California’s Private Attorneys General Act (PAGA) allows certain employees to bring lawsuits against their employers—including restauranteurs—on behalf of the state. This can lead to hefty penalties against employers who may be violating California’s labor laws regarding nonexempt employee meal breaks, rest breaks, overtime pay, minimum wage pay, and inaccurate wage statements, among other issues.

The heavy abuse of PAGA in the court system, which has been detrimental to employers, led to a November 2024 legislative ballot initiative that would repeal PAGA in its entirety and replace it with a new law that would alter its structure. In response to this threat, Governor Gavin Newsom, legislative leaders, and multiple business and labor groups recently reached an agreement to reform PAGA in several important ways. Governor Newsom on July 1 signed the reform into law, which also withdrew the PAGA repeal request from the November ballot.

This article provides a glimpse into the basic background of PAGA, including in its pre-reform status that significantly hurt QSR owners and employers, and key highlights in the now-reformed language, which hopefully will benefit employers in the future.

What is PAGA?

Enacted by the California Legislature in 2004, PAGA authorizes “aggrieved employees” to file lawsuits against their employers to collect civil penalties for Labor Code violations on behalf of themselves, other employees, and the state of California. PAGA has become much more popular with plaintiffs’ attorneys in the last several years.

PAGA allows these “representative” actions only for the purpose of seeking penalties for Labor Code violations; it does not compensate employees for actual losses incurred. For those meeting its requirements, PAGA creates a means of “deputizing” citizens as private attorneys general to enforce the Labor Code. These actions are fundamentally a law-enforcement action designed to protect the public and not to benefit private parties.

To bring a lawsuit under PAGA, a plaintiff must be an “aggrieved employee,” which PAGA previously defined (through June 18, 2024) as “any person who was employed by the alleged violator and against whom one or more of the alleged violations was committed.”

PAGA’s Penalty Structure and How Quickly Dollar Amounts May Increase

PAGA has a default penalty structure that is calculated to punish employers for wrongdoing and deter future violations of the labor laws. The default structure varies depending on the type of violation, but penalties previously ranged from anywhere between $50 to $100 (sometimes potentially more) for each aggrieved employee per pay period for the initial violation and $100 to $200 (sometimes potentially more) for each aggrieved employee per pay period for each subsequent violation.

To illustrate how quickly penalties may increase, let’s imagine a restaurant employer has 20 nonexempt hourly employees. One of these employees files a PAGA lawsuit against the restaurant, alleging five claims: (1) failure to provide proper meal breaks or compensation in lieu thereof, (2) failure to provide proper rest breaks or compensation in lieu thereof, (3) failure to pay minimum wages, (4) failure to pay overtime wages, and (5) failure to provide accurate itemized wage statements. For purposes of this example, let’s assume the employee alleges that all of the employees suffered each of these violations for a two-year period. If we assume that each of these 20 employees worked 25 pay periods per year—totaling 1,000 pay periods—and the state assessed a $50 violation per pay period for each of the five claims, potential penalties could be $250,000. Now imagine more employees, more alleged violations, and longer timeframes, and the potential detriment to employers becomes very clear.

PAGA-Provided Limited Parameters and an Expansive Reach

Adding to this draconian penalty structure, PAGA allowed for limited parameters and an expansive reach. Three examples are below.

Plaintiff did not need to personally suffer all violations. An employee who filed a PAGA lawsuit only needed to personally suffer one of the alleged violations to bring a lawsuit claiming all other Labor Code violations on behalf of other employees. For instance, if a host staff member claimed they only suffered meal break violations, they could still bring a PAGA lawsuit on behalf of others, not only for alleged meal break violations but also for other alleged Labor Code violations.

Expansive discovery. California courts potentially allow for a tremendous amount of discovery – a process in which, among other things, parties disclose relevant internal documents and potentially make managers and employees available for interviews—merely because an employee filed a PAGA suit. For instance, if a restaurant employer owns 10 restaurants across California and one server at the Los Angeles location filed a PAGA lawsuit on behalf of all nonexempt employees in the state, California courts would sometimes allow the employee to seek discovery, not just for the server team at the Los Angeles location but also for all other positions at all 10 California locations.

No manageability parameter. PAGA also had no manageability requirement. In its simplest form, “manageability” provides for case governance techniques and tools to ensure it is feasible and fair for the parties and the court to be able to control and maintain the case, without sacrificing constitutional rights, including by potentially limiting the scope of a claim.

