5 Important Ways Employers Can Limit Class Action Liability and Reduce PAGA Penalties

by Roger M. Mason, Esq., Christopher J. Olson, Esq., Rachael E. Brown, Esq., Caitlin E. Kaufman, Esq.

We previously updated you on recent legislative PAGA reform: 2024 PAGA Reform – Sweeney Mason LLP.

In light of this reform, following are five ways your business can potentially limit class action liability and substantially reduce PAGA penalties.  Sweeney Mason can provide your business with everything it needs to utilize these tools to minimize your company’s exposure.  Please contact us to discuss how we can help.

1. Utilize Mutually Binding Arbitration Agreements

Carefully crafted valid mandatory arbitration agreements with class action waivers can cut off class liability and potentially stay PAGA litigation until a determination is made in arbitration as to whether the Plaintiff has standing to prosecute a PAGA lawsuit.

2. Complete Annual HR Compliance Audits

Annual compliance audits during which a review of all company policies and practices is performed, and policies are updated and improved as appropriate, providing critical protection in class and PAGA litigation.  An HR Compliance audit is a key aspect of the “reasonable steps” an employer must take to significantly reduce potential PAGA penalties, by up to 85%.

3. Conduct Regular Wage and Hour Compliance Training

Employee and manager training also are “reasonable steps” an employer must take to significantly reduce potential PAGA penalties.  Wage and hour compliance should be treated as seriously as safety in the workplace and should be an important measure of any performance evaluation.

4. Track Meal and Rest Period Compliance and Pay Premiums When Applicable

This remains the single most litigated wage and hour issue.  Employees must clock out and back in from meal breaks.  A meal break must be taken within the first five (5) hours of work, must last at least thirty (30) minutes, and must be uninterrupted.  A second meal break must be taken if the employee works more than ten (10) hours in the workday.  Rest breaks lasting at least ten (10) minutes must be taken for every four (4) hours of work, or major fraction thereof.  Employees must be free to leave the premises during rest and meal breaks.

Employers should set up a system for employees to report missed, late, or interrupted meal/rest breaks, for tracking the reasons for non-compliant breaks, and for paying of one additional hour of pay (“premium pay”) for every non-compliant meal or rest break.  Employees should be trained on proper meal and rest break compliance and counseled when out of compliance.

5. Ensure Accurate and Contemporaneous Time Tracking

Employees should track time down to the minute and all time should be entered immediately and exactly, including for meal periods.  Employees should sign or otherwise acknowledge the accuracy of their time records.  Time rounding should be eliminated.  Off-the-clock work should be strictly prohibited.  Proper timekeeping is one of the best ways to eliminate liability in individual, class, or PAGA litigation.