PAGA Reform Explained: Key Takeaways for Employers

In this episode of The Workplace podcast, CalChamber Labor and Employment General Counsel Bianca Saad, CalChamber Associate General Counsel Matthew Roberts and CalChamber Senior Policy Advocate Ashley Hoffman explain the recent reforms made to the California Private Attorneys General Act (PAGA) and provide compliance best practices.

PAGA Reform

On July 1, Governor Gavin Newsom signed two bills that reform aspects of PAGA, with the reforms taking effect retroactively to June 19.

What do the new changes include, asks Roberts?

The reforms, Hoffman says, include:

  • Penalty caps: Absolute maximum exposure could now be as little as 15% or 30% of the penalty set, depending on the steps that the employer has taken either prior to receiving the PAGA notice or immediately after receiving the notice.
  • More robust right to cure: Prior to these reforms, almost nothing under PAGA was curable.
  • Specific mechanisms depending on if you’re a larger or small business.
  • Changes in standing: Recent court opinions had made standing so broad that the worker simply had to allege that they experienced one violation, and then they could sue on behalf of every other worker in California for any other violation under the Labor Code, which led to a lot of abuse. The reforms limit standing to say that the plaintiff must have personally experienced the alleged violations and they must file their case within the one-year time period.
  • Nonprofit exception: There is now a narrow exception for some nonprofits.

Steps to Limit Exposure

PAGA now includes the possibility for a significant reduction in penalties if employers have taken all reasonable steps to be in compliance, Saad explains.

Reasonable steps can include:

  • Conducting payroll audits and then acting on those audits based on the results. For example, PAGA actions can be based on a variety of Labor Code violations, some of which are more common, such as unpaid overtime, meal and rest break violations or expense reimbursements. If an employer finds through their audit that they don’t have a practice in place to ensure that employees are getting late meal period premiums paid, then they should take action immediately.
  • Having written policies in place related to wage and hour practices and ensuring those polices are distributed and enforced.
  • Being aware of industry-specific applicable wage orders and ensuring company policies are in line with those wage orders.
  • Provide training. Ensure supervisors and managers are trained on applicable Labor Code requirements and basic wage and hour rules.
  • Take corrective action with supervisors and other personnel who may be involved with wage and hour violations. For example, if an employer has a supervisor who is lenient about the timing of when they’re taking their meal and rest periods, the employer needs to address it with the supervisor through coaching, additional training, or even disciplinary action, if it’s a repeated action.
  • Document any efforts around the steps above.

Upcoming Training Resources

Later this month, the CalChamber will be presenting webinars and providing additional resources, including policies and forms, to help employers with issues relating to PAGA.

“People should definitely stay tuned and be on the lookout for more to come on that end,” Saad says.