California employers have long grappled with the Private Attorneys General Act (PAGA), a law that allows employees to sue on behalf of the state for labor code violations. However, recent reforms to PAGA have introduced significant opportunities for employers to mitigate their risk and reduce penalties—if they take proactive steps to ensure compliance before receiving a Labor and Workforce Development Agency (LWDA) notice or a request for records from an employee.

These reforms place a premium on preparation, which means adopting a consistent cadence of compliance audits, policy reviews, employee training and corrective measures.

PAGA’s New Focus on Remediation

The PAGA reforms, effective July 2024, introduce a key change: penalties can be substantially reduced if employers demonstrate they’ve taken “all reasonable steps” to comply with the law before receiving an LWDA notice or employee request for records. For example, if an employer proactively conducts audits and corrects payroll or wage statement issues, penalties for any subsequent PAGA action can be reduced to 15 percent of the maximum. Even after receiving a notice, employers can reduce penalties to 30 percent if they promptly take corrective action within 60 days.

This creates a powerful incentive for employers to regularly engage in compliance activities that not only meet legal standards but also document these efforts thoroughly. Employers who take these proactive steps will be better positioned to defend themselves and mitigate penalties in any future PAGA claim.

What Are “All Reasonable Steps”?

Under the new law, “all reasonable steps” are determined based on the totality of circumstances, but employers should, at minimum, consider the following:

• Periodic Payroll and Timekeeping Audits: Conducting regular payroll and timekeeping audits can uncover wage violations or non-compliance with meal and rest period rules. Once identified, employers should promptly collaborate with experienced employment law counsel to determine appropriate corrective action. Counsel can even conduct these audits for you.

• Annual Handbook and Policy Reviews: Employers should disseminate compliant written wage and hour policies, including, for example, meal and rest period protocols and employee reimbursements. These policies should be reviewed and updated annually to reflect the most current legal standards.

• Supervisor Training: Training supervisors on wage and hour laws, timekeeping and other compliance issues is essential. Supervisors are on the front lines of labor law compliance and play a critical role in avoiding violations. Documenting these training sessions will help demonstrate the employer’s ongoing commitment to compliance.

• Corrective Action: Employers must be vigilant in addressing violations promptly. For example, if an internal audit reveals that meal and rest breaks are not being consistently provided, the employer should take immediate corrective steps, including potentially paying missed meal and rest break premium pay, retraining supervisors or adjusting work schedules.

A Continuous, Not One-Time Effort
A key takeaway from the PAGA reforms is that these compliance activities cannot be one-time events. Employers should establish a routine cadence for audits, handbook reviews and employee training. This continuous effort demonstrates a culture of compliance and positions the employer favorably in any future PAGA action.

Documentation is Key: Employers should maintain thorough records of every audit, training, policy review
and corrective action taken. This documentation will be critical to showing the employer has consistently taken reasonable steps to comply with labor laws. Records of wage statement reviews, employee notices and payroll corrections should be kept for the applicable statute of limitations—up to four years for wage claims.

The Bottom Line: Prioritize Proactive Compliance
The PAGA reforms have created a significant opportunity for employers to mitigate their risk, especially if they take proactive steps before being served with an LWDA notice or an employee’s records request. The key to unlocking these benefits lies in regularly reviewing and updating policies, conducting audits, training supervisors and documenting every action. These are not just reactive measures—they must be part of an ongoing strategy that embeds compliance into the day-to-day operations of the business.

In a PAGA lawsuit, employers who can show they’ve consistently taken “all reasonable steps” have a powerful defense against the high penalties typically associated with such claims. By embracing this approach, employers can both mitigate their financial exposure and create a more compliant, employee-friendly workplace.