PAGA Reform Brings Big Savings For Employers – Follow These “Reasonable Steps” To Significantly Cut PAGA Penalties

Client Alert

July 2024

By: Jared W. Speier, Cory Baker

On July 1, 2024, Governor Gavin Newsom signed legislation to reform California’s Private Attorneys General Act (“PAGA”).  These changes aim to balance PAGA enforcement with fairness to employers, offering new avenues for curing violations and reducing penalties.  Notably, employers can now save up to 85% on penalties by taking “reasonable steps” to be in compliance with alleged labor code violations. Below is an outline of the key aspects of the reform and a how-to guide on how you can benefit from these changes.

What Is The Effective Date Of The Reformed PAGA Rules? 

The reformed PAGA rules apply to PAGA actions filed after June 19, 2024, and also to Labor & Workforce Development Agency (“LWDA”) PAGA notices (“PAGA Notice”) sent on or after June 19.  The prior PAGA rules still apply to all currently pending actions or actions based on PAGA Notices sent prior to June 19.

When Should Employers Begin Taking “Reasonable Steps” To Be In Compliance?

The time is now!  However, the amount at which PAGA penalties will be capped depends on when an employer takes “reasonable steps” to be in compliance.  Employers have two opportunities:

  1. The 15% Cap: if employers take all reasonable steps to be in compliance prior to receiving a PAGA Notice or a request for personnel/payroll records from an employee, the PAGA penalties are capped at 15%.
  2. The 30% Cap: if employers take all reasonable steps within 60 days after receiving a PAGA Notice, the penalties are capped at 30%.

What “Reasonable Steps” Can Employers Take To Reduce PAGA Penalties?

The specific steps that will be deemed “reasonable” will be evaluated by the totality of the circumstances and take into consideration the size and resources available to an employer, as well as the nature, severity and duration of the alleged violations.  While what is reasonable will certainly be an area of some litigation, here are some ways employers can stay ahead of the curve to reduce penalties:

  1. Conduct Regular Audits:
    • Schedule periodic internal audits to identify and rectify potential violations. 
    • While not necessary, it will likely be best practice to engage your legal counsel for an objective assessment of compliance status.
    • Implement software solutions to monitor and manage wage and hour compliance-related activities and use automated tools to track employee work hours, breaks, and other relevant data.
  2. Review, Revise and Disseminate Lawful Written Policies:
    • If you haven’t revise your handbook on a regular basis, now is the time.
    • Regularly review and update workplace policies to ensure they align with PAGA provisions.
    • Communicate policy changes to all employees and provide training as needed.
  3. Implement Comprehensive Training Programs for Supervisors:
    • Train supervisors on applicable Labor Code and wage order compliance.
    • Ensure all employees are aware of their rights and responsibilities under PAGA.
    • This training can be conducted around the same time you conduct your internal audits to identify and correct any wage and hour issues.
  4. Update and Maintain Accurate Records:
    • Keep detailed records of work hours, breaks, wages, and other employment conditions.
    • Ensure all documentation is up-to-date and readily accessible for review.
  5. Develop a Robust Compliance Plan:
    • Create a compliance plan that addresses all PAGA provisions and outlines corrective actions.  For instance, implementing a disciplinary policy if employees are not complying with your meal and rest period policies.
    • Assign a dedicated compliance officer to oversee and enforce the plan.

Time To Be Proactive:

The reformed PAGA rules offer a valuable opportunity for employers to significantly reduce penalties by taking proactive and reasonable steps.  By following the outlined steps and maintaining a diligent approach to compliance, employers can not only save on penalties but also foster a more compliant and positive work environment.

Please reach out to your Stradling attorney if you have any questions, or need assistance with your businesses’ compliance with the ever changing California employment laws.