Measures Employers Should Incorporate to Mitigate Risks Under PAGA

One of the most onerous labor laws employers in California contend with is the Private Attorneys General Act (PAGA). The law, which some have nicknamed “the sue your boss law,” allows employees to file lawsuits to recover civil penalties on behalf of themselves, other employees, and the State of California for labor code violations. In this episode of The Workplace podcast, CalChamber Executive Vice President and General Counsel Erika Frank, and wage and class action expert Michael Nader review the actions employers can take to mitigate PAGA liability risks.

Encourages Costly Litigation

In a poem Nader reads to kick off the podcast, he says of PAGA, “Since 2004 it’s been a scourge to the state because it rewards employees who litigate, instead of cooperating with their employers to mitigate.”

PAGA is problematic because it allows employees to sue on behalf of themselves and on behalf of other aggrieved employees for a labor code violation.

In part because of this representative action, and in part because of the added PAGA penalty fees, violations under PAGA can incur exorbitant penalties for employers, sometimes in the millions of dollars, Nader explains.

For example, he says, if an employer with 200 employees, with one pay period a week (52 pay periods a year), is sued for one violation with an initial $100 penalty per employee per pay period, the employer already is looking at $1 million in potential penalties.

“If you include the subsequent violations, that would double to around $2 million of exposure,” he says.

Steps to Mitigate Exposure

PAGA claims have spiked in recent years, Nader tells Frank, with almost every case involving a rest and meal break violation claim. Plaintiffs typically allege that meal breaks were shortened, skipped or were taken late, but new allegations are surfacing, he explains. The new allegations zero in on rest break premiums being paid at the “regular rate of pay” versus “regular rate of compensation.”

Several courts have defined “regular rate of compensation” differently, with some courts defining compensation as “base pay” (hourly rate) and others defining compensation as “base pay plus all non-discretionary compensation,” (such as overtime).

Given the myriad of potential violations for which employers can be sued for, Frank asks Nader what employers can do to mitigate the risks of being sued under PAGA.

Nader recommends the following:

  • Establish attestation procedures: Obtain documentation from employees that state they understand your company’s policy on meal and rest breaks. The frequency of “attestation” or the documentation can vary, such as once per pay shift or once a quarter. This documentation is the evidence that employers can provide to prove that there is a meal and rest policy in place, and that the employee acknowledges and understands the policy.
  • Provide training: Employers should customize their meal and rest break training for specific issues and for employees at high risk for violations. Employers also should ensure workers provide written documentation acknowledging the training was received. Additionally, employers should establish separate training for supervisors and managers that cover rest and meal break periods, and which stress that employees who report potential violations should not be retaliated against. Periodically, employers should send out reminders on the details of the company policy.
  • Establish reporting protocols: Employers should encourage their employees to report concerns around potential violations without the threat of retaliation. Employers should establish a complaint procedure for wage and hour issues, including meal and rest concerns, with multiple avenues for raising complaints. For example, Nader says, allow employees to address their concerns directly with the human resources department, not just their supervisor. A mechanism for anonymous reporting also should be established. Lastly, employers should establish an effective response system that includes: a gatekeeper who provides consistent responses to complaints; an investigation process; and a process for retaining records of all complaints and investigations.
  • Audits: To avoid lawsuits, it’s important that employers develop an internal auditing process that regularly audits the proactive activities that have been implemented. Employers should review complaints and investigations, and review rest breaks that were missed and the premiums that were paid to identify problematic areas or issues with management.  Lastly, Nader recommends that employers work with an employment lawyer before initiating an audit.

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