In California, the Private Attorneys General Act (PAGA) allows a single employee to file a civil action against their employer on behalf of all other allegedly aggrieved employees based on labor code violations. These violations can include improper lunch break procedures, insufficient overtime pay, insufficient information on wage statements and more.
PAGA lawsuits are not like traditional class action suits where a group of employees come together to seek damages against an employer. Instead, a single employee can initiate, and any other employees that were affected by the same alleged violation are automatically included. Additionally, PAGA lawsuits don’t involve damages, but rather penalties — 75 percent goes to the California Labor and Workforce Development Agency and the other 25 percent goes to the employee or employees. Penalties range from $100 to $200 per employee per pay period during the time of the violation.
Tim Freudenberger, Founding Partner and Chair of Carothers DiSante & Freudenberger LLP’s Class Action Defense Litigation Practice Group said in a phone interview with Small Business Trends, “It essentially allows employees to act as bounty hunters for the state, since the state doesn’t have the resources to go after all of these employers for alleged violations.”
Luckily for small businesses, Freudenberger says large companies with hundreds or thousands of employees have mainly been the target since the law was enacted back in 2004. But it does still apply to companies of any size with employees in California — even if the company isn’t headquartered in the state.
Protecting Your Business From a PAGA Lawsuit
So small businesses do need to be aware of these lawsuits so they can hopefully avoid them or deal with them properly if they do arise.
Understand California Labor Code Requirements
PAGA lawsuits can apply to basically any violation of the California labor code. There are numerous provisions that apply, but Freudenberger listed a few that tend to come up regularly in PAGA lawsuits: failure to provide a half hour lunch break for non-exempt employees, failure to provide regular breaks, improper overtime calculations, paying below the minimum wage, bonuses that weren’t properly calculated, not including one of the nine specific pieces of information that must appear on wage statements in California or not providing suitable seating.
Small Business Deals
Freudenberger says that the suitable seating issue is currently a hotly debated subject with certain businesses, particularly retail businesses and banks. The code requires businesses to provide suitable seating for employees if the nature of their work permits it. Traditionally, these employees would stand while they work, but their work doesn’t necessarily require that they do so. So the subject is currently being debated around the state’s courthouses.
Create Compliant Policies
Once you know the basic requirements that you have as an employer, you need to create specific policies that reflect those requirements. Rules and processes will ensure that you, your team and your leadership are all on the same page about what to expect, hopefully helping you avoid any employee issues in the first place.
Review Regularly to Be Sure Those Policies are Being Followed
But it’s not enough just to have those policies. You also need to uphold and enforce them on a daily basis. If management knows they need to offer lunch breaks to employees within the first five hours of a shift but they fail to do so whenever it gets busy, they’re opening you up for lawsuits. So Freudenberger suggests performing regular audits of managers or others in leadership positions to make sure they’re following the processes you set out.
He says, “You need to perform a full review and audit of your employee policies regularly, especially when it comes to payroll practices. It’s not enough just to have policies. You need to be sure that they’re actually followed and put into practice on a daily basis.”
Keep Detailed Records
You should already be keeping records of things like payroll and employee timesheets. But because of this type of lawsuit, it’s even more important to hold onto that data in case someone does come forward with an alleged violation. If someone says you didn’t provide proper breaks during a specific time period but you have time cards that prove employees received them, it could save you a lot of time, stress and money.
Fix Issues Quickly
When an employee brings forth a PAGA lawsuit, it starts with them notifying the California Labor and Workforce Development Agency and the employer, usually through counsel. When this happens, the employer has 33 days to fix the alleged violation before the lawsuit is officially filed. So if you do find your business in this situation, it’s in your best interest to act quickly to fix the situation so you don’t end up strapped with large penalties that could cripple your small business.
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