With California’s recent reforms to the Private Attorneys General Act (PAGA), employers now have an unprecedented opportunity to significantly reduce their potential liability for labor code violations. One of the most crucial changes under the reformed PAGA is the introduction of penalty caps for employers who demonstrate good faith efforts to comply with labor laws. However, to fully take advantage of these reductions, employers must be proactive in auditing their payroll, timekeeping, and labor practices. Regular audits not only ensure compliance but are essential in building the evidence needed to qualify for reduced penalties under the reformed PAGA. In this article, we’ll explore why conducting audits is now more critical than ever for California employers looking to protect their businesses from costly litigation and maximize the benefits of PAGA’s revised penalty structure.

Under the reformed PAGA, penalties have been significantly reduced to provide relief to employers.  The reformed PAGA applies to newly filed cases after June 19, 2024. Any PAGA claims filed on or after this date will be subject to the new rules and penalty structures introduced by the reform. Cases filed before June 19, 2024, will continue to be governed by the old PAGA regulations. Below is a list of penalties and their respective reductions under the reformed PAGA:

1. Good Faith Compliance Penalty Caps:

  • Old Penalty: No cap on penalties if violations were found.
  • New Penalty:
    • 15% of the applicable penalties if the employer took all reasonable steps to comply before receiving a PAGA notice or a records request.
    • 30% of the applicable penalties if the employer took all reasonable steps to comply within 60 days after receiving a PAGA notice.
  • Reduction: Penalties are reduced by 85% in the first case and 70% in the second case, depending on the timing and good faith efforts.

2. Wage Statement Violations:

  • Old Penalty: $100 per employee, per pay period.
  • New Penalty: $25 per employee, per pay period (if the employee can still determine accurate information from the wage statement, or if the only violation is related to the employer’s name and address, and the employee is not confused about the employer’s identity).
  • Reduction: 75% reduction from $100 to $25.

3. Penalties for Isolated Violations:

  • Old Penalty: $100 per employee, per pay period.
  • New Penalty: $50 per employee, per pay period for violations lasting fewer than 30 consecutive days or four pay periods.
  • Reduction: 50% reduction.

4. Derivative Violations (Stacking Penalties):

  • Old Penalty: Multiple penalties for labor code violations arising from the same underlying conduct.
  • New Penalty: No stacking of penalties allowed. Only one penalty is imposed for the underlying violation.
  • Reduction: Complete elimination of stacking.

5. Subsequent Violation Penalties (Aggravated Penalties):

  • Old Penalty: $200 per employee, per pay period.
  • New Penalty: $200 per employee, per pay period, but limited to cases where:
    1. The employer had a prior finding or determination of unlawful practices within the last 5 years by the LWDA or a court.
    2. The violation was determined to be malicious, fraudulent, or oppressive.
  • Reduction: This applies only to aggravated cases, limiting the application of the $200 penalty.

6. Penalties for Employers Paying Weekly:

  • Old Penalty: Employers paying weekly were exposed to double the penalties because there were twice as many pay periods.
  • New Penalty: Penalties are reduced by 50% for employers paying weekly, ensuring that weekly pay cycles do not result in disproportionately high penalties.
  • Reduction: 50% reduction.

These penalty reductions are aimed at incentivizing employers to comply with the Labor Code while offering relief from excessive penalties for technical violations and giving them more opportunities to mitigate liability under PAGA.

Zaller Law is actively helping clients navigate the complexities of PAGA compliance by providing comprehensive payroll and labor practice audits. These audits are essential for employers seeking to minimize their exposure to PAGA claims and benefit from the newly reduced penalties under the reformed law.