What are PAGA Claims and How Should You Respond?

PAGA, short for the Private Attorneys General Act, is a California law that allows employees to sue employers for Labor Code violations on behalf of themselves, other aggrieved workers, and the state.

A PAGA claim begins when an employee sends a notice alleging specific Labor Code provisions were violated, including facts and legal theories supporting the allegations. Employees must provide this notice to both the employer and the Labor and Workforce Development Agency (LWDA).

One PAGA lawsuit can threaten an employer with hundreds of thousands or even millions of dollars in penalties based on technical violations across their workforce. Employers can minimize risks and liabilities from potential PAGA claims with proper compliance practices and prompt response to notices.

Let's explore exactly how the PAGA claim process works so you can be prepared.

What are the requirements for a PAGA lawsuit?

For an employee to bring a lawsuit under PAGA, they must first exhaust some administrative requirements:

• Written Notice: The employee must give written notice by certified mail to the employer and by online filing to the Labor and Workforce Development Agency (LWDA) alleging specific Labor Code provisions were violated. The notice must include facts and legal theories supporting the alleged violations.
• LWDA Review Period: LWDA then has 65 calendar days to review the notice and decide whether to investigate the claims or allow the employee to proceed with a lawsuit.
• Employer Cure Period: For some Labor Code violations, employers have 33 days after receiving the notice to "cure" the violations by fixing the issues. If cured, the employee cannot proceed with a PAGA claim for those specific cured violations.
• Civil Action Filed: After the LWDA review period and any cure period has passed, the employee can file a civil PAGA lawsuit against the employer.
• Court Approval: Any settlement of a PAGA claim must be submitted to the court for review and approval. LWDA also receives settlement copies.

Properly exhausting these administrative steps is required before an employee can officially commence litigation for a PAGA claim.

What are the different types of PAGA claims?

You might feel overwhelmed by the long list of labor codes in the PAGA notice letter. But there are really just three buckets that potential PAGA claims fall into:

The first category covers violations of specific Labor Code sections outlined in the PAGA statute, like wage statement violations or missed meal breaks. These are common triggers for PAGA claims.

The second bucket includes alleged health and safety violations, which are less frequent but can lead to hefty penalties. Failing to comply with Cal/OSHA regulations could prompt a PAGA claim.

Finally, the third category is a catch-all for other labor code violations not specified in the first two groups. The universe of potential claims here is broad.

While the exposure may seem daunting, remembering these three primary sources of PAGA allegations can help you organize your response if you receive a notice letter from an employee.

How does a PAGA lawsuit differ from a class action lawsuit?

The critical difference between a PAGA lawsuit and a class action suit is that PAGA claims don't require formal class certification.

In a class action, the lead plaintiff must be approved by the court to represent the interests of the larger class. But PAGA operates more like a "representative action." The employee suing is acting as an "agent or proxy" for the state labor agency.

This low barrier to pursuing a PAGA case is part of what makes them so common today, as class certification becomes more difficult. PAGA claims also avoid requirements like numerosity, commonality, typicality, and superiority that apply to certifying a class.

The lack of formal certification makes PAGA cases easier and faster to initiate against employers. Importantly, PAGA plaintiffs can collect penalties for Labor Code violations suffered by other employees, not just themselves. So, damages can add up quickly across an entire workforce. Understanding these dynamics is critical when evaluating your liability.

How do employees file PAGA claims?

Before an employee can file a PAGA lawsuit, they must first go through an administrative notice process. This starts with submitting a written notice by certified mail to the employer and an online filing to the Labor and Workforce Development Agency (LWDA).

The notice must allege specific violated Labor Code provisions and include facts and legal theories attempting to support the allegations. Think of this as a demand letter from a lawyer directed to the state labor agency.

After receiving the notice, LWDA has 65 calendar days to review the allegations and decide whether it wants to investigate the claims itself. If LWDA provides notice that it will not investigate, or if it simply fails to respond after the review period, the employee can then proceed with filing a PAGA lawsuit against the employer.

This notice and waiting period is mandatory before formally commencing litigation. It serves partially to give LWDA a chance to act while pushing employers to settle claims quickly before any lawsuit.

But how much money is at stake?

How much might a PAGA claim cost you?

A single notice letter can expose your company to over a million dollars in civil penalties if you don't respond appropriately. How much you ultimately pay depends on factors like the size of your workforce, how many pay periods involved, and whether you litigate or settle early on. But make no mistake - substantial dollars are on the line.

What is the average PAGA settlement?

The average total settlement value of a PAGA court case is around $1.1 million, according to a 2021 report from the CABIA Foundation. Of course, your liability could end up higher or lower based on your specific situation.

Settlements resolved earlier generally cost less.

How much are the civil penalties?

The report showed average total penalties of around $100,000 for court cases and $158,000 for cases decided by the state agency.

How are PAGA damages calculated?

PAGA allows penalties of $100 per initial violation and $200 for each subsequent violation, per employee, compounding each pay period. Even minor technical violations can add up quickly across a large workforce and multiple pay periods.

How are PAGA settlement payments distributed?

For court settlements, attorneys typically take around 33% of the total fees. The remainder goes 75% to the state and 25% to aggrieved employees.

The enormous potential liability makes it critical for you to respond promptly and effectively when you receive a PAGA notice.

Let's explore the options.

