California Labor Law Fix Makes Little Sense for Large Employers

The 2024 revisions to the California Private Attorneys General Act were widely considered a welcome change that would make the law clearer, compliance simpler, and resulting penalties more reasonable.

But more than a year later, filings for PAGA—which authorizes aggrieved employees to sue for civil penalties in labor cases on the state’s behalf—are higher than ever. And many large employers remain uncertain how to navigate this complex law.

The revised PAGA includes some changes that benefit employers of all sizes. PAGA plaintiffs no longer can bring claims for violations they’ve not personally suffered, and there’s now an expedited cure process when a wage statement dispute is the sole violation.

Amended PAGA also halves penalties for employers with weekly (as opposed to biweekly) pay periods, and places substantial caps on penalties when an employer takes all reasonable steps to comply with law.

Unfortunately, many other provisions make little sense for large employers.

The revised regulation isn’t retroactive and applies only to notices filed after June 19, 2024. While PAGA now allows employers to cure many more types of violations, curing means making “each aggrieved employee whole.” That means an employer must make all payments owed under the application code sections going back three years from the PAGA notice, pay 7% interest, compensate liquidated damages required by law, and provide reasonable attorneys’ fees and costs.

These onerous requirements, coupled with the three-year lookback (far longer than the one year for PAGA violations and penalties), makes curing economically senseless for large employers facing a putative PAGA class with many employees.

The “early case evaluation” similarly requires curing all aggrieved employees for a three-year period and thus isn’t cost effective for large employers trying to limit liability for potential PAGA violations. PAGA notices often are accompanied by civil lawsuits and, despite the “confidential” nature of the early case evaluation, large employers risk divulging information that may affect those companion filings.

Given the ineffectiveness of PAGA’s new cure provisions and early case evaluation for large employers, the best way large companies can mitigate exposure and limit risk under the statute is to take all reasonable steps to comply with California employment and labor laws from the outset.

For employers whose violations aren’t malicious, fraudulent, or oppressive, taking all reasonable steps before receiving a PAGA notice caps penalties at 15% while employers who implement steps within 60 days of the notice reduce penalties to 30%.

Although PAGA doesn’t define “all reasonable steps,” it does provide guidance on relevant activities. All large employers operating in California should consider the following measures to ensure PAGA compliance and maximize their reasonable steps defense:

Conduct periodic audits. This includes audits of payroll systems, wage statements, time keeping, and employee classifications. Keep records of steps taken in response to those audits and note many large employers are already conducting such audits to comply with related California laws (such as the annual Pay Data Report for employers with 100+ employees or pay transparency audits).

Provide regular training on California labor law. Offer training and modules directed to employees—especially supervisors—whether internal or externally hosted.

Institute, disseminate, and review relevant policies. Have and make readily accessible clear, written policies related to California labor law, assess existing policies, and ensure consistent enforcement of those policies.

Document corrective actions. Keep detailed records of actions taken in response to relevant violations of law or policies (trainings, performance improvement plans, warnings, etc.), as well as steps taken to remedy potential PAGA violations.

Monitor legal changes. Review legal developments to stay informed of changes or clarifications and be prepared to adapt your practices and policies accordingly.

Although California courts have yet to provide guidance on what exactly qualifies as reasonable steps, PAGA instructs courts to evaluate employer efforts using the “totality of the circumstances” considering the employer’s available resources and the severity of the alleged violations.

These instructions are reminiscent of California laws on preventing sexual harassment and discrimination, and it seems likely the courts will use a similar approach in determining whether employers have taken all reasonable steps to comply with law in the PAGA context.

Many firms are offering comprehensive PAGA-related compliance packages. Any large employer operating (or considering operating) in California should take immediate action to solidify their reasonable steps defense in the increasingly likely event they face a PAGA notice and resulting lawsuit under the new regulation.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law, Bloomberg Tax, and Bloomberg Government, or its owners.

Author Information

Bradley Raboin is a litigator with Loeb & Loeb’s employment and labor practice, focused on cases involving discrimination, harassment, retaliation, wage and hour violations, and wrongful termination.

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