Lately, there has been a lot of talk about PAGA. But what does this actually mean to restaurant operators in California? Essentially, it allows employees to assist in ensuring that workplace laws are being followed, acting as a mechanism to hold employers accountable for violations. This can include recovering civil penalties when those laws are violated. The idea behind PAGA is to discourage employers from breaking labor laws. So, how does it work?
According to the State of California Department of Industrial Relations, the Private Attorneys General Act (PAGA) allows employees in California to assist the state in enforcing labor laws by suing their employers on behalf of the state for violations of the Labor Code and recovering civil penalties.
The act is designed to deter unlawful conduct and encourage compliance with labor protections. Employees may bring other types of claims instead of, or in addition to, a PAGA claim, such as filing a lawsuit in court to recover unpaid wages, statutory damages, and statutory penalties for certain Labor Code violations.
Here’s what you need to know about the updated PAGA, which came into effect in mid-2024.
Some of the most common labor law violations addressed by PAGA include wage and hour violations, improper overtime calculations, failure to provide proper meal and rest breaks, and misclassification of employees.
The New PAGA went into effect on July 1, 2024, and only applies to claims made after June 19, 2024. Claims predating June 19 remain subject to pre-reform PAGA.
A significant change in the updated law is that the newest policy aims to lessen the liability for certain penalties for well-intentioned employers who slip up despite their best efforts to comply. This allows employers to correct violations while still enabling employees to bring action against employers who violate California's wage and hour laws.
For notices filed on or after June 19, 2024, violations that can now be corrected include claims for minimum wage, overtime, meal and rest breaks, necessary expense reimbursement, and all requirements for itemized wage statements, among others. Employers who take all reasonable steps to comply with the law prior to receiving a PAGA notice may have their civil penalty reduced to a maximum of 15% of the penalty sought. On the other hand, if the employer takes all reasonable steps to comply within 60 days of the PAGA notice, the civil penalty is reduced to a maximum of 30% of the penalty sought, with some exceptions.
While adhering to PAGA may seem burdensome, compliance offers several benefits for restaurants:
The restaurant industry’s unique labor dynamics and high employee turnover make it particularly vulnerable to PAGA claims. To reduce potential liability, restaurant operators can focus on a few proactive steps, including:
According to the California Restaurant Association, small technical errors often lead to costly lawsuits, with the number of payouts expected to double in the next five years. To mitigate risks and reduce unnecessary litigation, restaurants should adopt the following proactive strategies:
For PAGA notices filed on or after June 19, 2024, if an employer has taken all reasonable steps to comply with the law before receiving a PAGA notice, but a violation nonetheless occurred, the maximum civil penalty is 15% of the penalty sought. If the employer takes all reasonable steps to be in compliance with the law within 60 days of the PAGA notice, the maximum civil penalty is 30% of the penalty sought. Certain exceptions apply.
According to QSR Magazine, PAGA penalties for restaurants can range between $50 to $100 for each employee per pay period. To illustrate how quickly penalties may increase, QSR provides the following example:
If a restaurant employer has 20 nonexempt hourly employees. One of these employees files a PAGA lawsuit against the restaurant, alleging five claims:
For this example, let's assume the employee claims that all employees experienced each of these violations for two years. If each of the 20 employees worked 25 pay periods per year, totaling 1,000 pay periods, and the state assessed a $50 violation per pay period for each of the five claims, the potential penalties could total $250,000. Now imagine more employees, more violations, and longer timeframes, and the potential impact on employers becomes clear.
By understanding the still-evolving parameters of PAGA and its implications restaurant operators should proactively adopt compliance strategies in order to mitigate risks, improve operations, and foster a fair workplace. Incorporating the proper technologies that automate accounting, payroll, and communications can help operators avoid mistakes and remain compliant. That’s where Forte can help. Contact us to find out how.
*Please consult the State of California Department of Industrial Relations website directly for more in-depth information.