Key Changes: Old vs. Reform PAGA Rules
The legislative amendments introduced several fundamental shifts in how PAGA cases are handled. The table below offers a simplified comparison of our understanding of the primary changes.
| Old Rules | Reformed Rules |
| No formal incentives for employers to proactively pay for past violations. | Strong financial incentives for employers to conduct self-audits and proactively compensate employees for past violations. |
| Higher base penalties (e.g., $100 for an initial violation, $200 for subsequent ones for many code sections). | Lower, tiered penalties are available for employers who take quick action to fix violations after receiving a PAGA notice (e.g., penalties capped at 30% if an employer addresses the issues within 60 days). |
| Non-differentiated default penalty amounts for malicious employers. | Penalty caps for employer’s conduct that was deemed by the court to be malicious, fraudulent, or oppressive increased up to $200 per violation. |
| Penalty calculations could disproportionately affect employers with weekly pay cycles. | Penalty calculations are standardized for both weekly and bi-weekly pay cycles. |
| Ambiguous standing requirements for the lead plaintiff. | Stricter standing requirements, requiring that alleged violations must have been collectively experienced by the named plaintiff(s). |
| Penalty “stacking” was possible for multiple violations stemming from a single underlying issue. | Penalties tied to multiple violations of the same code section (e.g., missed meal and rest periods)are now treated together as one penalty. |
How the Reform Is Changing Litigation Strategy
Attorneys on both sides have quickly focused on two key changes that are reshaping PAGA litigation: stricter requirements for plaintiffs and more predictable penalty calculations.
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Sharper Focus on the Named Plaintiff
The reformed statute places greater emphasis on the named plaintiff’s own employment records. From a data expert’s perspective, this means analyses often begin with a detailed review of that individual’s data. While this has long been a standard in class-action lawsuits, it’s a significant shift for PAGA claims.
As a result, the initial phase of any PAGA case now involves a more detailed analysis of the named plaintiff’s records in relationship to the complaint. Because of the increased focus on the named plaintiff’s data, data experts are often asked to analyze records earlier in the litigation timeline. This could result in a clearer understanding of the potential exposure.
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Narrowing the Gap in Damage Calculations
Prior to the reform, damage models could generate very high potential penalty totals because of the way statutory amounts and overlapping violations were counted. These assumptions often led to wide ranges in potential exposure. Broad judicial discretion and a high rate of out-of-court settlements resulted in payments that were frequently a small fraction of the initial demand.
The new penalty caps narrow the distribution of modeled damages, likely creating less variability in potential wage and hour exposure estimates. This is done primarily through capping penalties for employers who act quickly to remedy issues and by eliminating stacking.
Broader Implications and Future Outlook
While the long-term effects of the PAGA reform will become clearer over time, several broader impacts are already taking shape.
- Accelerated Compliance: The law now provides a clear, time-limited window for employers to address reported issues in exchange for significantly lower penalties. The revised penalty schedule creates measurable financial incentives for employers to remediate issues quickly, since compliance within 60 days is associated with lower penalty exposure. Some predict this could spur a new industry of periodic, proactive employer audits utilizing a data expert.
- Continued PAGA Viability: Although penalty amounts are capped more tightly, our experience as data experts suggests that PAGA remains an active area of litigation.
- Disincentivized “Non-Economic” Errors: Under the old PAGA system plaintiffs could bring a case against an employer for “Non-Economic” errors such as having the incorrect employer address on an employee’s pay stub. Non-economic errors (such as clerical pay stub issues) are modeled at a substantially lower penalty level—$25 in many cases. Given the reduced penalty for technical errors, it will be interesting to see if and how PAGA claims evolve.
- The Need for Judicial Clarity: The way potential damage models are applied may evolve depending on how courts interpret the statute. For now, data experts can highlight the quantitative differences that emerge.
- Ongoing Employer Awareness Gap: A persistent challenge is that many small and medium-sized employers remain unaware of their PAGA obligations. Even with reforms intended to provide relief, the surprise and frustration of facing a PAGA claim for the first time remains a significant issue.
Summary
The recent PAGA reform represents a significant shift. The reform: 1) introduces tiered penalties, 2) eliminates stacking, 3) clarifies standing requirements, 4) incentivizes addressing issues proactively, and 5) creates larger penalties for employers who commit egregious violations.
These changes are already reshaping litigation strategies. A data expert is a key part of the team in any PAGA matter. Their role is to help make sense of complex time and pay data so the team can see the story behind the numbers. This allows the case to move forward in an informed, practical manner. PAGA cases are often won or lost in the details, and a data expert can spot patterns, test assumptions, and turn piles of messy records into clear answers.
The overall volume of cases may remain substantial, though the types and magnitudes of allegations may differ over time. The reformed framework continues to provide a mechanism for assessing potential penalties, though the quantitative implications differ from the prior structure.
As courts interpret the changes in the law, PAGA will continue to evolve, with a clearer picture of the true impact emerging over time. Going forward, the reforms may drive increased employer audits and reduce claims based on minor technical violations. Monitoring these legal developments will be essential for employers, employee advocates, and data experts alike as we navigate this new PAGA era.
