California legislation enacted last year found that employers are experiencing a high volume of PAGA claims. Due to the prevalence of PAGA lawsuits and the aggressive nature of PAGA penalties, the best way for employers to avoid liability is to ensure compliance with the Labor Code. PAGA Penalties and Labor Code 226 Claims. Proc., 338.) $("span.current-site").html("SHRM China "); All Rights Reserved. In addition, employees are entitled to an unpaid 30-minute meal break once they work five hours. Under PAGA, an initial violation carries a $100 penalty per employee per pay period. Employers should also be aware that in addition to PAGA penalties (which the plaintiff is ostensibly asserting on behalf of the State), plaintiffs may seek individual damages to compensate for any unpaid monies owed to the employee. Arya Rhodes is an attorney at Schimmel & Parks, APLC, a law firm focusing on employment law, consumer class actions, rehab facility wrongful death, sexual assault and harassment, fires, mass torts, construction defects, and insurance bad-faith litigation. Website Copyright 2023 by Neubauer & Associates, Inc.The articles appearing in Lab. Neither members nor non-members may reproduce such samples in any other way (e.g., to republish in a book or use for a commercial purpose) without SHRMs permission. The plaintiff brought a wage and hour action alleging various violations of the California Labor . If a pattern and practice is found, penalties between . A1 = Shift duration A2 = Shift start PAGA Overview. Meal and rest period premiums: Total workweeks over the four-year period x average hourly rate x average number of meal/rest break violations per workweek. Are there any facially unlawful policies? Next, look at the written wage-and-hour policies, practices and procedures. Read the first parthere and the second parthere. Statutory penalties under the California Labor Code start at $50 for the first violation and rise to $100 for each subsequent violation. One approved method for randomization is to list the employees alphabetically and choose every nth employee to yield the agreed-upon sample size. Several bills to further reform PAGA are currently making their way through the state legislature, Sarchet noted. What do the two, other than a shared moniker, have in common? But that would be effective January 2021 in all likelihood, as the current session is over. PAGA penalties are calculated using a two-step process: Non-Compliant Wage Statements (e.g., non-itemized deductions) for 50 employees for one year (26 pay periods)3. . The time and wage records are critical to your damages analysis. If youve received a PAGA notice, you can count yourself as one of several thousands of California employers who receive one every year. Code, 203.) It also held that the subsequent violation rate applied to calculate PAGA penalties for dates after Sept. 26, 2015. If the Labor Code already provides for a civil penalty for the underlying violation, the employee can sue to recover that penalty on behalf of similarly aggrieved employees and the State. Build specialized knowledge and expand your influence by earning a SHRM Specialty Credential. The PAGA does not create a private right of action to directly enforce a wage order but PAGA actions can serve to indirectly enforce certain wage order provisions by enforcing statutes that require compliance with wage orders. (Thurman, supra, 203 Cal.App.4th, at p. What Is a PAGA Settlement? PAGA Penalties are Properly Assessed at One Hundred Dollars For Each Aggrieved Employee Per Pay Period Prior to the Filing of Lawsuit. Also, the total damages per employee cannot exceed $4,000.00, so if your average number of pay periods per employee is greater than 40, you can complete the calculation simply by multiplying the total number of employees during the one-year period by $4,000.00. $1,750 + $87,500 = $89,250 in Total PAGA Penalties Lab. 1) Determine the number of Labor Code violations within the statutory period. For example, 10 employees each with 24 pay periods with a meal and rest period violation in each pay period translates to nearly $95,000 of PAGA exposure. Code, 2669.3, subd. There are many free resources online to help you yield a truly random and statistically significant class size, including calculators that determine acceptable deviations, margins of error, and other statistical factors. Legal precedent has established that PAGA provides a "civil penalty." This means that employees can recover both the statutory penalty associated with the Labor Code provision at issue, as well as civil penalties under PAGA, thereby creating a