As a small business owner in California, staying compliant with the ever-changing workplace and labor laws is vital for the success of your company. The Private Attorneys General Act (PAGA) is a unique California law that allows employees to sue employers on behalf of themselves and other employees for alleged violations of labor laws. These claims can lead to costly and time-consuming legal battles, making it essential for businesses to protect themselves proactively. In this article, we will further explore PAGA claims, highlight the recent California Supreme Court ruling and provide practical steps for businesses to mitigate the risk of facing such lawsuits in the future.

What is PAGA?

The Private Attorneys General Act, enacted in 2004, empowers employees to act as "private attorneys general" to enforce California's labor laws. Under PAGA, employees can bring lawsuits against employers for various violations, such as wage and hour violations, meal and rest break violations, failure to provide accurate wage statements, and more.

Unlike traditional lawsuits, PAGA claims are not limited to recovering damages for individual plaintiffs. Instead, the penalties recovered in PAGA lawsuits are primarily used to remedy violations on a broader scale and benefit affected employees as well as the state.

The Potential Impact on Businesses:

PAGA claims can pose significant challenges and risks for businesses, including:

Costly Penalties: PAGA penalties can be substantial, with fines ranging from $100 to $200 per employee per pay period for initial violations and $200 to $1,000 per employee per pay period for subsequent violations.
Legal Expenses: Defending against PAGA claims often involves complex legal procedures, leading to substantial legal expenses for businesses.
Reputation Damage: Publicized PAGA claims can harm a business's reputation, affecting customer perception and potential partnerships.

How Businesses Can Protect Themselves:

While businesses cannot completely eliminate the risk of facing PAGA claims, there are practical steps they can take to mitigate the risk and ensure compliance with California's labor laws.

Stay Compliant with Labor Laws: The most effective way to reduce the risk of PAGA claims is to ensure strict adherence to California's labor laws. Regularly review and update policies and practices related to wages, overtime, meal and rest breaks, accurate wage statements, and other relevant labor regulations.
Conduct Internal Audits: Regular internal audits can help identify potential compliance issues and allow businesses to address them promptly. Working with HR professionals or legal experts to conduct thorough audits can provide valuable insights and recommendations for improvement.
Employee Training: Educate your workforce about their rights and responsibilities under labor laws. Training sessions can help employees understand the importance of compliance and create a culture of adherence to company policies.
Implement Arbitration Agreements: Consider implementing arbitration agreements as part of your employment contracts. Arbitration can provide a more efficient and cost-effective way to resolve disputes, potentially reducing the likelihood of costly PAGA lawsuits.
Consult with Legal Experts: Engage with employment law attorneys who specialize in California labor laws. Seeking legal advice and guidance can help businesses navigate complex employment regulations and implement best practices.
Maintain Accurate Records: Keep meticulous records of employees' work hours, wages, and other relevant data. Accurate record-keeping can serve as essential evidence in the event of a PAGA claim.

What About the Recent PAGA Ruling?

On July 17, 2023, The California Supreme Court ignored guidance from the US Supreme Court and clarified that a PAGA plaintiff retains standing to litigate non-individual PAGA claims in court, even if their individual PAGA claim is compelled to arbitration. This interpretation aligns with PAGA's purpose of ensuring effective code enforcement.

Key Takeaways from the Ruling:

Arbitrate, Stay, then Dismiss: The court provided a clear framework for handling PAGA actions—arbitrate the individual claim, stay the non-individual claim at the court's discretion, and dismiss if the plaintiff loses arbitration.
No Loss of Standing: PAGA plaintiffs can pursue non-individual PAGA claims even when their individual PAGA claims are sent to arbitration.
Court’s Discretion: The court suggested that non-individual PAGA claims can be stayed in state court while the individual PAGA claim undergoes arbitration. This prevents duplication of legal proceedings.
Potential Ballot Measure: Due to the conflicting decision with the U.S. Supreme Court, there is a proposed ballot measure for the November 2024 election, "California Fair Pay and Employer Accountability Act of 2024" that could eliminate PAGA and replace it with increased DLSE enforcement.

What’s Next for Employers?

For small business owners in California, it's critical to review wage and hour compliance and arbitration agreements. Staying compliant with workplace laws can help prevent employees from pursuing non-individual PAGA claims if they fail to prove individual labor violations.

Your 5-Step Plan for HR Compliance:

Review and Revise Arbitration Agreements: Ensure your arbitration agreements align with recent rulings and protect your business from potential PAGA claims.
Consider Staying Representative Claims: Amend arbitration agreements to include a stay on any representative claim under PAGA pending the arbitration of individual PAGA claims.
Implement Arbitration if Necessary: Evaluate implementing arbitration agreements if you currently lack them to strengthen your position in potential legal disputes.
Conduct a Thorough Wage and Hour Compliance Review: Review policies related to overtime, timekeeping, pay, meal and rest breaks, and other wage and hour practices. Train employees and managers on these policies and appoint a team to address related inquiries.
Evaluate Active Litigation: Determine if arbitrating individual claims could weaken the standing of PAGA plaintiffs to pursue non-individual PAGA claims.

Staying informed and proactive about HR matters and PAGA claims is critical for California small businesses. To ensure your compliance with the latest developments in employment law, schedule an HR Audit with Essential HR Services. Our team of experts will assess your HR policies, procedures, and practices, providing valuable insights to safeguard your business. Don't wait; reach out to us today and take the first step toward a resilient and compliant workplace.