Determining the Employer’s Maximum Potential Exposure: A Summary of PAGA Litigation Remedies

From the very outset of a PAGA action, both the employee and employer should be keenly interested in the dollar value of employer’s maximum potential liability, as this number will enable the parties to evaluate the prospects of pre-trial settlement. Maximum exposure figures, however, are not straightforward to calculate because any given PAGA complaint likely contains an overlapping web of claims, some of which “stack,” with varying limitations periods. To simplify this process, this article collects the claims and associated remedies commonly found in a PAGA and class action complaint.

To understand the scope of the employer’s monetary exposure in a PAGA action, two legal principles should be kept in mind. First, a PAGA action typically alleges several “primary violations” such as minimum wage violations, but these violations can also result in “derivative violations,” i.e., because the employer violated the first Labor Code section, it also violated another. For instance, if an employer fails to pay minimum wages, it has also by definition failed to accurately report wage information as required by the wage statement law, Labor Code § 226. In this way, a single Labor Code violation can result in monetary liability that far exceeds the amount of the plaintiff’s actual harm. However, the PAGA reforms enacted in 2024 significantly curtailed the availability of derivative penalties, such that a primary violation will only result in waiting time or wage statement penalties if it was willful, knowing, or intentional. (Labor Code § 2699(i).)

Second, several provisions of the Labor Code provide for “statutory penalties” which are paid to the employee. But Labor Code violations also give rise to “civil penalties,” which are split among the Labor and Workforce Development Agency and the aggrieved employees. While potentially duplicative, the law subjects employers to both types of penalties.  

Failure to Pay Minimum Wage. Employers are required to pay employees the legal minimum wage for all hours worked, regardless of any agreement to the contrary. (Labor Code § 1194(a).)  The minimum wage may be set by the Industrial Welfare Commision (“IWC”) and other state and local laws. (Labor Code § 1197; see, e.g., IWC Wage Order No. 1-2001, § 4.) Even if an employee’s average pay exceeds the minimum wage, employers may still violate the law if they attempt to “borrow” compensation contractually owed for one set of tasks to rectify other minimum wage violations. (Oman v. Delta Air Lines, Inc. (2020) 9 Cal.5th 762.)

A minimum wage claim may result in the following forms of liability for an employer: (1) the amount of the minimum wages owed, (2) interest, (3) attorneys’ fees, (4) the costs associated with the plaintiff’s lawsuit (Labor Code § 1194), (5) liquidated damages, meaning a second payment of the amount of minimum wages owed and interest (Labor Code § 1194.2), (6) civil penalties in the amount of $100 per underpaid employee per pay period for an initial, intentional violation, or in the amount of $250 per underpaid employee per pay period for a subsequent violation (Labor Code § 1197.1), and (7) “derivative” penalties such as the wage statement and waiting time penalties discussed below.

Liquidated damages may be reduced or eliminated if the court determines that the employer acted in “good faith” and “had reasonable grounds for believing that the act or omission was not a violation of any provision of the Labor Code relating to minimum wage, or an order of the commission.” (Labor Code § 1194.2(b).)

Failure to Pay Overtime Wages. Employers are generally required to provide overtime pay at the rate of 1.5 times the regular rate of pay for all hours worked in excess of eight hours per day and/or 40 hours per week, and for the first eight hours on any seventh consecutive workday. Overtime pay at the rate of double the regular rate of pay is required for all hours worked in excess of 12 hours in any workday and for all hours worked in excess of eight hours on the seventh consecutive day of work in any workweek.  (Labor Code § 510; see, e.g., IWC Wage Order No. 1-2001, § 3.) Application of this rule is not always straightforward. An exemption or exception may apply, such as for employees covered by a valid collective bargaining agreement, outside salespersons, or valid alternative workweek schedules. (See, e.g., IWC Wage Order No. 1-2001, § 3(B).) Further, the “regular rate” for purposes of the overtime pay calculation may be determined in a variety of ways which are beyond the scope of this article.

An overtime claim may result in the following forms of liability for an employer: (1) the amount of the unpaid overtime compensation, (2) interest (3), attorney’s fees, (4) costs of suit (Labor Code § 1194), (5) civil penalties in the amount of $50 per underpaid employee per pay period for an initial violation, or in the amount of $100 per underpaid employee per pay period for a subsequent violation (Labor Code § 558(a)), and (6) “derivative” penalties such as the wage statement and waiting time penalties discussed below.