How should you answer a PAGA claim?

When served with a PAGA notice, you generally have three potential options:

• Cure the violations alleged
• Settle the claims
• Litigate if a lawsuit is filed

Which route you take depends on the specifics of the case and your situation.

What does it mean to cure a PAGA claim?

California law allows employers to "cure" certain wage statement defects like missing dates by providing updated pay stubs. If done properly within 33 days, employees cannot bring PAGA claims for those cured violations.

Curing technical issues may prevent narrow claims, but it doesn't make sense for all allegations. Settlement and litigation may be better options depending on the circumstances.

When does it make sense to settle a PAGA claim?

Settling early, before significant legal fees accrue, is often the most cost-effective approach. But the decision also depends on the nature of alleged violations. Willful, serious infractions with significant potential penalties may still warrant aggressive litigation defense rather than settlement.

When should you fight a PAGA claim in court?

If the claims lack merit or overreach, litigating may be the best option. Consult experienced legal counsel to map the optimal litigation strategy based on the specific allegations and risks.

What steps should you follow in response to a PAGA claim?

Receiving a PAGA notice should kick off a rapid response. Disorganized or sluggish reactions can compound liability. Carefully execute these steps when served with a PAGA notice:

1. Contact Experienced Legal Counsel

Engage an attorney well-versed in PAGA cases right away. Short legal deadlines to respond to the notice make prompt counsel essential. Lawyers experienced with PAGA can guide your strategy.

2. Conduct a Comprehensive PAGA Audit

Perform an in-depth review of wage statements, timekeeping records, policies, personnel files, and other relevant documents. Identify areas of non-compliance that may have led to the notice or present future risks. External auditors can lend an impartial eye.

3. Implement Corrective Actions Where Feasible

Assess whether alleged violations can be cured by providing updated pay stubs or rectifying identified issues. Some technical defects may be curable, preventing specific claims.

4. Consider Submitting an Employer Response

Filing a brief letter with the state labor agency contesting deficient allegations may be worthwhile. Experienced counsel can help craft an appropriate response.

5. Scrutinize Claimant's Employment History

Closely analyze the aggrieved employee's work record and personnel file for any pertinent facts regarding the validity of their claims. Look for evidence that could undermine their allegations.

6. Evaluate Early Settlement Options

While some claims warrant a court battle, fast and reasonable settlement before litigation escalates can save substantial time and legal fees. Weigh risks and projected costs.

7. Decide with your attorney whether to cure, settle, or litigate

After completing a PAGA audit and weighing the claims, decide strategically on the best path forward. Your attorney can provide invaluable guidance on whether attempting to cure defects, pursuing early settlement, or aggressively contesting the claims in litigation makes the most sense based on the specifics of your case. Their expertise can prove critical at this juncture.

What is a PAGA Audit?

A PAGA audit comprehensively reviews an employer's pay practices, records, policies, and procedures to identify potential Labor Code violations. It examines documents like wage statements, timecards, employee handbooks, workplace postings, and personnel files.

Conducting a PAGA audit after receiving a notice helps assess the validity of claims and any other vulnerabilities. Audits typically look for non-compliance issues such as inaccurate wage statements, missed meal and rest breaks, improper expense reimbursements, and policy gaps.

While internal HR staff can conduct an audit, external consultants often provide more impartial HR risk management. Their unbiased eyes help uncover overlooked risks.

What is the future of PAGA lawsuits?

The future of PAGA litigation remains uncertain amid calls for reform. Will there be new PAGA limitations or even a full repeal? Appellate decisions will shape key contours.

For example, Adolph v. Uber Technologies diverged from the U.S. Supreme Court's Viking River Cruises ruling on compelling PAGA claims to arbitration. Viking River allowed individual PAGA claims to be split off, limiting court standing for representative claims. But Adolph said compelled arbitration doesn't strip plaintiff standing to litigate representative PAGA claims in court.

Other open questions include whether PAGA penalties can be stacked per violation versus capped per pay period, which Kim v. Reins is exploring. The legality of PAGA waivers in arbitration agreements also remains fluid.

Until definitive guidance emerges, tighten compliance and consult experienced counsel when served with a PAGA notice.

FAQ about PAGA Claims

Does bankruptcy discharge PAGA debts?

No, bankruptcy does not discharge PAGA debt. PAGA penalties are considered government claims for fines or penalties to enforce the law exempt from discharge in bankruptcy under 11 U.S.C. § 523(a)(7). So, employers cannot avoid PAGA liability through bankruptcy.

Are PAGA claims covered by insurance?

PAGA claims are generally not covered by employment practices liability insurance (EPLI) policies. Most EPLI policies contain exclusions for wage and hour violations, fines and penalties, or intentional acts that would apply to PAGA claims. Some specialty insurance products may offer limited coverage, but standard EPLI policies typically exclude PAGA lawsuits.

Can individual PAGA claims be compelled into arbitration?

The enforceability of compelled PAGA arbitration remains unsettled currently. The U.S. Supreme Court's ruling in Viking River Cruises v. Moriana held that arbitration agreements could require arbitration of individual PAGA claims while representative PAGA claims on behalf of other employees can proceed in court. However, recent California court rulings like Adolph v. Uber have diverged on whether compelling individual PAGA arbitration strips plaintiffs of standing for pursuing representative claims.