Why Every California Employer Needs To Know About PAGA - CRHWA
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Why Every California Employer Needs To Know About PAGA

Over the last several years, PAGA lawsuits have garnered much more attention among California employers, and for good reason.  PAGA lawsuits can result in substantial penalties against employers, and can be very costly to defend.

The Private Attorneys General Act (“PAGA”), codified in Labor Code §§ 2698-2699.5, was signed into law in 2004, and is often referred to as the “California Employer Bounty Hunter Law.”  PAGA permits employees to step into the shoes of the State, and bring representative lawsuits on behalf of other aggrieved employees to recover “civil penalties” that were previously only recoverable by the Labor Commissioner.  This was a monumental shift in California wage and hour law, and has had costly consequences for California employers.

Before PAGA

To provide some perspective, employers must first understand the California Labor Code.  The California Labor Code consists of thousands of provisions that employers can potentially violate.  Certain statutes provide for recovery of wages, others contain statutory penalties, and others provide for civil penalties.  Before PAGA, employees could recover wages and statutory penalties under the Labor Code, but they could not personally recover any civil penalties.  Only the California Labor Commissioner was able to recover civil penalties for violations of the Labor Code.

Any civil penalties were not dispersed to employees, but were instead paid to the State.  Due to the limited resources of the Labor Commissioner, and limited staffing levels, the number of actions brought by the Labor Commissioner to recover these civil penalties was fairly limited.

After PAGA

PAGA changed everything.  Concerned about the Labor Commissioner’s inability to adequately enforce the California Labor Code, the California legislature decided to empower individual employees to act on behalf of the Labor Commissioner, and seek civil penalties on behalf of other current and former employees.  Of the civil penalties recovered under PAGA, 75 percent of the penalties are paid to California’s Labor and Workforce Development Agency (“LWDA”), and the remaining 25 percent of the penalties are dispersed to the aggrieved employees.

This means that employees can now recover the specific monetary civil penalties included in the Labor Code that were once only recoverable by the Labor Commissioner.

But PAGA goes even further.  For provisions in the Labor Code that do not already include specific civil penalties, PAGA creates a default penalty of $100 for each aggrieved employee per pay period for the initial violation, and $200 per employee per pay period for subsequent violations.

This has greatly increased the potential penalties California employers can face for wage and hour violations.  For example, in October 2018, Walmart entered into a $65 million PAGA settlement when an employee claimed that Walmart failed to provide employees with suitable seating.  Again, these are civil penalties that were not available to employees before PAGA.

As a further blow to employers, unlike other wage and hour claims, PAGA claims are not subject to mandatory employment arbitration agreements.

For these reasons, PAGA claims are becoming increasingly common in California.  In 2018 alone, employees filed over 5,000 PAGA notices with the LWDA.

What Can Employers Do?

So, what can employers do to protect themselves from potentially crippling PAGA penalties?

The best defense to any PAGA claim is to have compliant wage and hour practices.  An employee cannot recover PAGA penalties if the employee cannot prove any wage and hour violations.  The first step in ensuring compliant practices is to review all employee handbooks (which should contain compliant wage and hour policies) and payroll practices.  For the greatest level of protection, employers should conduct this review with the assistance of experienced legal counsel.

Second, if an employer receives a PAGA notice, it is imperative that the employer immediately involve experienced legal counsel.  It is critical that the employer puts itself in the best position possible by employing effective strategies at the outset of any PAGA action.  For example, PAGA provides employers with a limited opportunity to “cure” certain violations, therefore employers should immediately engage legal counsel to assess whether that option is available and advisable in their case.

For more information, please contact the author at fhernandez@sheppardmullin.com or (714) 424-8227.  Frances M. K. Hernandez is a labor & employment attorney at Sheppard Mullin Richter & Hampton, LLP.

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