Navigating California’s New PAGA Landscape: A Practical Playbook for Restaurant & Hospitality Employers

Navigating California’s New PAGA Landscape: A Practical Playbook for Restaurant & Hospitality Employers
A Guide for Employers
Prepared by: Zaller Law Group, PC
Employment & Business Counsel for California Employers
Date: December 2025

Table of Contents

Executive Summary
PAGA in Plain English
The 2024 PAGA Reform: What Changed
The Cost of Inaction: A Simple Example
The Four Pillars of a PAGA Defense Strategy
Technology, AI, and the Next Wave of Compliance
Right-Sizing HR for Restaurant & Hospitality Operations
Action Plan: What Employers Should Do in the Next 6–12 Months
How Zaller Law Group Can Help
Conclusion

Executive Summary

California’s Private Attorneys General Act (PAGA) has been one of the most powerful—and dangerous—tools in the plaintiff’s bar toolkit for over two decades. For restaurant and hospitality employers, PAGA claims have often turned technical wage-and-hour mistakes into bet-the-company litigation.

In June 2024, California enacted the most significant reforms to PAGA since its creation in 2003. These reforms don’t eliminate risk, but they dramatically improve the landscape for employers who take wage-and-hour compliance seriously.

For operators that lean in—updating policies, training managers, auditing payroll, and documenting good-faith efforts—PAGA penalties can now be capped at 15% of what plaintiffs might otherwise seek. For those who ignore the rules, the old exposure largely remains.

This white paper explains:

• What PAGA is and why it exploded in California
• What changed in the 2024 PAGA reform
• Why PAGA filings are still increasing despite the reform
• The four core pillars of a PAGA defense strategy
• How technology and AI can transform your compliance posture
• Practical steps restaurant and hospitality employers should take in the next 6–12 months

Our goal is simple:
Help California employers move from panic to a plan—turning PAGA from an existential threat into a manageable, quantified risk.

PAGA in Plain English

What Is PAGA?

The Private Attorneys General Act of 2004 (PAGA) deputizes private plaintiffs and their lawyers to sue for civil penalties that previously could be sought only by the California Labor Commissioner.

Before PAGA:

• Only the state could enforce certain civil penalties in the Labor Code.
• The Labor Commissioner had limited resources and could not police every employer.

After PAGA:

• An employee who suffered one Labor Code violation could sue on behalf of all “aggrieved employees” for a wide set of penalties (often $100 or $200 per pay period per employee).
• The plaintiff’s lawyer essentially steps into the shoes of the state to enforce those penalties.
• 75% of any penalties go to the state; 25% go to employees—plus attorneys’ fees.

For restaurants and hospitality:

• A few recurring issues—meal and rest breaks, paystub errors, overtime calculations, missed premiums—can yield millions of dollars in potential penalties across hundreds of employees and hundreds of pay periods.

Why PAGA Claims Exploded

Several trends combined to make PAGA the plaintiff’s weapon of choice:

1. Class action waivers in arbitration agreements.
   • As the U.S. Supreme Court strengthened class action waivers, employers increasingly used arbitration to block wage-and-hour class actions.
   • But under California law, employees generally cannot be forced to waive PAGA representative claims in the same way.
2. PAGA as a “workaround” to class actions.
   • When class claims are waived or compelled to arbitration, plaintiffs pivot to PAGA.
   • PAGA offers broad, representative relief without the procedural hurdles of class certification.
3. Low barrier to entry for plaintiffs.
   • A PAGA case starts with a letter to the Labor & Workforce Development Agency (LWDA) outlining the alleged violations.
   • Once that letter is filed, plaintiffs often file suit shortly thereafter.

The result:
PAGA notices skyrocketed from roughly 3,700 filings in 2016 to over 10,000 filings in 2024—nearly tripling in less than a decade.

The 2024 PAGA Reform: What Changed

In June 2024, Governor Newsom signed a reform package (SB 92 and AB 2288) that substantially reshaped PAGA. The reforms were the result of intense negotiations among labor groups, plaintiff attorneys, and employer advocates and were aimed at avoiding a statewide ballot measure that might have gutted PAGA entirely.