stacking of penalties against the employer. Labor Code section 226 (e) (1) provides that an employee who suffers injury as a result of a knowing and intentional failure to comply with subdivision (a) is liable for up to $4,000 plus costs and reasonable attorney's fees. PAGA penalties coupled with class action damages can create significant financial liability for an employer. He used the correct statute of limitations date of October 4, 2015, and multiplied each instance of a termination by $ 250. Thats not to say that you should stop engaging in formal discovery, but an informal exchange offers incentives for the defense to provide evidence that they otherwise wouldnt absent a lengthy meet and confer process, discovery motion practice, and all the delays and unpredictability attendant thereto. 4 years x 52 weeks per year x 5 workdays per week = 1,040 days, 1,040 days x 30 minutes of overtime per day = 520 hours of overtime owed per employee, 520 hours of overtime x 50 employees = 26,000 hours of overtime owed. Of course, these decisions were issued before the Ninth Circuit's opinions in Baumann and Yocupicio, which, as we have seen, preclude the aggregation of PAGA penalties for purposes of removal. 5For purposes of damages under Labor Code section 226, initial violation and subsequent violation are defined differently such that there is only one initial violation per employee. Employers may incorrectly assume that pay stub compliance is just a matter of paperwork and can simply be corrected, said Christopher Ahearn, an attorney with Fisher Phillips in Irvine. ; Pineda v. Bank of America (2010) 50 Cal.4th 1389, 1401.) If you dont have the resources to go through all the records, do a spot check for unpaid wages and analyze whether any information required under Labor Code section 226, subdivision (a) is missing from the wage statement exemplars. In a straight wage-and-hour class action, the damages period is three years prior to the filing of the lawsuit to the present. PAGA penalty for non-compliant wage statements is $100 for each employee per pay period for the initial violation and $200 for each employee per pay period for any subsequent violations. These penalties are assessed on a per-employee basisup to a maximum of $4,000 for each employee who receives inaccurate pay stubs. PAGA, California's Private Attorneys General Act of 2004, allows employees to sue their employers on behalf of themselves and other "aggrieved" employees to recover penalties for Labor Code violations. Code 2698, et seq. You should consult a seasoned labor and employment counsel to flag potential wage and hour violations and develop a game plan prior to receiving the inevitable PAGA notice. Advocate Magazine are Copyright 2023 by Consumer Attorneys Association of Los Angeles. The foundational data needed to evaluate damages or penalties in any class or representative action consists of the class size, workweeks, and pay periods during the applicable damages period. Additional factors in assessing the quantifier include the likelihood of success on class certification and the outcome of any depositions taken prior to mediation. You must also file a notice of the cure that includes a description of actions taken with the LWDA ( 2699.3(c)(2)(A)). Where such requisite information is inaccurate on the wage statements, you should weigh the cost and benefit of the cure option with your counsel. (Lab. 1132.) Waiting time penalties: (Total number of employees who were terminated or quit during the three-year period) x (30 x average hourly rate x average number of hours worked per work day). If a PAGA plaintiff employee is successful, 75% of any penalty recovered is paid to the Labor and Workforce Development Agency (LWDA), with the remainder going to the PAGA plaintiff employee or distributed among the aggrieved employees. Here is a 10-step process you can take after receiving a PAGA notice to ensure your organization is as well-positioned as possible to minimize or avoid liability. Although PAGA penalties are subject to a relatively favorable one-year statute of limitations, they can be significant, particularly for large employers, as penalties may be assessed per employee and per pay period for each Labor Code violation or wage order violation not otherwise covered by a Labor Code provision. Wage statement violations arguably are calculated at a rate of $250.00 for the initial violation, and $1,000.00 for every subsequent violation thereafter! 