If you don’t know what the acronym PAGA stands for, consider yourself fortunate. If you have been involved in a PAGA action, you probably know all too well what it means.
PAGA refers to the Private Attorneys General Act. It is a state statue specific to California…although other states are considering similar laws. This Act, enables a private individual to seek penalties on behalf of a group of similarly aggrieved persons for violations of the California Labor Code as well as consumer protection statutes on behalf of the state. Basically, the plaintiff is given the status of a deputized Private Attorney General. The named plaintiff is usually a current or former employee of the employer/defendant who claims to have suffered some economic harm that is shared by a larger group of similarly situated individuals. The true plaintiff however is the State. PAGA actions usually allege that the employer/defendant violated wage and hour laws imposed by the state. These claims can be expensive to defend, allow for the recovery of attorney fees and costs by counsel for the plaintiff, include penalties and interest that exponentially accumulate and are rarely covered by an Employment Practices Liability (EPLI) policy*.
If you have employees, you can’t eliminate this exposure but you can take steps to lower your risk and protect your company in the event of a claim.
Make sure your Employee Handbook is up to date and sets forth policies and procedures that are in full compliance with state requirements. As mentioned above most PAGA claims begin with an employee who felt they had been wronged. A well-written, up-to-date handbook and a history of adherence to state wage and hour policies will go a long way in demonstrating that your company as a whole tends to be compliant.
Make sure your records are up-to-date and digitized. Work with an employment lawyer to make certain your records are what you would need if you were involved in a PAGA action. Have your lawyer play devil’s advocate so if you are sued, you are prepared. While PAGA claims are not subject to arbitration or class action waiver agreements, it is still a good idea to work with your counsel to have enforceable agreements as they may reduce other potential exposure to typical employment claims.
Make certain all of your employees understand the wage and hour rules that apply to them, and make certain your supervisors know how to enforce and manage these rules.
As mentioned above, there is no way to eliminate the possibility of a PAGA claim, but a well-prepared employer is going to do much better in the resultant lawsuit, with a lot less stress. The value of a well-written Employee Handbook, compliant practices, solid records and a quality Labor Law Attorney are all critical to managing this risk.
*Damages arising out of Wage and Hour Violations are specifically excluded in PAGA (Wage and Hour) type claims. Since the employer would have owed this money if they had abided by the laws, it would violate the concept of indemnity to cover them. Penalties are also specifically excluded under the majority if not all EPLI Policies. Some insurance companies, less than 10% in the authors experience, will include a modest defense sublimit for these claims. The sublimit is usually $50,000 to $100,000 and applies once the policy deductible is exhausted.