3 WAYS TO SAVE UP TO 85% ON CA LITIGATION COSTS THANKS TO PAGA REFORM

There are three actions PEOs and their customers can take to save up to 85% in California litigation costs thanks to a recent legislative compromise. Anyone doing business in California is no doubt familiar with the Private Attorneys’ General Act – or PAGA, the scariest four-letter word in the state for employers. What you might not know is that a recent overhaul could soon tame the state’s most vicious law and provide much-needed relief to PEOs and their customers. Specifically, employers who take “reasonable steps” to comply with California law before a PAGA claim is filed can earn up to an 85% discount in penalties. This helps both PEOs who have employees in California and PEO customers with worksite employees in the state.

WHAT’S GOING ON?

State leaders recently finalized a legislative overhaul that will significantly reform PAGA and bring relief to employers in all sorts of ways. You can read a full overview here.

There’s an exciting prospect for PEOs tucked away in this reform: if PEO customers take “all reasonable steps” to comply with California workplace law ahead of time, they can achieve significant penalty reductions for any alleged violations of the law. In fact, the civil penalty that may be recovered shall be no more than 15% of the $100 penalty found in PAGA or other penalties referenced in the law. This provides for a potential 85% reduction (or more) in penalties for employers who engage in reasonable steps of compliance prior to a dispute arising.

THE 3 MAGIC STEPS

If PEOs and their customers take the following three steps, they will be considered to have taken “all reasonable steps” and gain the new protection found in the law:

• Disseminate lawful written policies and train supervisors;
• Take appropriate corrective action with supervisors; and
• Conduct periodic payroll audits and take action in response.
• This means you should encourage your customers to take the “reasonable steps” and/or assist them in doing so.
• Training Programs and Written Policies
• Creating written policies and offering workplace training is right in the wheelhouse of many PEOs.

You will not have off-the-shelf resources for all of the areas of the law that are most critical when it comes to PAGA (especially with regard to some wage and hour issues), so work with your PEO counsel to develop those.

These written policies or training programs will be strictly scrutinized by plaintiffs’ counsel who will be stinging at the dilution of their favorite weapon. They will soon be looking to defeat any potential penalty reductions by claiming employers did not meet the “all reasonable steps” standard. Don’t give them an unearned victory. Make sure your materials are up to date.

Encourage Your Customers To Take Appropriate Corrective Action Regarding Supervisors

The potential “reasonable step” of taking corrective action regarding supervisors behaving badly will generally be a customer responsibility. For example, a customer that learns that a supervisor is instructing employees not to take meal or rest periods will potentially be responsible for taking appropriate corrective measures. But that doesn’t mean you play no role here at all.

Your customer service agreement might include language regarding such corrective measures. However, PEO counsel will have some thoughts on the issue of creating a misperception of “control” on the PEO side.

You should at least consider instituting policies, procedures, and communications to ensure your customers understand the benefit of taking such “reasonable steps.”

Assist With Payroll (and Other) Audits

Perhaps the area of greatest concern for PEOs may involve whether and how to assist customers in payroll and other audits to potentially reduce penalties under the reformed PAGA.

If you use your own personnel to conduct such audits, you may uncover issues over which you have little power, short of terminating your relationship with the customer. And if you conduct such audits, you may be drawn into litigation through subpoenas and requests for document production if a plaintiff contests the actions a customer took in response (even after the customer is no longer a customer of your PEO).

You may consider using outside third parties to conduct audits, but this could also raise potential issues. For example, you may want the outside consultant to provide some type of certification to provide assurance that the audit was conducted competently and any identified issues were addressed.

Some customers would be well-served to have counsel involved in audits to take advantage of the attorney-client privilege for aspects of the audit. This is something PEOs should take up with their counsel. It is a very complicated aspect of the audit piece.

As always, PEOs will want to be cognizant of potential joint liability issues when providing any such services mentioned above.

This article is designed to give general and timely information about the subjects covered. It is not intended as legal advice or assistance with individual problems. Readers should consult competent counsel of their own choosing about how the matters relate to their own affairs.