This may not be as exciting as a new menu item, but it is just as crucial for your business — the California Private Attorneys General Act (PAGA). If you’ve been running a franchise in California, you’ve probably heard the acronym and maybe even felt the sting of its penalties. But guess what? Things have changed and Harri is here to help you navigate the new landscape.

If you’re a California operator reading this and you couldn’t make it last week to Harri’s exclusive PAGA Workshop hosted with the Zaller Law Group, you can watch the on-demand presentation to receive your 2025 PAGA Compliance Certification. This certification serves as documentation of “reasonable steps” taken to comply with California wage and hour laws.  Please note that viewing the entire presentation is required to qualify. If you’re interested in getting access to the slides, please email [email protected]. 

What Was PAGA Again?

For years, PAGA has been the state's way of letting employees enforce labor laws by recovering penalties that only the state could previously recover. Think of it as a system that incentivizes employees to step into the shoes of the Labor and Workforce Development Agency (LWDA) and bring claims against employers for labor code violations. This has led to some pretty hefty penalties, even for small, unintentional errors.

Under the old rules, if the Labor Code didn’t specify a penalty for a violation, PAGA set penalties at $100 per employee per pay period for the first violation and $200 per pay period per employee for subsequent violations. A big chunk of that money (75%) went to the state, and the rest went to the affected employees. And — get this — those penalties could pile up for seemingly minor issues, like a missing start date on a pay stub or the omission of the last four digits of a Social Security number on a wage statement. That’s real money and real headaches.

The July 2024 PAGA reforms created significant opportunities for penalty reductions, empowering restaurant operators with the ability to significantly cap their penalties up to 85% by demonstrating "reasonable steps” to comply with the Labor Code. 

The PAGA Reform — A Breath of Fresh Air

The good news is, California heard the cries of businesses and enacted new reforms, which apply to cases filed after June 19, 2024. They reward employers who make a genuine effort to follow wage and hour laws. The main idea is if you're proactive about compliance, you can significantly reduce your PAGA liability.

Here’s the Information on the Key Changes

• Penalty Caps: The biggest change is the introduction of penalty caps. Now, if you can show you've taken "all reasonable steps" to comply with the law, your penalties are limited.
  • Scenario 1: 15% Cap: If you demonstrate that you've taken "all reasonable steps" before receiving a PAGA notice, penalties are capped at a mere 15%.
  • Scenario 2: 30% Cap: If you take "all reasonable steps" to comply within 60 days of getting a PAGA notice, penalties are capped at 30%.
• Reduced Penalties: On top of penalty caps, the reform also significantly reduces penalty amounts for certain violations.
  • Wage statement violations are reduced from $100 to $25. However, if you didn't provide a wage statement at all, you don’t get the discount.
  • Isolated violations are reduced from $100 to $50.
  • Derivative violations (or stacking penalties) are now $0 (reduced from $100.
  • And if you're paying employees weekly, the penalty is cut in half.
• All Reasonable Steps: What exactly does taking "all reasonable steps" mean? It includes, but isn't limited to:
  • Conducting periodic payroll audits and acting on those results.
  • Disseminating lawful written policies.
  • Training supervisors on labor code and wage order compliance.
  • Taking corrective action regarding supervisors.

Keep in mind that whether your actions were reasonable is evaluated by the totality of the circumstances, considering the size and resources of your franchise, and the nature, severity and duration of any violations.

What Should Franchisors Do To Prepare?

Okay, so how does this affect you? What steps should you take? Here's where Harri comes in, making compliance easier for you. They recommend the following:

• Implement a robust compliance monitoring system. Think real-time alerts for potential violations, catching problems before they become lawsuits.
• Conduct regular payroll reviews and audits. Make sure your timekeeping and payroll systems are accurate. Pay close attention to meals and rest breaks.
• Create and maintain detailed documentation procedures. Log all compliance efforts, correction timestamps, training records and audit histories. This helps you show you were proactive.
• Train, train, train. Ensure managers and supervisors know the law and how to take corrective actions. Train on meal and rest break obligations, accurate time keeping and wage statement requirements.
• Establish clear policies and review them regularly. Make sure employees know your policies and that you're tracking acknowledgments.
• Don’t rely solely on your payroll company. Backup your payroll documents on your own servers.
• Address potential violations and implement a complaint procedure.
• Review your policies, handbooks and posting compliance. 

Harri: Your Partner in PAGA Compliance

Harri recognizes the specific difficulties that franchisors encounter, and provides robust tools and technology to help maintain compliance with California’s changing labor laws. Harri’s platform offers automated compliance monitoring, which helps to identify violations early, enabling prompt corrective action. Additionally, the platform provides real-time violation alerts that notify users immediately of potential issues. To streamline the review and audit process, Harri offers systematic audit procedures. The platform also includes training tracking to ensure managers stay current on compliance requirements. Furthermore, Harri provides documentation management to help maintain precise records of all compliance efforts.

The Bottom Line

The PAGA reform is a game-changer for California franchises. By taking proactive measures to ensure compliance, you can significantly reduce your risk of penalties and litigation. 

For more information on Harri’s products and services or to follow Harri’s compliance insights, visit www.harri.com. 

Disclaimer: Please note this content is intended for summary purposes only. Any guidance or materials provided do not constitute legal advice and cannot be substituted for the advice of legal counsel.