A California Court of Appeal has affirmed a trial court’s decision to reduce nearly $56 million in requested Private Attorneys General Act penalties to approximately $516,000. The 99% reduction is reportedly the largest reduction of a PAGA penalty demand in the law’s history.
The published decision, Taduran v. James R. Glidewell, Dental Ceramics, Inc., provides employers with important guidance on how proportionality, limited employee harm, good-faith compliance efforts and prompt corrective action may substantially reduce PAGA exposure.
The former employee alleged several wage-and-hour violations. By the time of trial, liability remained on four claims involving wage statements, overtime calculations and rest periods. Because the parties had stipulated to most of the relevant facts, the trial focused primarily on the appropriate amount of civil penalties.
The employee calculated the default statutory penalties at $55,985,350. The trial court instead awarded $516,965 after examining the circumstances surrounding each violation. The court found that several violations were technical, certain claims resulted in no unpaid wages, and the underpayments associated with other claims were relatively small. The court also considered the employer’s good-faith efforts to comply with the law and its prompt corrective actions after receiving notice of the PAGA claim.
The Court of Appeal affirmed. It held that Labor Code section 2699(e)(2) does not require courts to use a particular formula when reducing PAGA penalties. After calculating the maximum potential penalty, a court may use any reasonable method to arrive at a lesser amount, including a reduction based on a percentage, pay period or affected employee.
The appellate court also upheld a significant reduction in the employee’s attorney’s fees. Although the employee requested approximately $1.57 million based on a positive multiplier, the trial court applied a reduced multiplier and awarded $733,440. The court relied on the relatively straightforward and records-based nature of the claims, the use of current billing rates for work performed years earlier, and the limited recovery compared with the penalties sought.
The Decision’s Significance After PAGA Reform
Although the case was tried before California enacted its 2024 PAGA reform legislation, Taduran underscores more than ever the importance of taking all reasonable steps to comply with the Labor Code, both before and after receiving a PAGA notice.
Under the reformed statute, an employer that takes all reasonable steps to comply before receiving a PAGA notice or a request for records may have its penalties capped at 15% of the otherwise available amount. An employer that takes all reasonable steps within 60 days after receiving notice may qualify for a 30% cap. The statute also preserves the court’s authority to reduce penalties further when the circumstances warrant it.
Reasonable steps may include conducting payroll audits, adopting lawful written policies, training supervisors, correcting identified practices and making employees whole. Whether an employer has taken all reasonable steps will depend on the totality of the circumstances, including the size and resources of the employer and the nature, severity and duration of the alleged violations.
What Employers Should Do Now
Employers should not wait for a PAGA notice to review their wage-and-hour practices. Regular payroll audits, updated policies, management training and documented corrective action may help prevent violations and position an employer to benefit from the reform legislation’s 15% penalty cap.
Once a PAGA notice is received, the employer should immediately investigate the allegations, quantify any potential underpayments and determine whether corrective action or available cure procedures should be pursued. Prompt remediation may support application of the 30% cap and, as Taduran demonstrates, may also persuade a court to reduce penalties well below the statutory cap when the maximum amount would be disproportionate to the violations and actual employee harm.
Taduran has petitioned the California Supreme Court for review; whether the Court will grant review remains to be seen. Nevertheless, the case serves as a strong reminder that an employer’s response matters. Good-faith compliance efforts and meaningful corrective action can materially affect the outcome of PAGA litigation.
Congratulations to Scott C. Lacunza, Kathy A. Le and Dylan B. Carp of Jackson Lewis P.C., who represented Glidewell throughout the litigation. Jackson Lewis is a member of the Western Growers Ag Legal Network.