For instance, if we take the illustration of the 10 restaurants across the state and a PAGA lawsuit brought by a Los Angeles employee, this would entail a wide variety of diverse job positions, different practices in different departments and different locations, and dissimilar circumstances and experiences rife with individualized issues. For example, a Los Angeles server claiming they were not paid overtime because they worked off the clock without telling anyone is a different situation than a different Los Angeles server who worked off the clock but informed their supervisor, who made sure overtime was paid. Likewise, a Los Angeles cook claiming they couldn’t take meal breaks because they were too busy does not translate to a Los Angeles host staff member who was never busy to take their meal breaks. A Los Angeles bartender who claims their rest breaks were restricted because they felt they had to remain close to the bar area during their rest breaks does not apply to a San Diego bartender who never felt such a restriction.

There are myriad other examples. But the absence of a manageability requirement creates a situation where every single nonexempt employee in each department and in each location would have to be interviewed, deposed, and/or brought to court to determine whether they each suffered any purported violation, often creating an impossible and costly task for the employer and placing an impossible burden on the court system.  In fact, the potential exposure for significant penalties, coupled with expensive and unmanageable cases, only unfairly pressures employers to settle cases that may be completely meritless.

Given these processes and structures, it’s easy to see how PAGA could be misused and abused to the detriment of employers, which is why strong requests were made to repeal PAGA, and the initiative qualified for the November 2024 ballot.

PAGA Reform and Some Good News for Employers

The reformed law is not a silver bullet against all potential PAGA abuses, but there are key revisions that should benefit employers. With arguable potential exceptions, the amendments are not retroactive and should be considered for new PAGA claims brought on or after June 19. The following summarizes several of these revisions.

Narrowed standing. To assert claims under PAGA, an “aggrieved employee” now must show that they personally suffered the violations for which they seek penalties. This should limit a PAGA plaintiff’s ability to broaden the scope of their PAGA claims to include every conceivable violation that might have been suffered by other employees. 

Manageability. Courts are now empowered to limit the scope of PAGA claims based on manageability.

Overall reduction and mitigation of penalties. Employers may qualify for penalty reductions of up to 85 percent if they demonstrate efforts to comply with labor laws before receiving a records request or notice of PAGA violation(s). Further, penalties may be reduced by up to 70% if employers take corrective measures upon receiving a notice of PAGA violation(s).

The legislation also limits penalties to $50 per pay period for isolated violations lasting fewer than 30 consecutive days or four pay periods and additionally clarifies that heightened penalties of $200 per pay period only apply when an employer acts maliciously or when a court or agency had previously found an employer’s practices unlawful within the preceding five years.

Employers can further avoid penalties by curing violations concerning wage statements, meal/rest period premiums, overtime, minimum wage, and expense reimbursement. In sum, there are now a variety of ways for an employer to drastically reduce and sometimes even potentially eliminate penalty amounts.

Preclusion of derivative penalties. PAGA plaintiffs are prohibited from “stacking” multiple penalties for derivative violations (e.g., a wage statement being inaccurate because an employee was not paid overtime), ensuring that a single violation results in a single penalty.

Penalty reduction of 50 percent for employers with weekly pay periods. PAGA technically allowed for penalties for violations “per pay period” (although there are arguments against this). Some California employers pay employees on a weekly basis, meaning these employers were potentially subject to double the penalty amount faced by employers who paid biweekly or semimonthly, which is unfair on its face. The reformed law now reduces PAGA penalties by 50 percent for employers who pay their employees weekly.

What’s Next?

It is imperative that employers take the time to review and understand the PAGA reforms, which may affect them in future PAGA lawsuits. Management should regularly monitor and update their employee handbooks and policies to ensure compliance with current California law. Management training is also critical to make sure company policy is implemented in the best and most efficient way possible.

If an employer faces a new PAGA claim, it will be important to move swiftly to take advantage of the new PAGA law opportunities, including potential reduction or elimination of penalties. As a complement to this, employers should strongly consider conducting periodic payroll audits, disseminating lawful written policies, training management on applicable Labor Code and wage order compliance, and taking appropriate corrective action with managers and supervisors, which courts may now look for more closely.

Given the infancy of these reforms, employers may continue to face challenges in real-world PAGA litigation, and potential abuses and frivolous litigation may persist. But the reforms are designed to help alleviate some of the most unfair and burdensome aspects of the previous law.

The PAGA landscape continues to evolve, and employers should continue to monitor its major changes that may affect their employees and overall business.

 Kristapor Vartanian is of counsel in the Los Angeles office at Kabat Chapman & Ozmer LLP and can be reached at kvartanian@kcozlaw.com.

PAGA has many nuances, and this article is not meant to be exhaustive or determinative by any means. This article is for high-level, general information purposes and is not intended to be and should not be taken as legal advice. The opinions expressed are those of the author and do not necessarily reflect the views of his employer or clients.