Failure to Provide Required Meal Periods. Employers are generally required to provide meal breaks of at least 30 minutes to employees working shifts longer than five hours. This meal break may be waived by mutual consent if the employee’s total work period in a day is no more than six hours. For shifts in excess of 10 hours, a second meal break must be provided. This latter meal break may also be waived by mutual consent, but only if the employee’s full shift is no longer than 12 hours and the first meal period was not waived. (Labor Code §§ 512, 226.7; see, e.g., IWC Wage Order No. 1-2001, § 11.) An employer need not police meal breaks to ensure employees are performing no work, but rather satisfies its duty to provide meal breaks “if it relieves its employees of all duty, relinquishes control over their activities and permits them a reasonable opportunity to take an uninterrupted 30-minute break, and does not impede or discourage them from doing so.” (Brinker Restaurant Corp. v. Superior Court (2012) 53 Cal.4th 1004.) When it is not possible for the employee to be relieved of all duty due to the nature of the work, such as a security guard stationed in a remote location, the law permits employers to provide an “on duty” meal break with the employee’s written consent. (See, e.g., IWC Wage Order No. 1-2001, § 11(C).) Employees in certain industries are exempt from this rule if covered by a valid collective bargaining agreement. (Labor Code § 512(b)-(f).)

A claim for failure to provide required meal periods may result in the following forms of liability for an employer: (1) premium pay, meaning “one additional hour of pay at the employee’s regular rate of compensation for each workday that the meal . . . period is not provided” (Labor Code § 226.7(c)), (2) civil penalties in the amount of $100 per “aggrieved” employee per pay period for an initial violation, or in the amount of $200 per “aggrieved” employee per pay period if the Labor Commissioner or a court found the employer’s policy or practice giving rise to the same violation unlawful within the previous five years or for “malicious, fraudulent, or oppressive” violations (Labor Code § 2699(f)), and (3) “derivative” penalties such as the wage statement and waiting time penalties discussed below.

Failure to Provide Required Rest Periods. Employers must provide an uninterrupted 10-minute rest period for every four hours of work or “major fraction thereof” unless the employee will work fewer than 3.5 hours in a workday. (Labor Code § 226.7; see, e.g., IWC Wage Order No. 1-2001, § 12.) The phrase “major fraction thereof” has been interpreted to mean more than two hours. (Brinker Restaurant Corp. v. Superior Court (2012) 53 Cal.4th 1004.) Thus, an employee working between 3.5 and six hours is entitled to one 10-minute rest period; an employee working between six and ten hours is entitled to two 10-minute rest periods; an employee working over ten hours is entitled to three 10-minute rest periods, and so on. Insofar as practicable, the rest period must occur in the middle of each work period. Certain occupations are subject to different rest period requirements.

A claim for failure to provide required rest periods may result in the following forms of liability for an employer: (1) premium pay, meaning “one additional hour of pay at the employee’s regular rate of compensation for each workday that the [rest period] is not provided” (Labor Code § 226.7(c)), (2) civil penalties in the amount of $100 per “aggrieved” employee per pay period for an initial violation, or in the amount of $200 per “aggrieved” employee per pay period if the Labor Commissioner or a court found the employer’s policy or practice giving rise to the same violation unlawful within the previous five years or for “malicious, fraudulent, or oppressive” violations (Labor Code § 2699(f)), and (3) “derivative” penalties such as the wage statement and waiting time penalties discussed below.

Failure to Indemnify Employees for Necessary Expenditures Incurred in Discharge of Duties. Labor Code § 2802 requires employers to reimburse employees for business expenditures and losses “incurred by the employee in direct consequence of the discharge of his or her duties, or of his or her obedience to the directions of the employer[.]” This requirement may not be waived by agreement between employer and employee. (Labor Code § 2804.) Common business expenditures that must be reimbursed include meals and lodging for work-related travel, mileage, and cell phone plans.

 A claim for failure to indemnify employees for necessary business expenditures may result in the following forms of liability for an employer: (1) the cost of the expenditure itself, (2) interest, (3) attorney’s fees, (4) costs of suit (Labor Code § 2802), and (5) civil penalties in the amount of $100 per “aggrieved” employee per pay period for an initial violation, or in the amount of $200 per “aggrieved” employee per pay period if the Labor Commissioner or a court found the employer’s policy or practice giving rise to the same violation unlawful within the previous five years or for “malicious, fraudulent, or oppressive” violations (Labor Code § 2699(f)).

