PAGA After Reform: What AB 2288 and SB 92 Mean for PEO Clients in California

For most of two decades, the Private Attorneys General Act was the thing that made California PEO sales conversations go quiet. A prospect would ask what happens if they get a PAGA letter, and the honest answer was that the penalties stacked, the plaintiff did not need to have suffered every violation personally, and there was almost no way to make it go away cheaply once the notice landed.

That changed in the summer of 2024. AB 2288 and SB 92 were signed together as a negotiated alternative to a ballot measure that would have repealed PAGA outright. Nearly two years on, the reformed statute is the operating environment for every California client in a PEO book, and most of the clients still do not understand what changed. This post is for the operators and brokers who have to explain it.

What follows is drawn from the amended Labor Code sections 2699 and 2699.3 as summarized by employment law firms including Proskauer and Husch Blackwell. It is not legal advice. Have counsel confirm anything you plan to put in a client-facing document.

Who the reform applies to

The amended provisions apply to civil actions filed, or based on PAGA notices filed, on or after June 19, 2024. Notices filed before that date are governed by the old rules, which means a client could still be defending a pre-reform case today while every new exposure runs under the new math.

The first substantive change is standing. Under the reformed statute, a PAGA plaintiff must personally have experienced each violation they seek to pursue, and must have experienced it within the one-year limitations period. The old rule, settled by the courts over years of litigation, allowed a plaintiff who suffered one violation to pursue penalties for every violation anyone in the workforce suffered. That is gone, with a narrow carve-out for cases where certain nonprofit legal aid organizations are counsel of record.

For a PEO, this matters more than it first appears. A single disgruntled former employee can no longer turn one missed meal period into a representative claim covering every payroll error across the client's entire headcount. The plaintiff's own experience now bounds the case.

The new penalty tiers

Pre-reform PAGA was often described as $100 per employee per pay period for an initial violation and $200 for each subsequent one, with courts split on how "subsequent" was counted. The reform replaces that with a tiered structure keyed to employer conduct.

The default maximum is $100 per aggrieved employee per pay period. The $200 tier now applies only where a court or the Labor Commissioner found within the prior five years that the employer's policy or practice was unlawful, or where the court finds the conduct was malicious, fraudulent, or oppressive. In other words, the higher number is for repeat offenders and bad actors, not for every second pay period.

Two lower tiers were added. A $50 per pay period penalty applies to violations arising from an isolated, nonrecurring event that did not extend beyond the lesser of 30 consecutive days or four consecutive pay periods. A $25 per pay period penalty applies to certain technical wage-statement violations, such as an incorrect employer name or address where the employee was not actually confused or could easily figure out the correct information from the statement itself.

Two further adjustments change the arithmetic for a lot of clients. If the client pays weekly, penalties are reduced by half, which removes the long-standing structural disadvantage weekly-pay employers carried simply because they had more pay periods per year. And the reform ends most derivative stacking: no separate PAGA penalty is available for derivative violations of Labor Code sections 201, 202, and 203, for derivative section 204 violations that were not willful, or for derivative section 226 violations that were not knowing and intentional and did not amount to a complete failure to provide a wage statement.

The employee share of recovered penalties rose from 25 percent to 35 percent, with the LWDA taking the remaining 65 percent.

The caps that reward good operators

The part of the reform that should change how a PEO talks to clients is the "all reasonable steps" cap.

If the employer took all reasonable steps to comply with the law before receiving the PAGA notice, the maximum penalty is capped at 15 percent of what would otherwise be sought. If the employer takes all reasonable steps within 60 days after receiving the notice, the cap is 30 percent. These caps do not apply where the heightened $200 tier applies.

The statute gives examples of reasonable steps rather than a checklist: periodic payroll audits and action on their results, lawful written policies that are actually disseminated, training for supervisors on Labor Code and wage order compliance, and corrective action against supervisors who get it wrong. Whether steps were reasonable is judged on the totality of the circumstances, including the employer's size and resources and the nature, severity, and duration of the violations.

