If you are an employer in California, then you have likely heard about the Labor Code Private Attorneys General Act, aka PAGA. Signed into law by Governor Davis after he was recalled but before he left office, it allows any “aggrieved employee” to sue the employer for what some call “draconian penalties.” Although Governor Schwarzenneger modified the law slightly to limit some of the penalties, it has been a 20-year bane for employers in California who struggle to understand the complex and often-changing labor laws.

Employers and other business groups have tried to eliminate, or at least modify, PAGA for years. The issue was set to be addressed with a ballot measure, but the California legislature and Governor Newsom reached an agreement resulting in newly enacted AB 2288 and SB 92, which means the ballot measure will go away. 

There is a lot to digest in those changes (some good and some less good). One of the more significant changes are two provisions that can allow employers to avoid or at least reduce the possible penalties by proactively taking steps to ensure compliance with the Labor Code.

Labor Code §2699(g)(1) says if an employer, prior to receiving a request for employment records, “has taken all reasonable steps to be in compliance with all provisions identified in the notice,” the civil penalty that may be recovered by the employee “shall not be more than 15 percent of the penalty.” This means a $100 penalty is only $15. Since the penalties are “per employee” and “per pay period,” the penalties add up quickly.

The statute gives a non-exhaustive list of what it means by “all reasonable steps”, which may include: 

  • Conducting periodic payroll audits 
  • Taking action in response to the results of the audit
  • Disseminating lawful written policies
  • Training supervisors on applicable Labor Code and wage order compliance, or 
  • Taking appropriate corrective action with regard to supervisors. 

Courts are directed to look at the “totality of the circumstances” when evaluating whether an employer’s conduct was reasonable. This includes considering “the size and resources available to the employer”, and the “nature, severity and duration of the alleged violations.” 

The mere existence of a violation is insufficient to establish that an employer failed to take all reasonable steps.

What does this mean for employers? 

All employers should conduct regular payroll audits and train their supervisors and managers on how to comply with the law. If any errors are found, fix them. Employers must have and publish lawful policies. Do not wait for an employee to complain or request their employment records. Do the audit now.

What is the best way to do that? 

If you don’t already have a relationship with a trusted employment attorney or HR professional knowledgeable about wage and hour laws, create that relationship now. Schedule bi-annual or more frequent reviews of your processes and your employment policies. Have them help you create and present training modules to supervisors and managers. Discuss ways to increase compliance and reduce risk. 

These actions, even if there is an ultimate violation, can reduce the potential penalties. So, don’t wait. Schedule a time with your employment counsel right away.

But what if you receive a PAGA notice before you conduct an audit? 

You may still be able to reduce penalties by taking reasonable steps to come into compliance.

Labor Code 2699(h) (1) says, if within 60 days after receiving the PAGA violation notice, “the person alleged to have committed the noticed violation has taken all reasonable steps to prospectively be in compliance with all provisions identified in the notice, the civil penalty that may be recovered in a civil action under this part shall not be more than 30 percent of the penalty.” 

The statute says “all reasonable steps” includes, but is not limited to, initiating any of the same steps that are identified above.

As with the pre-Notice steps, whether the employer’s conduct was reasonable is evaluated based on the “totality of the circumstances,” taking into consideration the size and resources available to the employer, and the nature, severity and duration of the alleged violations.

It gets better …

Labor Code 2699(j) says: “An employer who satisfies subdivision (g) or (h) and cures a violation shall not be required to pay a civil penalty for that violation.”

That means an employer has an opportunity to cure many violations and avoid penalties altogether. “Curing” the violation may be difficult in some instances since it requires identifying the violation and making the employee “whole.” This includes paying all wages owed, plus 7% interest, liquidated damages and reasonable attorneys’ fees.

There is a lot more to unpack with the revisions to PAGA, but it is important to take advantage of the ability to take proactive steps to reduce, or possibly eliminate, potential violations.

Robert Nuddleman has been advising employers and employees regarding employment laws for almost three decades. The Nuddleman Law Firm focuses on educating clients so they can navigate California’s complex employment laws. If you want to give your company the opportunity to avoid or at least reduce potentially costly penalties, contact the Nuddleman Law Firm today so we can schedule a payroll and policies audit and help you document your efforts to take all reasonable steps to prospectively be in compliance with the law.