Understanding PAGA Claims: What Employers Need To Know And How To Avoid Them

In this article, you can discover…

• What PAGA claims are, and how they can impact your California business
• What happens when an employee files a PAGA claim
• How to avoid a PAGA claim and stay compliant with California law

What Is A PAGA Claim, And How Much Might It Cost My Business?

PAGA stands for “Private Attorneys General Act.” A lawsuit based on PAGA allows a single employee to act as a representative for the State of California and sue their employer on behalf of their co-workers, even if their fellow workers are not on board or are unaware of the lawsuit.

If you, as a business owner, are found liable for a PAGA employee lawsuit, you can expect to pay $100 per employee per pay period at your company for a year plus. These numbers can add up quickly for a business and be financially ruinous.

For example, say your company has 80 employees and pays on a bi-weekly basis. The PAGA claims period is one year. If there is even one Labor Code violation during the PAGA claims period in each pay period for each employee, the PAGA penalty would be $208,000 (80 employees x $100 x 26 pay periods). Ridiculous. We agree.

Fortunately PAGA was amended effective July 1, 2024 such that “stacking” is no longer allowed. Prior to the amendment, plaintiff’s counsel would argue that there should be a $100 per pay period penalty for each violation of the Labor Code that occurred during the pay period.  For example where multiple Labor Code violations were alleged, such as unpaid wages for working off the clock, failure to pay overtime, not receiving rest and meal breaks, itemized wage statement violations, etc., five Labor Code violations could cost you 80 x $100 x 26 x 5 for a whopping $1 million+ dollar penalty. Luckily the California legislature took care of that with the PAGA amendment.

Add to the PAGA penalty fees for the plaintiff’s attorney (which California requires the business being sued to pay if the PAGA claim is successful), and a claim could easily ruin a business.

Who Receives The Payout From A PAGA Claim Lawsuit?

Only 25% of the PAGA penalties go to aggrieved employees. The other 75% goes to the State of California. This ratio has contributed to increased funding for the California Division of Labor Standards Enforcement (DLSE) to conduct more audits and find more possible problems at the behest of workers.

The more violations a PAGA claim drums up, the greater the benefits the State of California can reap. PAGA effectively allows individual employees to take on the role of an attorney general in miniature, giving them the ability to audit their own employer and sue for considerable quantities of money. And in the end, the primary benefactors are the State and the plaintiff’s lawyer, not the workers.

What Is The PAGA Claims Process?

The employee acting as plaintiff must file a digital letter with the Labor and Workforce Development Agency (LWDA). They must also mail a copy of this letter via certified US mail to you, the employer. The letter should identify the specific Labor Code violations and contain evidence to support the PAGA claim.

The LWDA has 60 days to begin its investigation of your business. However, in the experience of many employers and law firms, an actual investigation by the LWDA is uncommon. Once the 60 days expires, the plaintiff (aggrieved employee) may commence a civil action in court.

Under the PAGA amendment, employers may now avoid PAGA penalties by “curing” the Labor Code violations in the plaintiff’s PAGA letter.

The cure process is quite onerous and costly, however.  The employer can present the LWDA with their proposed cure.  The LWDA can consider the proposed cure and even hold a “mediation” type session between the employer and the alleged aggrieved employee’s legal counsel.

To be effective the cure requires the employer to pay all back wages/premium wages/penalty wages during the PAGA period, 7% interest on the back wages plus a “reasonable” amount for attorneys’ fees to the PAGA plaintiff’s counsel.

It remains to be seen whether the cure process is a viable option for employers under the new PAGA amendment.

Attorney Scott Shibayama is a hard-working employment and labor lawyer serving California. For over 28 years, he’s helped small and medium-sized business owners just like you navigate complex California business law and stay ahead of costly PAGA claims.

Have questions? Allow Vision Law® to help you solve your California business law problems. Reach out to us at (855) 534-1490 for an initial consultation today.

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Are PAGA Claims Subject To Mandatory Arbitration?

Yes, sort of.

Many employers will require workers to sign mandatory arbitration contracts, waiving the employee’s ability to file class action lawsuits and obligating them to resolve their individual matter out of court with their employer. PAGA claims, however, are different.

Under California law it used to be PAGA court claims could not be “waived.”  In a United States Supreme Court case called Viking River Cruises, Inc. v. Moriana, however, SCOTUS overruled the California Supreme Court ruling in Iskanian v. CLS Transportation, which prohibited arbitration of PAGA actions, based on Federal Arbitration Act preemption.

SCOTUS said a PAGA claim could be split between the PAGA representative’s individual PAGA claim and the representative component (i.e. representation of the employee’s coworkers) and that the individual PAGA representative can be compelled to arbitration while the representative PAGA component can be stayed in court pending outcome of the individual representative’s claims in arbitration.

Between this and the new PAGA amendment, employers are provided a powerful tool to limit PAGA lawsuit exposure.  With a properly drafted representative action PAGA “waiver,” an employer can compel the PAGA representative to arbitrate their individual claims. If the employer can knock out all of the Labor Code violations allegedly suffered by the representative plaintiff then case is over, employer wins in arbitration and the representative component of the case stated in court should be dismissed because the representative plaintiff has no standing to sue on behalf of their coworkers.  The new PAGA amendment requires the PAGA plaintiff to have personally suffered the particular Labor Code violation upon which the PAGA penalty claims are based.  No Labor Code violations suffered, no ability to sue under PAGA.

But if the representative plaintiff in arbitration wins on one or more Labor Code violations then the PAGA representative action can continue in court.  But at least a PAGA action can be avoided in its entirety or the claims that form the basis of a PAGA action can be limited.

How Do I Begin To PAGA-Proof My Business?

To avoid having a PAGA claim filed against you, carefully comply with Labor Code laws, especially in regard to:

• Minimum Wages
• Overtime
• Rest Periods
• Meal periods
• Itemized Wage Statements/Paystubs
• Waiting Time Penalties

Make sure that your employee handbook includes clear written policies that the employee can reference and which your business upholds strictly.

These written policies must adhere to California State Law and should include requirements for employees to accurately record time worked, a prohibition on working off the clock, and mandatory rest and meal periods.

Make sure your employee handbook states that your company will not interfere with these legally required breaks, and then give your employees the time that they need to avail themselves of rest and meal periods.

What Frequent Measures Can I Take To Prevent PAGA Claims?

Regularly require employees to acknowledge in writing that they have received the employee handbook; keep a copy of this document in their file for their reference and another copy off-site.

Weekly paperwork can also be helpful in verifying compliance and employee satisfaction. Require employees to sign an attestation every pay period stating that the hours reported on their time records are accurate, that they were permitted to take their rest and meal breaks, and that no company manager impeded, discouraged, or prevented these timely breaks.

Review time records daily and make sure that employees are taking required meal breaks before the fifth hour worked and for no less than 30 minutes. Finally, properly train your managers and supervisory staff on California labor laws and the importance of compliance, employee breaks, prohibitions on off the clock work, and overtime laws.

For more information on Understanding PAGA Claims In California, an initial consultation is your next best step. Get the information and legal answers you are seeking by calling (855) 534-5795 today.