reform and how it will shape or possibly deter these PAGA lawsuits. But we KNOW we can require arbitration agreements including class action waivers and enforce them. USE THEM! Ensure ALL employees sign your employee handbooks/arbitration agreements BEFORE they start work, make sure they are written in the language that your workforce speaks, and make sure ALL your employees sign the most recent version. And if you have an obstinate employee or two that refuse, we have memos we can send them that still hold them accountable. Reach out if you encounter this situation.
Don’t be lazy, sloppy, or cheap about this practice. Get these documents signed. And then, do not LOSE those signed documents! That is the topic of a whole other article.
And if you have a question about the contents of your new hire/onboarding package, reach out. We have updated our onboarding checklist and are happy to send it to you. And of course, update your employee handbooks if you have not. Having compliant documents is one of the keys to taking advantage of the reduced penalties under the PAGA Reform.