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Understanding PAGA: What California Employers Need to Know

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As a California employer, you may have heard a thing or two about PAGA, possibly in conversations with other employers, in the news, or in the media, but what is PAGA? The Private Attorneys General Act (PAGA) is a significant piece of legislation in California that affects both employers and employees that was enacted in 2004. PAGA was intended to be a more effective way to help workers resolve labor disputes. Let’s dive into the key aspects of PAGA.

What is the purpose and scope of PAGA?

The sole purpose of PAGA is to protect employees’ rights and enforce the state’s labor laws.  Which labor laws? PAGA applies to many different violations under the California Labor Code, including:

  • Failing to provide itemized wage statements;
  • Terminating an employee while they are out on leave
  • Failing to provide suitable seating if it’s requested;
  • Failing to pay overtime ;
  • Misclassifying an employee as an independent contractor;
  • Improperly rounding hours;
  • Failing to provide mandatory meal and rest breaks;
  • Failing to pay minimum wages and/or overtime premiums;
  • And more!

What makes PAGA unique is that it allows for aggrieved employees to file lawsuits on behalf of themselves, other employees, and the State of California for any of the above (and more) labor code violations.

How does PAGA work?

When an employee believes their employer has violated one or more labor laws, they can initiate a PAGA claim. In these situations, the employee acts as a “private attorney general” by pursuing penalties not only for themselves but also on behalf of a broader group of affected employees. An example of such a claim could be improper pay stubs distributed by their employer, which are missing required information such as the last four digits of a social security number or an incorrect address for an employer on the paystubs. Seems unreasonable, right?

What are PAGA Penalties and Fines?

PAGA fines can be substantial. Employers may face significant financial consequences if found in violation of one or more labor code violations when these PAGA claims are brought forward. What employees are unaware of is that they get pennies on the dollar when bringing forth these lawsuits, while lawyers make billions. According to state documents, the average employee award decided through a PAGA lawsuit is three times lower than the payout under cases decided by California’s Labor and Workforce Development Agency (LWDA).  In a PAGA settlement, 75% of the amount goes to the Labor and Workforce Development Agency (LWDA). The remaining 25% is provided to the aggrieved employees. Attorneys representing employees typically receive one-third of the recovered amount, sometimes more than their clients. In addition, PAGA’s lawsuit-first approach also takes double the time to resolve, and settlements with employees are common to avoid hefty judgments, especially for small and medium-sized employers.

Unfortunately, PAGA is creating a lot of pressure on California employers. California employers must stay informed about labor laws and take proactive steps to comply to minimize the risk of PAGA claims.

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