Key Goals of the Reform

The reforms were intended to:

• Encourage proactive employer compliance
• Discourage abusive, boilerplate PAGA filings
• Provide more opportunities to cure violations before penalties spiral
• Reduce exposure for employers who make good-faith efforts to follow the law

Importantly:
PAGA remains in place. Plaintiffs can still file claims. But employers now have more tools and defenses, especially if they can demonstrate meaningful compliance efforts.

The 15% Penalty Cap for Responsible Employers

One of the most powerful changes:
For employers that implement specific compliance steps, PAGA penalties can be capped at 15% of what the plaintiff might otherwise claim.

Think of it this way:

• Old world: A technical violation could expose you to 100% of the penalties—potentially millions of dollars.
• New world (for compliant employers): That same violation might be capped at 15% of that amount, dramatically lowering the downside risk.

However, this cap is not automatic. To qualify, employers must be able to show they have taken defined, documented “reasonable steps” to comply with the Labor Code. Those steps include:

1. Periodic payroll and timekeeping audits
2. Compliant written policies and handbooks
3. Training for supervisors on wage-and-hour compliance
4. Corrective measures when violations or problem managers are identified

Why PAGA Filings Are Still Going Up

You might expect PAGA filings to drop after reform. In practice, we’re seeing the opposite trend:

• PAGA notices spiked in mid-2024 as plaintiffs rushed to file before the reform took effect.
• Even after June 2024, filings have remained high and, in some months, increased.

Why?

• Lower per-case value may push some firms to file more cases to maintain revenue.
• Many employers still have no compliance framework—no audits, no documented training, no updated handbooks—leaving them exposed to full penalties.
• Plaintiff lawyers know that non-compliant employers are as vulnerable as ever, even under the new regime.

Bottom line:
The reform is a huge opportunity, not a free pass. Employers who do nothing may still face full-value PAGA risk

The Cost of Inaction: A Simple Example

Consider a restaurant group with:

• 100 non-exempt employees
• Bi-weekly payroll (26 pay periods per year)
• A two-year look-back period
• A recurring paystub defect that violates Labor Code section 226

Under the old structure:

• Penalties often start at $100 per employee per pay period, then increase to $200 for subsequent violations.
• Even using conservative assumptions, exposure can easily exceed $2 million in civil penalties alone—before attorneys’ fees.

Under the new regime:

• A compliant employer could potentially argue for a 15% cap, reducing exposure to ~$300,000 for the same underlying issue.
• For a multi-unit restaurant group, that difference can be the line between survival and insolvency.

The Four Pillars of a PAGA Defense Strategy

To take advantage of the reforms—and to avoid being the “easy target” in a PAGA case—employers should build a four-pillar compliance program.

Pillar 1: Periodic Payroll & Timekeeping Audits

What it is:
Regular, documented reviews of time records, payroll calculations, and paystubs to identify and correct issues.

Best Practices:

• Aim for quarterly audits. Monthly is even better for high-risk operations.
• Review:
  • Time records for missed or short meal/rest breaks
  • Overtime and double-time calculations
  • Rounding practices
  • Split shift and reporting time pay
  • Tip credits or service charge allocation (where applicable)
• Examine paystubs for full compliance with Labor Code section 226 (nine required items). A missing item can trigger automatic penalties per pay period.

Where tech helps:

• Timekeeping and payroll systems (including solutions integrated with Restaurant365) can:
  • Flag missing, late, or short breaks
  • Identify patterns of off-the-clock work or irregular edits
  • Generate audit reports for specific periods

Why it matters for PAGA:

• When a PAGA letter hits, one of the first questions defense counsel will ask is:

“Show me your last 12–24 months of audits and how you fixed problems.”

• Demonstrated audits + documented corrections are strong evidence of reasonable steps and support the 15% cap.

Pillar 2: Compliant Policies and Up-to-Date Handbooks

What it is:
Written policies that accurately reflect California law and your actual practices.

