The PAGA reform (click on right here for a full evaluation) caps penalties at 15% or 30% for employers that take “all affordable steps” to adjust to the regulation. This cover is particularly significant when plaintiffs demand seven figures for alleged PAGA violations. Which means each California employer ought to instantly conduct a [privileged] wage-and-hour audit to make the most of this new regulation and keep away from going through probably business-threatening PAGA penalties.
What Does “All Affordable Steps” Imply?
“All affordable steps” contains, however just isn’t restricted to:
- Conducting periodic payroll audits and taking motion in response to the outcomes of the audit;
- Disseminating lawful written insurance policies;
- Coaching supervisors on relevant Labor Code and wage order compliance; or
- Taking applicable corrective motion with regard to supervisors.
Whether or not the employer’s conduct was affordable is evaluated by the totality of the circumstances and considers the scale and assets obtainable to the employer, in addition to the character, severity and period of the alleged violations. It’s doable to take “all affordable steps,’ but nonetheless have proof of a violation.
The “all affordable steps” cap doesn’t apply when a court docket finds the employer acted “maliciously, fraudulently, or oppressively” or the employer’s coverage/follow was discovered to be illegal by a court docket or the Labor Commissioner inside the final 5 years.
For employers taking “all affordable steps” after receiving an LWDA discover, a court docket might exceed the 30% cap if, primarily based on the information and circumstances of the actual case, to do in any other case would lead to an award that’s unjust, arbitrary and oppressive, or confiscatory.
Of word, employers that “treatment” alleged violations however don’t take “all affordable steps” to adjust to the regulation will nonetheless have penalties capped at $15 per pay interval.
Take into account the Lawyer-Shopper Privilege for Your Audit
Remember the fact that a wage-and-hour audit that’s not protected by the attorney-client privilege is discoverable. Think about a state of affairs the place the unsuitable minimal wage fee is paid (attributable to confusion about the place town boundary was), and that’s uncovered within the audit. Emails go between firm principals and HR in regards to the challenge, and the choice is to not repair the difficulty. All of these communications are discoverable! Nevertheless, if the audit was carried out by way of counsel, such emails could be protected against disclosure, and you may keep away from giving a roadmap to an keen plaintiff’s lawyer.
In an effort to make the most of the treatment provisions, the employer can present unprivileged paperwork to indicate the problems recognized within the audit, and the fixes.
What Are the Situations for the PAGA Caps?
Situation 1 (15%): BEFORE receiving a PAGA discover or a Request for Personnel Information
If an employer can present they took “all affordable steps” to adjust to the regulation earlier than both: (1) receiving a PAGA discover; or (2) receiving a request for personnel information (beneath Part 226, 432, or 1198.5), PAGA penalties are capped at 15%.
For instance, if an employer has 2,500 pay intervals at challenge in the course of the PAGA interval [less than 100 employees] with a $100 violation in every pay interval, the employer can be chargeable for $250,000 in civil penalties. However, if the employer took “all affordable steps” prematurely of the PAGA discover or earlier than receiving a request for personnel information, civil penalties would lower to $37,500.
Situation 2 (30%): AFTER receiving a PAGA discover [60-Day Deadline]
If an employer can present they took “all affordable steps” to adjust to the regulation inside 60 days after receiving a PAGA discover, PAGA penalties are capped at 30%.
Utilizing the identical instance above (of two,500 pay intervals at challenge), if the employer took “all affordable steps” after receiving the PAGA discover, potential civil penalties lower from $250,000 to $75,000.
Key Takeaway
By conducting a wage-and-hour audit now (ideally a privileged audit), California employers can make the most of the PAGA reform and cap PAGA penalties at 15% (or 30% for those who’ve already obtained a PAGA discover). This comparatively low-cost motion additionally reduces the chance of particular person wage-and-hour lawsuits in addition to state wage-and-hour investigations. An oz. of prevention beats a pound of treatment.
This publish offers basic data and doesn’t represent authorized recommendation to any individual with respect to any circumstance. This publish doesn’t create an attorney-client relationship with any individual.
For extra data on this matter, please contact Steven P. Gallagher at stevengallagher@foxrothschild.com or a member of the agency’s Labor & Employment Division.