In 2004, California enacted the Private Attorneys General Act (PAGA), which allows employees to sue their employer on behalf of the state for certain Labor Code violations against all aggrieved employees.

Prior to the much-needed 2024 reforms, discussed below, employers could face severe penalties even for relatively minor violations that did not harm employees. The penalties could amount to $100 for each aggrieved employee per pay period for initial violations, and $200 for each aggrieved employee per pay period for subsequent violations.

Needless to say, PAGA has been heavily criticized since its enactment. Last summer, PAGA underwent significant legislative reform with support from both business and labor groups. The reforms generally apply to PAGA claims initiated on or after June 19, 2024.

Capping Penalties

One major reform was capping penalties for employers who take “all reasonable steps” to comply with the Labor Code. Specifically, employers who take preemptive steps to comply with the law before receiving a PAGA notice of a violation will have penalties capped at 15% of what they would otherwise be penalized. Even in cases where the employer takes “all reasonable steps” to comply with the law after receiving a PAGA notice, penalties will be capped at 30% if the employer took proactive steps to comply within 60 days of the notice.

For capping penalties at 15%, Labor Code section 2699 (g)(2) provides that “all reasonable steps” before receiving a notice of a violation includes, but is not limited to:

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

Labor Code 2699 (h)(2) provides that “all reasonable steps” after receiving a notice include, but are not limited to:

• Conduct an audit of the alleged violations and take action in response to the results
• Disseminate lawful written policies as to the alleged violations
• Train supervisors on applicable Labor Code and wage order compliance, and take appropriate corrective action with regard to supervisors.

Note that proactive steps after receiving a notice must occur within 60 days to qualify for the penalty cap.

There is no specific playbook to ensure a court finds that “all reasonable steps” were taken. The existence of a violation alone does not prove that an employer failed to take all reasonable steps and the existence of a lawful written policy does not prove that they did. The PAGA statute requires considering the totality of the circumstances, the size and resources available to the employer, and the nature; severity; and duration of the alleged violations.

Next Steps

As a proactive measure, employers should review their employee handbooks and wage and hour policies and practices to ensure compliance with the Labor Code. Any detected violations should be corrected immediately. In addition, employers should thoroughly train their supervisors and managers on compliance with the law.

Partnering with an employment attorney to audit payroll, timekeeping, and records retention practices could identify potentially costly violations, while keeping the audit process and results privileged, whether its proactive or in response to a notice of violation.

Even employers who take the specified measures after receiving a PAGA notice will still greatly benefit from the new penalty caps. If an employer receives such a notice, they should immediately seek the advice of counsel and begin taking “all reasonable steps” to comply with the law within 60 days of receiving the notice.