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Since 2004, California's Private Attorneys General Act (PAGA), has been a constant threat to California employers. PAGA has allowed employees to sue employers on behalf of the state and all other "aggrieved employees" for violations of the labour code, in order to recover enormous civil penalties.
These penalties are calculated based on the number of employees, pay periods, and the plaintiffs' attorney's fees, even when only minor or technical violations were alleged.
And then, after 20 years, there was a breath of relief. In 2024, reforms were implemented to curb abusive litigation while encouraging employers to proactively comply with wage-and-hour laws. Among several meaningful changes, employees may now only pursue claims for labour code violations they personally experienced. Similarly, penalties are more predictable, and, in many cases, capped.
The default penalty is now generally USD 100 per aggrieved employee per pay period, increasing to USD 200 per violation only in cases where the employer had notice of and failed to correct prior violations or engaged in malicious conduct. This is down from USD 100 for the first violation and USD 200 for every subsequent violation for each employee per pay period regardless of intent. The reforms also limit penalty stacking for certain wage and wage statement violations, expand judicial discretion to manage and streamline PAGA cases, and increase the allocation to employees for recovery. The catch for employers? To benefit from these reforms, employers must take "all reasonable steps" to prevent labour code violations.
If an employer does take "all reasonable steps" to comply with the California Labor Code, penalties can be reduced to as low as USD15 per employee per pay period if compliance efforts were in place before a PAGA notice, or USD 30 if corrected within 60 days of receiving a PAGA notice (down from the USD 100 default).
The big question is what constitutes "all reasonable steps"? Per the reformed statute, "all reasonable steps" include conducting periodic payroll audits, issuing lawful written policies, training supervisors on wage-and-hour requirements, and taking corrective action when issues arise. These steps are evaluated under a totality-of-the-circumstances standard, considering factors like company size, resources, and the severity of any alleged violations.
Now, waiting for a PAGA notice is no longer a prudent strategy. Employers who can demonstrate good-faith compliance efforts won't just reduce PAGA penalties – they can limit their exposure across the board, potentially avoiding litigation, or, at the very least, putting their business in a far stronger defensive position.
PAGA remains a powerful enforcement tool, but the 2024 reforms give California employers meaningful ways to manage risk. Business owners who invest in compliance now can significantly reduce liability later – and, in some cases, avoid lawsuits altogether.
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