The Private Attorneys General Act of 2004 (“PAGA”) was intended to allow employees to bring actions on behalf of the State of California against employers who failed to comply with Labor Code sections that were considered underenforced. This well-intentioned goal ultimately became a wrecking ball, tearing down California employers with an onerous penalty scheme that could cripple the average employer.
After a concerted effort to amend the PAGA statute last year via ballot initiative, the California Legislature compromised with California businesses and passed reforms which fundamentally changed the penalty structure and provide employers with an opportunity to take preventative steps to minimize potential exposure.
Previously, penalties were set at $100 for each initial violation per aggrieved employee per pay period and were then increased to $200 for subsequent violations. Under the amended PAGA, the default penalty for each violation is $100 for each aggrieved employee per pay period. However, this base penalty may be increased, reduced or capped, depending upon the circumstances of the violations.
In particular, employers can minimize this penalty if “all reasonable steps” are taken to be in compliance with the statute. Reasonable steps include whether an employer conducted periodic payroll audits and acted in response to the results of the audit, disseminated lawful written policies, trained supervisors on wage order compliance, and took appropriate corrective action with regard to supervisors.
If all reasonable steps are taken, PAGA penalties will be capped at $15.00 per violation if the employer does so before receiving the notice of violation, or $30.00 if the employer takes reasonable steps within 60 days after receiving a PAGA notice. It is important to note that the penalty cap does not apply and the penalties are subject to statutory increases if 1) there has been a prior determination (from the Labor & Workforce Development Agency or a court) that the employer’s policy/practice was unlawful within the last 5 years, or 2) if the employer’s conduct is determined by a court to have been malicious, fraudulent, or oppressive.
Given the substantial savings in potential liability, as well as likely reduction of the risks associated with wage and hour claims in general, it is important that California employers take the reasonable steps outlined by the reformed PAGA, including conducting periodic compliance audits.