2023 Well, [i]f an employer fails to provide an employee a meal period the employer shall pay the employee one additional hour of pay at the employees regular rate of compensation for each workday that the meal period is not provided. (Lab. 2023 Fisher & Phillips LLP. As such, interest rates can and should be included within your damages workup. This includes when an employer: When the Labor Code does not already provide a civil penalty, the PAGA default penalty is $100 for each employee per pay period for the initial violation and $200 for each employee per pay period for each subsequent violation. Prior to commencing a PAGA action, the employee must provide written notice to the Labor and Workforce Development Agency (LWDA) notifying the LWDA of the alleged violations in writing, a copy of which is also sent to the employer. When faced with this argument, plaintiffs can point to the PAGA notice, prior employee complaints, prior lawsuits, internal or third-party payroll audits, the employers retention of third-party human resource agencies, or any other evidence that shows the employer acted willfully or had knowledge of the Labor Code violations in the workplace. endstream endobj startxref In Amaral v. Cintas Corp., the California Court of Appeal held that a subsequent violation does not trigger until the employer has learned that its conduct violates the Labor Code. (Amaral v. Cintas Corp. (2008) 163 Cal.App.4th 1157, 1209.) You should also audit your time and wage records to flag potentially troublesome practices, including: This is not an exhaustive list of the potential wage and hour violations, but you and your counsel should audit your records and identify practices and policies that may give rise to Labor Code violations. (e)(2). This does not mean that the wages continue for a 30-day period, but that the employee may be entitled to up to 30 actual days' worth of wages. Defending against PAGA claims, class action lawsuits, or other legal action, Managing challenging employee situations such as leaves of absence, a remote workforce, or complaints of harassment, Other legal issues related to hiring, compensating, managing, and separating employees. The damages periods used below should be reduced to three years if the lawsuit does not include a cause of action for unlawful business practices in violation of the UCL. Civil penalties under PAGA can be eye-popping. Meal Break and Rest Break. In our view, the language of section 558, subdivision (a), is more reasonably construed as providing a civil penalty that consists of both the $50 or $100 penalty amount and any underpaid wages. (Thurman v. Bayshore Transit Mgmt., Inc. (2012) 203 Cal.App.4th 1112, 1145; see also, Lawson v. ZB, N.A. The penalty is measured at the employee's daily rate of pay and is calculated by multiplying the daily wage by the number of days that the employee was not paid, up to a maximum of 30 days. Private Attorneys General Act (PAGA) claimsallow an employee to suefor late wages, as well as a civil penalty.23 The penaltiesfor failing to pay employees on time are as follows: Any civil penaltiesrecovered by an aggrieved employee are divided up as 75% to the Labor and Workforce Development Agency and 25% to the aggrieved employee.24 California Labor Code 203 provides that an employer's willful failure to remit payment entitles the employee to one full day's pay, up to 30 days, from the date the employee was terminated until the employee is paid, or files a lawsuit. PAGA allows aggrieved employees to sue over alleged labor code violations on behalf of themselves and other employees and to step into the shoes of state regulators to recover civil penalties. The requirement for fully compliant corrected wage statements should be interpreted to mean wage statements that comply with all nine requirements set forth in Labor Code section 226(a). Finally, when negotiating the scope of the pre-mediation exchange, keep in mind that a plaintiffs right to statewide discovery is extremely broad in wage-and-hour class and PAGA actions. Cal. PAGA penalties on that claim based on violations incurred by other Walmart employees. PAGA lawsuits have similarities and differences to wage and hour class action lawsuits, and plaintiffs may assert both: Prior to commencing a PAGA action, the employee must provide written notice to the Labor and Workforce Development Agency (LWDA) notifying the LWDA of the alleged violations in writing, a copy of which is also sent to the employer. For example, California Labor Code 226.8 provides that if the California Labor and Workforce Development Agency or a civil court finds willful misclassification, penalties can be assessed between $5,000-$15,000 for each violation. May 5, 2010, 2010 WL 1838726 at **2-6 [stacking PAGA