Read that list again from the perspective of a PEO. Payroll audits, written policies, supervisor training, documented corrective action. Those are the things a PEO is supposed to be doing for its clients anyway. The reform turned the PEO's ordinary service delivery into a statutory defense worth up to 85 percent of the penalty exposure. The catch is that the client has to be able to prove it after the fact, which means the audits, the policy distribution, and the training have to be documented with dates and signatures, not just performed.

The cure paths

The old statute allowed curing only a narrow set of violations. The reform widened the door and split the process by employer size.

For wage-statement name-and-address errors, the employer cures by giving each affected employee written notice of the correct information. For other section 226(a) violations, the employer cures by issuing fully compliant wage statements for every affected pay period going back three years from the notice. For everything else, cure means correcting the violation and making employees whole: all unpaid wages for the prior three years plus 7 percent interest, any statutory liquidated damages, and reasonable attorneys' fees and costs. An employer that cures and also took all reasonable steps faces a maximum of $15 per pay period.

The procedure depends on headcount. An employer with fewer than 100 employees may submit a confidential cure proposal to the LWDA, which may convene a settlement conference with the employer and the claimant. If the LWDA finds the proposal insufficient or does not act, the claimant can proceed to court. An employer with 100 or more employees, once a complaint is filed, may request a stay and an early evaluation conference before a neutral evaluator. The employer submits a confidential statement identifying the disputed allegations, the violations it intends to cure, and its plan; the plaintiff responds with the basis for each claim, the penalties sought, fees to date, and a position on the cure. If the evaluator and parties agree and the cure is completed, the court treats it as a settlement of that claim. These early-resolution provisions became operative on October 1, 2024.

The practical effect is that the first 60 days after a PAGA notice are now a decision window rather than a countdown. A client with a competent payroll partner can run an audit, fix the policy, cut the make-whole checks, and present a cure before the case has any momentum.

Courts got more discretion, in both directions

Two less-discussed changes deserve a mention. Courts may now limit the evidence presented or otherwise narrow the scope of a claim so that it can be tried effectively; the manageability fight that employers had been losing is now addressed in the statute. Courts may also award injunctive relief.

On penalty amounts, courts were already permitted to award less than the maximum where the maximum would be unjust, arbitrary and oppressive, or confiscatory. The reform preserves that and, by the same standard, allows courts to award more. That cuts against the idea that the caps are a ceiling in every case; a client with documented bad conduct should not assume the tiers protect them.

What a PEO should tell California clients now

The message is not that PAGA is fixed. Penalties are still per employee per pay period, the limitations period still reaches back a year, and a claim still arrives with attorneys' fees attached. The message is that the reform made the penalty exposure a function of the employer's own conduct, which is something a client and its PEO can control.

Three things belong in every California client conversation this year.

First, the wage-statement fundamentals. The nine required items under Labor Code section 226(a) and the sick-leave balance under section 246 are the most common PAGA predicates we see, and they are entirely within the payroll provider's control. A PEO that cannot show a compliant stub for every pay period of the last three years has no cure path for those claims.

Second, the paper trail for reasonable steps. If the PEO runs a wage-and-hour audit, the client needs the dated report. If the PEO distributes a handbook, the client needs the acknowledgments. If supervisors are trained on meal and rest periods, the client needs the roster. The 15 percent cap is only available to the employer who can prove it.

Third, the headcount line. A client at 95 employees and a client at 105 employees face different cure procedures. Clients growing across that line should know it before they cross it.

Our own PEO has been rewriting its California onboarding around these three points, because they are now the difference between a six-figure demand and a manageable one.

The reform created a lot of arithmetic. Penalty tier, pay-period count, weekly-pay reduction, derivative stacking rules, reasonable-steps cap, and cure math all interact, and the number a plaintiff's lawyer puts in a demand letter is rarely the number the statute supports.

We built PAGA IQ so a PEO can run that arithmetic per employee from the client's actual payroll data, showing the regular rate of compensation, the overtime and premium calculations, and the post-reform penalty stacking step by step. The point is not to predict a verdict. It is to walk into a prospect meeting, or a cure conference, with a defensible number and the work shown.