What Is PAGA?
Under PAGA, individualized penalty inquiry is not required. California’s Private Attorneys General Act of 2004 does not require individualized penalty inquiries for purposes of class certification. Most PAGA lawsuits involve meal break and minimum wage violations, which are bases for PAGA lawsuits. An employee may not waive their right to file a PAGA lawsuit.
PAGA stands for Private Attorneys General Act. This code authorizes aggrieved employees to file lawsuits to recover penalties related to Labor Code violations on behalf of themselves, other aggrieved employees, and the state of California. Whoever intends to file a PAGA case must meet the requirements listed in Labor Code Sections 2698-2699.5.
How are PAGA penalties calculated in California?
The unfortunate reality is that analyzing an employer’s exposure in a wage-and-hour or PAGA suit requires a large amount of math. Luckily, there are some methods that are designed to simplify the calculation process, and that won’t risk rejection from the court.
- Class Damages – Reasonable Quantification Per Workweek
One method used to calculate class-wide damages is to multiply the total number of workweeks during the relevant damages period by a reasonable quantifier. The quantifier value will depend on the strength of the case, which is determined by a number of factors.
The first step is to review the time records for meal-break violations, such as short, late, or missed meal breaks. These should then be compared to the correlating wage statements for payment of meal-break premiums. What is a meal-break premium, you may wonder. If an employer does not provide a meal period to an employee, then the employer must pay the employee an additional hour of pay at the employee’s regular rate of compensation for each day that the meal period is not provided. It is important to remember to check for second meal periods that need to be offered for shifts over ten hours. If the case involves a high meal-break violation rate without payment of premiums, then the quantifier per workweek should be higher. It should be noted that interruptions to meal periods are not usually available on time records, so the actual violation rate may be higher than what is indicated on the time records.
When looking over the timesheets, one should ask themselves if the records display other unlawful practices. Perhaps the shifts or lunch breaks are rounded, or meal periods are automatically deducted from an employee’s time. If this is evident, then the quantifier should be higher.
The next step would be to inspect written wage-and-hour policies, procedures, and practices. One should see if there are any unlawful policies, as well as whether the policies are vague or if they do not properly inform employees of their rights or the employer’s obligations to them. If this is the case, or the employee handbook is of poor quality, then the per-workweek quantifier should be increased.
An expert or staff member should review the wage statements to see if employees were properly paid for double-time and overtime. If a firm does not have the resources to review all records, then it should perform a spot check for unpaid wages and see whether there is information missing that is required under Labor Code section 226, subdivision (a). The quantifier should be adjusted accordingly.
A lawyer should speak with his or her client, as well as other putative class members, to see if they can find any major off-the-clock work that was being done. These activities may include bag checks, preparation of work areas, customer service, collecting tools, clean up, going to training seminars, commuting, and taking off PPE. It should be noted that the California Supreme Court recently ruled that the de minimis defense is not relevant to off-the-clock wage-and-hour claims.
Further elements used in establishing the quantifier value include the probability of success on class certification and the result of any depositions taken before mediation. For instance, if the plaintiff admits to an unlawful policy that was used on a class-wide basis, then the quantifier should be increased. If putative class members reported that employees were mandated to be on-call during rest periods, the quantifier should be increased. It is a good idea to talk to one’s client about their recollections of workplace conditions to see which Labor Code violations were most common. The lawyer should assess whether the client is a good representative of the class. If the client is not adequately representative or does not remember well, or if they have a disciplinary record or only worked for a short period of time, then the quantifier must be adjusted to reflect this.
- Class Damages – Min/Max Models
Another approach to assessing damages is to make damages models based on one’s assessment of the minimum and maximum exposure for each violation of the Labor Code. The formulas described below can help create high/low scenarios in one’s damages model for some of the primary Labor Code violations. The damages periods used should be lessened to three years if the lawsuit does not involve a cause of action for unlawful business practices in violation of the UCL.
Unpaid Minimum Wages
(Total number of workweeks over the four-year period x average hours of unpaid minimum wages per workweek x average minimum wage over the four-year period)
It should be noted that the amount is doubled because employees are entitled to liquidated damages equal to the total unpaid minimum wages.
(Total workweeks over the four-year period x average hours of unpaid overtime per week x average overtime premium rate)
If the defense does not provide the average hourly rate, then this may be determined by adding all the hourly rates in the sampling and dividing that number by the total number of employees. The average overtime premium rate is 1.5 times the average hourly rate.
Meal and Rest Period Premiums
(Total workweeks over the four-year period x average hourly rate x average number of meal/rest break violations per workweek)
When figuring out the average number of violations per workweek, it should be noted that an employee may only get one meal and one rest period penalty per shift, with a maximum of two premium payments for each workday.
Wage Statement Violations
($50 x total number of employees during the one-year period) + ($100 x [total number of pay periods in the one-year period – total number of employees in the one-year period])
With this formula, it is assumed that there is a wage statement violation each pay period in the one-year period. It should be noted that the total damages cannot go over $4,000. This means that if the average number of pay periods per employee is more than 40, the calculation may be completed by multiplying the total number of employees during the one-year period by $4,000.