penalties when calculating amount in controversy].) Several issues on the calculation of penalties remain unresolved. Class action certification is not required, but plaintiffs must exhaust their administrative remedies by first notifying the State of the violations to give the State the opportunity to address the violations itself. When asking for the time and wage records, be sure to request them in electronic format, preferably Excel, so that you can search through the records efficiently and, if you know how, utilize macros and formulas to quickly identify search parameters and data points within the records. This formula assumes that there is a wage statement violation each pay period throughout the one-year period. var currentLocation = getCookie("SHRM_Core_CurrentUser_LocationID"); (Troester v. Starbucks Corp. (2018) 5 Cal.5th 829, 835.). As such, you may need to extrapolate these additional data points independently or with the help of an expert. Time and wage records typically consist of handwritten or digital timesheets, wage statements, paystubs, and/or pay summaries. On the other hand, an individual bringing a claim for damages under section 558 would be able to recover unpaid wages. Code, 226, subd. Employers in the state must pay workers at least twice per month, though some pay workers every week. Remember, 75% of PAGA penalties, which are all up to . (2017) 18 Cal.App.5th 705, 724.). Many California wage and hour class actions and Private Attorneys General Act (PAGA) collective actions include allegations that employers failed to properly pay bonuses and . (Lab. 1 Over the last 15 years, more than 35,000 PAGA notices have been sent to employers. Under PAGA, an initial violation carries a $100 penalty per employee per pay period. The following formulas can be useful to create high/low scenarios in your damages model for some of the main Labor Code violations. A 30 day penalty is $64 x 30 days = $1,920. Accordingly, each predicate . It benefits employees to receive a paycheck every week, but employers that pay workers with that level of frequency double their exposure to potential wage statement penalties, he said. Although this appears to be a low threshold, the applicable statute of limitations as to each claim should be analyzed by counsel. Overturning the ruling of two lower courts, on July 15, 2021, the Court held in Ferra v.Loews Hollywood Hotel, LLC that meal and rest premiums must be paid at the "regular rate" not the base hourly rate. This formula assumes that the predicate violation occurs at least once per pay period. Code 2699(d)). Moreover, plaintiffs can recoup attorney fees under PAGA. Mr. Rhodes completed his fellowship with the Los Angeles Chapter of the American Board of Trial Advocates, and he graduated magna cum laude from Southwestern Law School. This trend reflects the realities of litigation, in that the parties, after 2.5 years of formal litigation, are likely to have invested significant time and money into the case, and are thereby less willing to compromise their position for settlement. For large employers and/or for continuing violations, these penalties can quickly add up. For more information or to opt out, visit our privacy policy. 2010) 2010 WL 2793650 at *6; Smith v. Brinker Intl, Inc. (N.D. Cal. AB1654 (Chapter 529, Statutes of 2018), signed into law on September 19, 2018, now exempts employers and employees in the construction industry and under a collective bargaining agreement from . "Employers should understand that the penalties for wage statement violations can be very high," he noted. Mamika v. Barca (1998) 68 Cal.App4th 487 An employee will not be awarded waiting time penalties if he or she avoids or refuses to receive payment of the wages due. Interest!? SHRM Employment Law & Compliance Conference, California Employers Face Significant Penalties for Pay Stub Violations, New OSHA Guidance Clarifies Return-to-Work Expectations, Trump Suspends New H-1B Visas Through 2020, Faking COVID-19 Illness Can Have Serious Consequences, White House Takes Action Against Migrant Child Labor, Recruiters Brace for a Challenging Year Ahead, State by State: Hires, Quits, Job Openings and Unemployment. Failure to pay overtime, failure to provide meal breaks and failure to provide rest breaks carry an initial PAGA penalty of $50.00, and a subsequent penalty of $100.00. The calculation of Labor Code section 210 penalties is different, however, and amounts to $100 for the initial violation and $200 for each subsequent violation (or any willful or intentional violation) plus25% of the amount unlawfully withheld. The number used for