Key focus areas:

1. Meal and Rest Breaks
   • Clear language on timing, duration, and duty-free nature
   • Procedures for reporting missed or short breaks
   • Premium payment practice when breaks are not provided
2. Overtime and Timekeeping
   • Rules on clocking in/out
   • Prohibition on off-the-clock work
   • Overtime definitions (daily, weekly, 7th day, etc.)
3. Wages, Tips & Service Charges
   • Tip pooling policies
   • Whether service charges are treated as wages or not
   • Treatment of bonuses, stipends, reimbursements, and other wage components (especially important under evolving wage definitions)
4. Leaves and Accommodations
   • California paid sick leave
   • Local ordinance sick leave rules (e.g., LA, SF)
   • Pregnancy and disability accommodations
5. Acknowledgments
   • Signed acknowledgments of handbooks and key policies
   • Electronic acceptance tracked through HRIS or LMS systems where possible

Why it matters for PAGA:

• PAGA often turns on systemic issues, not one-off mistakes.
• Plaintiffs argue: “This company had no policy or unlawful policies that hurt everyone.”
• A current, compliant handbook is your first line of defense to show there was a lawful policy—and that violations, if any, were exceptions, not the rule.

Pillar 3: Supervisor Training on Wage-and-Hour Compliance

The 2024 PAGA reform explicitly rewards employers who train their supervisors on wage-and-hour rules.

Who needs training:

• General Managers
• Assistant Managers
• Shift Leads
• Anyone who:
  • Creates schedules
  • Approves timecards
  • Manages breaks
  • Approves overtime

What to cover:

• Meal and rest period rules and documentation
• How to handle missed breaks (including premiums)
• Overtime approval and prohibition on off-the-clock work
• How to respond when employees raise concerns about pay or breaks
• Documentation expectations (notes, emails, system records)

How to deliver:

• Live or virtual training sessions with sign-in sheets or digital attendance records
• LMS-based training (e.g., online modules with completion tracking)
• Short micro-trainings during pre-shift meetings—with simple documentation like:
  • Date
  • Topic
  • Attendees or positions

Why it matters for PAGA:

• The law explicitly asks: Have you trained your supervisors?
• Plaintiffs will challenge your entitlement to the 15% cap by claiming you didn’t take training seriously.
• Certificates of completion, attendance logs, and copies of materials are crucial evidence of your reasonable steps.

Pillar 4: Corrective Action for Problem Managers and Practices

Even with good policies and training, some managers will cut corners or ignore the rules. The reform expects employers to do something about it.

Key elements:

1. Investigate complaints.
   • When you learn a manager is denying breaks, editing timecards improperly, or pressuring employees to work off the clock—investigate promptly.
2. Take corrective action.
   • Coaching and retraining
   • Written warnings
   • Demotion or transfer
   • Termination in serious or repeated cases
3. Document the response.
   • Summary of the complaint
   • What you found (without over-sharing privileged legal advice)
   • What action you took and why

Why it matters for PAGA:

• Plaintiffs often argue the employer “knew or should have known” and did nothing.
• Being able to demonstrate:
  • “We discovered the problem”
  • “We disciplined or removed the manager”
  • “We fixed the underlying issue”
    reinforces both good faith and reasonable steps under the reform.

Technology, AI, and the Next Wave of Compliance

Restaurants and hospitality operators now have access to technology that makes PAGA defense far easier—if they use it.

From Shoeboxes to System of Record

In litigation, we still see:

• Paper timesheets
• Handwritten schedule changes
• Boxes of files in off-site storage

Legally, you can still run a business that way—but when litigation hits, it’s a nightmare.

A modern, integrated system of record should:

• Centralize time records, schedules, and payroll
• Preserve historical data for at least four years
• Allow export of:
  • Timecard histories
  • Audit logs of edits
  • Paystub images or equivalents
  • Policy acknowledgments and training records

How AI Will Change Payroll Audits

Today, wage-and-hour audits are still labor-intensive: humans manually sample records, calculate missed break premiums, and reconstruct damages.

Within the next 12–24 months, we expect to see AI agents that can:

• Analyze thousands of time records in minutes
• Identify:
  • Late, short, or missed meal periods
  • Rest break patterns that indicate understaffing
  • Inconsistent overtime practices
• Generate clear, exportable reports for:
  • Internal corrective action
  • Litigation defense and settlement valuation

Key takeaway:
AI should not be seen as a threat to your workforce—but as a way to find and fix problems early, before they become multi-million-dollar PAGA claims.

Right-Sizing HR for Restaurant & Hospitality Operations

A common question we hear from operators:

“At what point do we need an HR professional?”

