In the wake of a busy Fall where Private Attorneys General Act (“PAGA”) reform was implemented, employers should not forget to seize the opportunity to take “reasonable steps” to prevent Labor Code violations and avoid or cap PAGA penalties. Since it was enacted in 2004, PAGA has significantly impacted businesses by creating a high risk of costly lawsuits from employees alleging Labor Code violations, often leading to increased legal expenses, potential disruption to operations, and a general climate of uncertainty. This is particularly so for smaller businesses, due to the potential for large penalties even for minor infractions such as the failure to include a suite number on employee paystubs.
What are “Reasonable Steps?”
With PAGA reform, employers can now minimize the risk of costly litigation by proactively taking “all reasonable steps” to prevent Labor Code violations and ensuring their policies, practices and procedures comply with applicable laws and regulations. “Reasonable steps” are defined to include, but are not limited to:
- Conducting periodic payroll audits and taking action in response to the results of those audits;
- Disseminating lawful written policies;
- Training supervisors on applicable Labor Code and wage order compliance; and
- Taking appropriate corrective action where a supervisor is noted as not acting in compliance with the employer’s policies and the Labor Code.
Significantly Reduced Penalties
Taking these “reasonable steps” before receiving a PAGA notice or request for employment records places a cap on the amount of PAGA penalties that are recoverable by an aggrieved employee on behalf of the California Labor and Workforce Development Agency (“LWDA”) at 15% of the applicable PAGA penalty (typically, but not always, the penalty is $100 per pay period, per employee, dating back one year prior to the PAGA notice). Even where an employer has already received a PAGA notice (provided the notice is dated June 19, 2024 or later), if it takes “all reasonable steps” within 60 days of receipt of the PAGA notice, the amount of PAGA penalties that are recoverable by an employee on behalf of the LWDA are capped at 30% of the applicable penalty.
Takeaway
If an employer faces a PAGA lawsuit, taking “all reasonable steps” to prevent Labor Code violations within 60 days of receiving the PAGA notice (or having already taken “reasonable steps” before receiving the notice) will significantly reduce the value of the PAGA claim.
With the new year, employers should take the opportunity to audit their employee handbooks and related wage and hour policies for compliance, making revisions where needed, schedule and conduct periodic payroll audits, and train supervisors, as supervisors are the front lines in ensuring employer’s lawful policies are being followed compliantly.
Duggan McHugh attorneys are available to assist employers with wage and hour compliance. If you are interested in implementing reasonable steps as now allowed under the reformed PAGA, please contact us.