the quantifier depends on the overall strength of your case, which is governed by several factors. If your client presents poorly, is a poor historian, has a significant disciplinary record, or only worked part time or for a short period, modify your quantifier accordingly. Because Labor Code section 226 violations carry the heaviest penalty amount at $250 for the initial violation and $1,000 for subsequent violations, correcting the wage statements soon after the PAGA notice will allow you to argue that there are only a few subsequent violations for which penalties may be assessed, if at all. Code, 512, subd. They contain evidence of unpaid wages, unpaid premiums, meal and rest break violations, and unlawful timekeeping practices, such as rounding or auto-deductions, among other things. (Bus. PAGA claims must be filed within one year of the violations occurring. If the plaintiff filed a class action in addition to a PAGA action, the potential exposure to the employer would increase. Note that the California Supreme Court recently held that the de minimis defense is not applicable to off-the-clock wage-and-hour claims. 37 0 obj <> endobj 2) Determine the appropriate penalty (see below). For example, if the predicate violation occurs every other pay period, decrease the total penalty amount for subsequent violations by half. For more information, contact the author at [email protected] or (213) 402-9553. hUN0K$KxH!Z"-Y Llc[>3`3%<3IkS1id|_7*an1MjF/gZ9fZ"BWWtk|se[&ISIi8FV}'lhY_ Euu8]o0hyylpt[oM<15Otg?~}h( The Labor Code Private Attorneys General Act (PAGA) authorizes aggrieved employees to file lawsuits to recover civil penalties on behalf of themselves, other employees, and the State of California for Labor Code violations.Those who intend to pursue PAGA cases must follow the requirements specified in Labor Code Sections 2698 - 2699.5. For example, if the PMK admits to an unlawful policy that was implemented on a class-wide basis regardless of job title or job location, increase your quantifier. The employee can also seek penalties under PAGA for Labor Code violations that do not carry their own penalties. Code, 1197.1, subds. Calculating PAGA penalties. The average overtime premium rate is one and one-half times the average hourly rate. At some point in our careers, we have all heard the adage, I went to law school because Im terrible at math, or words to that effect. Talk to your client to find out everything he or she recalls about the workplace conditions and to assess which Labor Code violations were most prevalent. This is a big procedural hurdle for plaintiffs to overcome. If you do agree to a stay discovery at the defendants request, inform the mediator so that gaps in the record are weighed in your favor. The average amount of settlements tends to hold steady until 2.5 years after commencement of the lawsuit, after which point the average cost of settlement quickly escalates. Is there any indication that meal periods are automatically deducted from the employees time? to calculate the hour of premium pay owed when employers fail to provide a compliant meal or rest period. The Private Attorneys General Act (PAGA) allows aggrieved employees to bring claims on behalf of themselves, other employees, and the State of California. Cal. The Court justified its decision by illustrating there . Are employees allowed to leave the premises during meal and rest breaks? If putative class members have told you that employees were required to be on-call during their rest breaks, uptick the quantifier. (a)(1)-(2).) }); if($('.container-footer').length > 1){ The sample relied upon must be representative and the results obtained must be sufficiently reliable to satisfy concerns of fundamental fairness. (Duran v. U.S. Bank Natl Assn (2014) 59 Cal.4th 1, 42.) What Are PAGA Penalties? The court's decision to reduce the PAGA penalties award was driven by its recognition that the retailer had made a good faith effort to comply with Section 226, that it would be unreasonable to penalize the retailer by awarding maximum PAGA penalties for violations stemming from its practice of awarding bonuses that benefit employees, and . so long as they have suffered at least one alleged Labor Code violation. Although you are not required to file a response addressing the charges in the PAGA notice, standard practice for many counsel is to file a written response with the LWDA. The PAGA applies a default penalty of $100.00 for initial violations and $200.00 for subsequent violations unless the predicate Labor Code section that has been violated expressly provides for a different civil penalty.