Building a Strong Legal Foundation for PAGA Compliance

What is PAGA, and Why Should California Restaurants Care? 

Running a restaurant in California means navigating a complex web of labor laws, and one of the trickiest is the Private Attorneys General Act (PAGA). This law allows employees to sue on behalf of themselves and their coworkers, turning small compliance mistakes into costly lawsuits. Many business owners believe they’re following the rules, only to be blindsided by legal issues they didn’t even know existed. 

This blog is the last in a three-part PAGA series, focusing on the foundations of PAGA compliance: Legal Foundations. 

Other blogs in this series can be found below: 

1. How Processes Can Help You Automate PAGA Compliance
2. How Training Empowers Employees & Managers to Stay PAGA Compliant

Beth Schroeder, a Los Angeles based employment law attorney, has seen it all when it comes to PAGA claims. ForteSG interviewed Beth for this blog to provide restaurant operators with expert insights on real-world compliance challenges, common blind spots, and actionable strategies to mitigate risk. 

How Restaurants Fall Into The PAGA Trap

One of the biggest compliance pitfalls businesses face is assuming their policies are already bulletproof. Beth recalls working with a long-time client who diligently updated their employee handbook every year. However, when she reviewed their onboarding and payroll forms, she found contradictions and inconsistencies.

“For years, they thought they were 100% compliant,” Beth explains. “But their onboarding forms contradicted their handbook policies. Something as simple as how they handled lost keys or uniform requirements opened them up to risk.”

Another common issue? Off-the-clock work. Many businesses don’t realize that requiring managers or staff to complete small tasks before or after clocking in or out, like unlocking doors or setting alarms, can trigger wage violations. These seemingly minor infractions can pile up and may lead to PAGA lawsuits with dozens of claims. 

“For restaurants, meal and rest break violations are the biggest issue,” Beth adds. “But miscalculating regular rates of pay is catching up quickly. If an employee earns different hourly rates, commissions, or bonuses, employers have to recalculate their regular rate for overtime every pay period. Many businesses miss this step.” 

How to Prepare: The Policies Every Restaurant Needs to Mitigate PAGA Risks 

To safeguard against PAGA claims, businesses must invest in state-mandated training, maintain a safe work environment for employees, and implement clear, legal, and enforceable policies.  

These policies should be published in an employee handbook and reviewed with staff during onboarding in that staff member's native language.  

Using a generic handbook template can increase risk, as employment laws vary by state, region, business size, and industry. To ensure compliance, businesses should work with a legal expert to develop a handbook tailored to their specific organization. 

Some of the most critical policies every restaurant should document clearly: 

• Meal and Rest Breaks: Define when breaks must happen and ensure employees aren’t working during them.  
• Regular Rate Calculation: Ensure all bonuses, commissions, and service charges are included in overtime pay calculations. Regular rates should be recalculated each pay period for accuracy, and any quarterly or annual bonuses should be retroactively factored into compensation to maintain compliance. 
• Off-the-Clock Work Prohibitions: Employees should be explicitly prohibited from working before clocking in or after clocking out. You can’t mandate employees to be early and then not allow them to clock in.  
• Employee Classification: Clearly define exempt vs. non-exempt status to ensure compliance with wage and hour laws. Non-exempt employees must receive overtime and meal breaks, while exempt employees must meet salary and duty requirements. Misclassification can lead to serious penalties. 
• Expense Reimbursement: Employees must be informed of their right to reimbursement for necessary work expenses, with the handbook clearly defining reimbursable items (e.g., cell phone use, mileage, uniforms) and outlining the submission process.
• Arbitration Agreements: Arbitration agreements with class action waivers can help protect against large-scale lawsuits. 

What Happens If You’re Out of Compliance? 

If a restaurant finds itself facing a PAGA claim, the best course of action is to act fast. 

One key improvement under recent PAGA reforms is the expanded opportunity for employers to correct certain violations before facing penalties. Businesses now have a clear 33-day window to address issues after receiving a notice of claim, with more violations now eligible for correction.  

Employers that take proactive steps to fix the issue, compensate affected employees, and submit proof to the state can significantly reduce or even eliminate penalties. These reforms provide greater fairness for businesses making good-faith efforts to stay compliant while still protecting employee rights. 

“Curing compliance breaches isn’t just about avoiding fines,” Beth explains. “It’s about demonstrating good faith efforts to follow the law. Employers who proactively correct their processes stand a much better chance of mitigating risk and reducing penalties.” 

Employers who receive a notice should immediately do the following:

• Conduct an Internal Audit – Identify compliance gaps in time records, pay stubs, and policies.
• Consult a Legal Expert – Get legal guidance immediately to navigate the process.
• Correct Violations – Update handbooks, fix payroll errors, improve workflows, and ensure policies are properly enforced.
• Compensate Affected Employees – Provide back pay or penalties for missed wages or breaks.
• Train Managers – Ensure supervisors understand and enforce compliance policies.
• File a Cure Notice (if you have fewer than 100 employees) – Smaller employers can submit proof of fixes to the LWDA. If you have 100 or more employees, you can’t file a cure notice but can request an early evaluation conference once the lawsuit is filed. 
  
  By taking these steps promptly, businesses may avoid costly litigation and further penalties. 

How to Stay Compliant Long-Term 

PAGA-related laws change frequently, so businesses must stay proactive. California typically announces new labor laws in October, and they take effect on January 1st. The best way to keep up? Update your employee handbook annually and adjust policies as needed. 

Beth also advises companies to invest in regular training. “A policy is only as strong as its enforcement,” she says. “If managers aren’t following it, you’re still exposed to risk.”  

Final Takeaways 

The best way to protect your business from PAGA claims is to take a proactive, not reactive approach. Don’t wait until you’re facing a legal battle; start building a strong legal foundation today. Need help? Beth can get you started with the right handbook, policies, or legal support. Reach out today.