Employers: PAGA lawsuits and their massive penalties can destroy your business.
Most employers have heard of “PAGA” or class-action lawsuits because of the news stories, but many employers are not aware of how ruinous a PAGA lawsuit can be. In fact, the penalties awarded in PAGA lawsuits are often massive and can be devastating to a business. It is important for employers to be aware of the rules and regulations that apply to them and to take precautionary measures to avoid liability in potential PAGA cases.
First, what is “PAGA”? Well, PAGA stands for the Private Attorneys General Act of 2004 (“PAGA”) which is codified in the California Labor Code. PAGA essentially allows an aggrieved employee or former employee to bring an action against an employer for violations of the California Labor Code on behalf of the state of California. In these actions, the employees are seeking substantial penalties against the employer that would have otherwise been recoverable only by the State of California. Yes, private employees are essentially enforcing California laws and regulations on behalf of the state of California. In these cases, the employee is acting as a representative of the state. Why would employees want to do this? Well, the incentive to employees is that employees get to keep part of the substantially large PAGA penalties. PAGA allows the aggrieved employee to keep 25% of any civil penalties collected while 75% of the penalties collected goes to the state.
The massive penalties have incentivized many employees to search for Labor Code violations in their workplace. These employees are essentially looking for any violations of the Labor Code, whether intentional, purely by mistake, or due to oversight, by the employer. As such, PAGA is sometimes referred to as the “bounty hunter law.” PAGA lawsuits are a “free for all” where employees can easily bring claims against their employer for any and all labor code violations (no matter how small) and (up until recently) regardless of whether or not the plaintiff employee was personally affected by the violations. In the past, the big payouts have encouraged employees to seek out violations- even violations they were not affected by.
Now, you may be wondering, “What makes PAGA penalties so destructive to a business?” The short answer is: the way the penalties increase exponentially per pay period for each employee. For example, if a Labor Code provision does not specify the amount of the penalty, the default penalty is always $100 for every employee for every pay period for the first violation and $200 for each violation thereafter. However, the penalties can also grow exponentially because separate penalties can be given for each violation in the same pay period for the same violation.
Employer 1:
Imagine that there is an employer who currently has 10 employees. These 10 employees are paid semi-monthly. This employer did not provide meal and rest breaks to its 10 employees for all 24 pay periods. The employer’s failure to provide meal and rest breaks is clearly a violation of the California Labor Code, which requires employers to provide both. Employers are required to provide a 30-minute unpaid meal break when an employee works more than 5 hours in one day. Similarly, an employer is required to provide an employee with a paid 10 minute rest period for every 4 hours worked. How are the PAGA penalties calculated? See below:
10 employees
24 pay periods (paid semi-monthly)
meal and rest break violations (2 violations per day per employee)
First violation for failure to provide rest break:
10 employees x $100 per violation = $1,000
Subsequent violation for failure to provide meal break for the year:
10 employees x 23 pay periods x $200 per violation = $46,000
First violation for failure to provide meal break:
10 employees x $100 per violation = $1,000
Subsequent violation for failure to provide meal break for the year:
10 employees x 23 pay periods x $200 per violation = $46,000
The total penalty would be approximately $94,000 for the year.
Employer 2:
We have another employer also with 10 employees. This employer failed to provide both rest and meal breaks again. However, this employer pays his employees on a weekly basis. The amount of penalties doubles. How are these PAGA penalties calculated in this scenario? See below:
10 employees
52 pay periods (paid every week)
meal and rest break violations (2 violations per day per employee)
First violation for failure to provide rest break:
10 employees x $100 per violation = $1,000
Subsequent violation for failure to provide meal break for the year:
10 employees x 51 pay periods x $200 per violation = $102,000
First violation for failure to provide meal break:
10 employees x $100 per violation = $1,000
Subsequent violation for failure to provide meal break for the year:
10 employees x 51 pay periods x $200 per violation = $102,000
The total penalty would be approximately $206,000 for the year.
The fact that Employer 2 paid his employees more frequently made a huge difference in the calculation of the PAGA penalties- despite the fact that both Employer 1 and Employer 2 had the same number of employees. In fact, the PAGA penalties doubled for Employer 2! This is why employers need to be aware of the way in which PAGA penalties are calculated and to steer clear of violations of the labor code.
An experienced attorney at Bailey Law can help you assess your company’s potential liability, help you minimize total liability, and perhaps (if it’s not too late) help you avoid such liability entirely.