Waiting Time Penalties
(Total number of employees who were terminated or quit during the three-year period) x (30 x average hourly rate x average number of hours worked per work day)
Putative class members are entitled to the complete 30 days even if they would have only worked on some of those days.
Failure to Reimburse Business Expenses
(Total number of employees during the four-year statutory period x average amount each class member spent on necessary business expenditures)
According to the Labor Code, for actions related to the nonpayment of wages, the court will award interest on all unpaid and due wages at a rate of 10% per annum. This rule includes causes for unpaid minimum and overtime wages, as well as any unpaid premiums for meal and rest break violations. Therefore, interest rates should be included within the damages assessment.
- Calculating PAGA Penalties
PAGA penalties are evaluated per pay period for every violation of any code section listed in Labor Code section 2699.5. Essentially, for each employee in the PAGA period, one penalty is given against the employer for each violation that happens within a pay period. This, each violation should get its own PAGA penalty calculation.
The PAGA applies an automatic penalty of $100 for initial violations and $200 for following violations unless the relevant Labor Code section calls for a different civil penalty. Some of the common violations subject to the automatic PAGA penalty include failure to pay all wages owed during employment, failure to provide meal and rest breaks premiums, and failure to provide rest breaks. These violations have an initial PAGA penalty of $50 and a subsequent penalty of $100. For failure to pay minimum wages during employment, there is an initial penalty of $100 and a subsequent penalty of $250. Wage statement violations are $250 for the initial violation and $1000 for every following violation.
The formula used to calculate PAGA penalties is the same, no matter the violation:
(Initial violation penalty x total number of employees in the one-year period) + (subsequent violation penalty x [total number of pay periods in the one-year period – total number of employees in the one-year period])
The formula makes the assumption that the violation happened at least once per pay period. If the employer’s violation rate is less than once per pay period, then the formula should be adjusted to reflect the estimated rate of violation. For instance, if the violation occurred once every other pay period, then the total penalty amount should be decreased by one-half.
- Special Considerations Related to PAGA Penalties
The PAGA offers two tiers of civil penalties: an amount for the initial violation and an amount for any subsequent violation. The California Court of Appeal ruled in Amaral v. Cintas Corp. that a subsequent violation does not occur until the employer has come to realize that their conduct is a violation of the Labor Code. It is common for defendants to interpret this decision as the court ruling that subsequent violations do not happen until a court or the Labor Commissioner notifies the employer of the violation. When this argument comes up, plaintiffs may bring attention to the PAGA notice, prior lawsuits, prior employee complaints, the employer’s retention of third-party human resource agencies, internal or third-party payroll audits, or other proof that demonstrates the employer acted with intention and knew of the Labor Code violations in his or her workplace.
A court cannot nullify the amount of penalties judged against an employer, but they do have the ability to award a lesser amount at their discretion if they think the amount is oppressive or arbitrary.
There remains some uncertainty regarding multiple violations, in terms of whether the penalties can be stacked each period or if only one penalty can be awarded for each period regardless of how many violations occurred. Luckily, there are a number of federal cases that back up the idea of stacking PAGA penalties.
At present, there is a split in the courts regarding whether aggrieved employees can recover unpaid wages as a civil penalty under PAGA.
Paying meal period premiums under Labor Code 226.7 does not mean that the failure to provide the meal period is excused. This means that if an employer issues premiums for meal-period violations, there may still be PAGA penalties for the violation of Labor Code section 512.
The Industrial Welfare Commission (IWC) is a commission of five members that is appointed by the governor and approved by the senate. It is responsible for setting the wages, working conditions, and hours of work for California employees. This commission issues orders that regulate the wages, working conditions, and hours in certain jobs or industries. While the IWC is not currently operating, the Division of Labor Standards Enforcement (DLSE) enforces the provisions of the wage orders.
The PAGA does not establish a private right of action to enforce a wage order. However, PAGA actions may indirectly enforce particular wage order provisions by enforcing statutes that mandate compliance with wage orders. For instance, PAGA plaintiffs may seek penalties according to Labor Code section 1198 for violations of IWC Wage Orders, which regulate labor conditions. Attorneys should look at the applicable wage orders to see whether additional penalties can be issued against the employer for violations that go beyond the ones listed in Labor Code 2699.5.
How to Calculate Damages in Wage-and-Hour Class Actions
Let us imagine the following scenario: a client hires Nakase Law Firm employment attorney to represent him after his employer does not let him take lunch breaks. The defense expresses their desire to resolve the wage-and-hour claim via mediation. For the lawyer and his client, the focus of the case thereby changes from pre-certification discovery to collecting information, documents, and data to present damages and claims to the mediator.
The question becomes what information is needed, how to attain it, and importantly, how does the lawyer calculate the damages on behalf of his client, as well as any other individuals who have been similarly aggrieved. This article will cover the issue of calculating damages, as well as going over various approaches to creating a damages model that can make mediation more efficient and successful.
What Is Needed to Calculate PAGA Penalties?