While there’s no legal requirement to have a dedicated HR person, there are practical thresholds:

• Under ~25 employees:
  • The founder/owner typically wears the HR hat.
  • At a minimum, they should have access to trusted outside HR and legal advisors.
• Around 25–50 employees:
  • Strongly consider a dedicated HR role or a robust outsourced HR solution.
  • Labor costs, leaves, and compliance become too complex for “spare time” management.
• 50+ employees:
  • A dedicated HR professional is increasingly critical.
  • Complexity increases dramatically with additional leave and accommodation obligations.
• 100+ employees:
  • At this size, sophisticated HR leadership (and often a small HR team) is essential, especially in California’s regulatory environment.

Whatever your size, PAGA reform makes one theme very clear:

“We didn’t know” is no longer credible.
The state expects you to have someone whose job it is to know—and to act.

Action Plan: What Employers Should Do in the Next 6–12 Months

To take advantage of the 2024 PAGA reforms and meaningfully reduce litigation risk, California restaurant and hospitality employers should:

1. Conduct a privileged PAGA risk assessment.
   • Work with experienced employment counsel to identify your highest-risk issues.
   • Focus on meal/rest breaks, paystubs, minimum wage, overtime, and tip/service charge practices.
2. Implement a recurring audit program.
   • Set calendar-based quarterly audits of time and payroll records.
   • Leverage your existing technology to generate standardized reports.
3. Update policies and handbooks.
   • Ensure meal and rest breaks, overtime, and wage policies are current and reflect actual practice.
   • Confirm correct treatment of bonuses, stipends, reimbursements, and other wage components under California law.
4. Roll out supervisor training.
   • Prepare or license wage-and-hour training specifically for California managers.
   • Track attendance and completion to create a defensible record.
5. Formalize corrective action procedures.
   • Create a protocol for investigating wage-and-hour complaints.
   • Document interventions, discipline, and remediation.
6. Strengthen your data and documentation systems.
   • Confirm you can quickly pull:
     • Four years of time records
     • Paystubs
     • Arbitration agreements
     • Policy acknowledgments
     • Training completions
7. Regularly review PAGA activity and legal updates.
   • PAGA case law continues to evolve.
   • Partner with counsel who follows LWDA trends, emerging court decisions, and future amendments.

How Zaller Law Group Can Help

Zaller Law Group, PC focuses on defending California employers and helping them operate confidently in one of the most complex employment environments in the country.

For restaurant and hospitality employers, we offer:

• PAGA & Wage-and-Hour Risk Audits
  • Privileged reviews of your policies, pay practices, and documentation
  • Concrete, prioritized recommendations to reduce exposure
• PAGA Litigation Defense
  • Representation in PAGA, class, and individual wage-and-hour cases
  • Strategy designed to control risk and cost while protecting your brand
• Supervisor and Manager Training
  • California-specific sessions on wage-and-hour compliance, documentation, and culture
  • Certificates and materials designed to support PAGA “reasonable steps” arguments
• Ongoing Counsel as “Outsourced In-House”
  • Practical, business-minded guidance for HR leadership and ownership
  • Support on hiring, terminations, leaves, accommodations, and culture issues

Conclusion

PAGA is not going away. PAGA filings are not collapsing. But for the first time in decades, California employers—especially in the restaurant and hospitality sector—have a clear, practical roadmap to reduce exposure.

The path forward is not mysterious:

• Audit regularly
• Write and follow compliant policies
• Train supervisors and managers
• Take and document corrective actions
• Use technology and AI to your advantage

The employers who embrace this approach will be in the strongest position to:

• Prevent violations
• Resolve issues early
• Cap potential penalties
• Focus on what they do best: running great restaurants and hospitality operations in California.

About Zaller Law Group, PC

Zaller Law Group, PC is a California-based law firm representing employers and entrepreneurs in employment and business matters, with deep experience in the restaurant and hospitality industries. The firm provides litigation defense, counseling, training, and educational resources to help employers navigate California’s complex regulatory landscape while building strong, resilient businesses.

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This white paper is provided for informational purposes only and does not constitute legal advice. Employers should consult with qualified employment counsel regarding specific situations and compliance questions.

© 2025 Zaller Law Group. All rights reserved.