California employers will be receiving immediate relief under the new Private Attorneys General Act (PAGA) reform law. The California Legislature passed AB 228 and SB 92 on June 27, 2024, and Governor Newsom signed both bills into law on July 1, 2024. Our analysis of the reform is set forth in our previous article here. This article focuses on what steps California employers should be considering in light of the new reform law. Because the new law applies to any PAGA cases file on or after June 19, 2024, employers should consider the following action items as soon as possible:
1. Conduct periodic payroll audits
Employers who can show that they took reasonable steps to comply with the Labor Code can reduce PAGA penalties by as much as 85%. The reformed PAGA framework caps the penalties for employers who take reasonable steps to comply with the Labor Code. If the employer takes reasonable steps to be in compliance prior to receiving from the aggrieved employee or their counsel a (1) PAGA notice required under Section 2699.3 or (2) request for records under Section 226, 432, or 1198.5, the penalty will be capped at 15% of the applicable penalty. To establish reasonable steps were taken to comply with wage and hour laws, California employers will need to conduct periodic wage and hour audits to ensure compliance with at least the following:
- meal and rest break obligations
- prohibiting off the clock work was being performed
- correct recording and payment of overtime for all work over 8 hours in a day and 40 hours in a week
- reimbursement for all work-related expenses to employees
- all pay stubs provided to employees comply with the required information under Labor Code section 226
Quarterly audits by an experienced employment law counsel would be a good practice in order to be able to show good faith compliance with the Labor Code.
2. Establish compliant policies and handbook policies
Employers will need to ensure that their wage and hour policies and employee handbooks are current, and continually update them to ensure they follow California law.
3. Train supervisors on Labor Code compliance
Training supervisors about the requirements under the Labor Code regarding time keeping, policies prohibiting working off the clock, meal and rest break obligations, among other items will also be evidence of reasonable steps to comply with wage and hour requirements. The training should be documented, and the employer should record the topics covered, who attended, and date of the training.
4. Take appropriate corrective actions with supervisors who violate company policy
In addition to training supervisors on company policies and the Labor Code obligations, employers need to monitor and take corrective action with any supervisors who violate company policy or who violate the Labor Code. Again, documenting the action taking against supervisors or managers who violate company policy will be evidence of this obligation.
5. Implement arbitration agreements with class action waivers
While the California Supreme Court has ruled that employees cannot waive their right to bring a PAGA representative action through arbitration agreements, arbitration agreements that bar employees from bringing a class action lawsuit are enforceable. The U.S. Supreme Court has determined that employers can require employees to waive their right to bring class action lawsuits, which remains a significant advantage for employers. Implementing an arbitration agreement with a class action waiver offers substantial benefits for most employers, even though employees can still pursue a PAGA representative action. Especially given the new reform to PAGA, employers should carefully consider implementing arbitration agreements with class action waivers.
Employers need to work with employment counsel in developing enforceable arbitration agreements, consider translating the agreements into common languages spoken at their workplace, and ensure the agreements are stored in a secure and easy to access file system or stored electronically.