Waiting Time Penalties. When an employee is discharged, an employer is obligated to pay the employee’s unpaid wages, if any, immediately. (Labor Code § 201(a).) Similarly, when an employee quits their employment, their wages must be paid no later than 72 hours thereafter, unless the employee provided 72 hours previous notice of their intention to quit, in which case the wages are due at the time of quitting. (Labor Code § 202(a).) To ensure that employers comply with these payment timing provisions, Labor Code § 203 provides that if wages are not timely paid upon an employee’s discharge or quitting, their wages continue to accrue as a penalty for up to 30 days. Unlike most of the Labor Code’s penalty provisions, “waiting time” penalties under Labor Code § 203 are subject to a three-year limitations period, not a one-year limitations period, further expanding potential liability. (Labor Code § 203(b).) However, an employer’s refusal to timely pay the wages must be “willful” for these penalties to apply, meaning that the penalty is negated by a good-faith dispute as to whether the wages are owed.

A claim for waiting time penalties may result in the following forms of liability for an employer: (1) up to 30 days of the employee’s wages (Labor Code § 203), and (2) civil penalties in the amount of $100 per “aggrieved” employee per pay period for an initial violation, or in the amount of $200 per “aggrieved” employee per pay period if the Labor Commissioner or a court found the employer’s policy or practice giving rise to the same violation unlawful within the previous five years or for “malicious, fraudulent, or oppressive” violations (Labor Code § 2699(f)).

Failure to Provide Accurate Itemized Wage Statements. Labor Code § 226 requires employers to regularly provide wage statements that contain nine enumerated pieces of information, including gross and net wages, hours worked, and any deductions from wages. The failure to provide wage statements that comply with this provision results in penalties under Labor Code § 226(e). Other Labor Code violations may result in a violation of § 226. For instance, if an employer fails to compensate employees for missed meal periods and is liable for meal period premiums under Labor Code § 226.7(c), the employer may also be liable for penalties under § 226 because the meal premiums were not properly reported on the wage statements. (Naranjo v. Spectrum Security Services, Inc. (2022) 509 P. 3d 956.)

A claim for failure to provide accurate itemized wage statements may result in the following forms of liability for an employer: (1) statutory penalties in the amount of $50 per employee per pay period for an initial violation or $100 per employee per pay period for each subsequent pay period, for a maximum penalty of $4,000, (2) attorneys’ fees, (3) costs of suit (Labor Code § 226(e)), and (4) a civil penalty of between $25 and $200 per “aggrieved” employee per pay period. (Labor Code § 2699(f).) The civil penalty is $25 per aggrieved employee per pay period if the employee could easily determine, from the wage statement alone, the information required by Labor Code § 226, or would not be confused about the identity of the employer if the alleged violation concerns the name and address of the legal entity that is the employer. Otherwise, the civil penalty is $100 per aggrieved employee per pay period, but the penalty may increase to $200 per aggrieved employee per pay period for a second violation within five years or for “malicious, fraudulent, or oppressive” violations.

Statutory penalties are not available, however, if the “employer reasonably and in good faith believed it was providing a complete and accurate wage statement in compliance with the requirements of section 226[.]” (Naranjo v. Spectrum Security Services, Inc. (2024) 547 P. 3d 980.)

Violation of the Private Attorneys General Act (PAGA). Violation of the PAGA is pled as a separate claim but implicates the same conduct that gives rise to the aforementioned Labor Code claims. Those Labor Code violations result in civil penalties under PAGA. The rules governing such civil penalties are defined in the individual Labor Code sections or in the catchall provision of Labor Code § 2699(f). All civil penalties under PAGA are subject to the court’s discretion, meaning that they may be adjusted downward or even eliminated. Factors relevant to this downward adjustment include whether the alleged misconduct was intentional and whether PAGA penalties would be duplicative of other remedies.

Violation of the Unfair Competition Law. Actions involving PAGA and Labor Code claims often include an additional claim under California’s Unfair Competition Law (UCL). The UCL broadly prohibits unlawful, unfair, or fraudulent business activity. Violation of other laws, such as the Labor Code, may give rise to a UCL claim. (Cortez v. Purolator Air Filtration Products (2000) 999 P. 2d 706.) Unlike PAGA, which is subject to a one-year limitations period, and claims under the Labor Code, which have a three-year limitations period, UCL claims are subject to a four-year limitations period. In this way, a UCL claim can expand the temporal scope of a PAGA suit.

However, UCL claims are more limited than direct claims under the Labor Code in several respects. First, a UCL claim must be brought as a class action if the plaintiff is to obtain recovery on behalf of other employees. This means that the prerequisites for class certification must be satisfied. Second, UCL claims permit the recovery of restitution only, i.e., that which is necessary to make the plaintiff whole. While unpaid wages may be recovered under the UCL, PAGA penalties may not. Third, the UCL is equitable in nature, and a court may refuse to award restitution under the UCL altogether if it would be unfair to do so. (Seviour-Iloff v. LaPaille (2022) 80 Cal. App. 5th 427.)

This article is for informational purposes only, does not constitute legal advice, and does not create an attorney-client relationship.