To evaluate damages or penalties in a class or representative action, one needs to collect data related to class size, workweeks, and pay periods during the relevant damages period. The damages period is controlled by the statute of limitations for the causes of action stated in the client’s complaint. For a regular wage-and-hour lawsuit, the damages period is three years before the filing of the lawsuit to the present period. That said, under California’s Unfair Competition Law (UCL), the class action recovery period may be extended to four years for claims that are looking for restitution. This includes claims for unpaid overtime, unpaid wages, meal and rest break premiums, and reimbursement of necessary business expenses. The penalty period for lawsuits brought under the Private Attorneys General Act of 2004 (PAGA) is one year before the filing date, in addition to 65 days for the PAGA notice period.
For the average Class, PAGA, and UCL lawsuit, an individual should be aware of the following prior to mediation:
- The total number of employees during the four-year period
- The total number of workweeks during the four-year period
- The total number of employees who were terminated or quit during the three-year period
- The total number of employees during the one-year period
- The total number of pay period during the one-year period
This data is accessible to most employers. In any class or representative action that goes to mediation, the defense should provide the requested information without any qualms.
Further information that will assist in one’s analysis includes the following:
- The average hourly rate for non-exempt employees
- The average hours worked by non-exempt employees each shift
- The total number of shifts greater than five, but fewer than 10 hours
- The total number of shifts greater than 10 hours
- The percentage of shifts that are eight hours or longer
The defense may be hesitant to offer this data because it is not something that is normally tracked during the course of business. This means that an individual may need to make an educated guess or get the help of an expert.
When performing a damages analysis, time and wage records are essential. These records include evidence of unpaid wages, unpaid premiums, rest and meal break violations, and unlawful timekeeping practices (like rounding or auto-deductions). Time and wage records normally are made up of handwritten or digital timesheets, paystubs, wage statements, and pay summaries.
When an individual requests time and wage records, he or she should be sure to ask for them in electronic format (preferably Excel), so that he or she may look through them more efficiently. If he or she knows how to do he, they may use macros or formulas to identify data points and search parameters within the records. This will save an individual a lot of time in analyzing significant volumes of records.
If an individual is given access to anything other than actual paystubs, such as yearly or monthly pay summaries, he or she should request that the defense provide exemplars for every kind of wage statements that was issued during the penalty period. This way, the individual may figure out what was missing from the actual wage statements, violating Labor Code section 226, subdivision (a).
If the defendant brings up any concerns about privacy regarding the time and wage records, an individual may offer a protective order or suggest substituting any identifying information (names, SSNs) with generic employee numbers. If an individual offers the second method, the defense is then required to use a consistent method that allows the individual to identify and match the time records for any particular employee to the correlating wage statements for that same employee.
When an individual is managing a large class size, the best way forward is to select a statistically significant random sampling of time and wage records. This sample is required to be representative and the results must be reliable to ensure fairness. Further, the sample needs to be chosen randomly for the results to be representative of the entire class. To achieve a truly random and statistically significant sample, there are plenty of free resources online, including calculators that decide margins of error, deviations, and other statistical elements. One of the accepted methods of randomizing is listing the employees alphabetically and choosing every ‘nth’ employee to come up with the necessary sample size.
Nevertheless, it will take a lot of time and effort to go through the records. Most attorneys do not have the resources to perform independent analysis of significant time and wage records. In this case, it may be useful to agree to a smaller sample size for practicality. If an attorney agrees to a smaller sample of records, then he or she may wish to think about stipulating that neither side will argue about the representative nature of the sample used at mediation.
It may be necessary to request further documentation for each employee chosen for the sample, depending on the Labor Code violations that are alleged and the specific facts of the case. These documents may concern final payment of wages, meal period wavers, business expense reimbursements, and on-duty meal period agreements.
- Written Wage-and-Hour Policies
Wage-and-hour policies that are poorly written or unlawful can strengthen one’s damages calculations. This means that an individual should ask for production of all employee handbooks and standalone policies related to timekeeping, payroll, meal and rest breaks, overtime compensation, and expense reimbursements – whatever was in practice during the relevant damages period. There should not be much trouble in getting the defense to release these policies.
The above-mentioned class-wide information, sampling of time and wage records, and written policies and procedures should give attorneys and mediators the structure they need to evaluate damages before coming to a settlement on behalf of the class representative and those aggrieved. If a case requires more investigation, then it may be wise to produce one’s client for deposition or taking the deposition of the defendant’s person who knows most about wage-and-hour policies and procedures. An attorney may also ask for a Belaire-West administration, which allows the attorney to access putative class members who might offer supporting declarations before the case goes to mediation.
How Does an Attorney Get Access to Needed Documentation?
Once the mediation discussion begins, an attorney will need to send a letter to the defense with a list of the documents, data, and materials that are needed. Enough time should be allowed to form an agreement related to the scope of the exchange and production deadlines. This way, an attorney is not left looking through thousands of pages of records at the last minute.
Most of what an attorney will need may be acquired via formal discovery. However, an informal exchange may be the quickest and simplest method for collecting all the documents and materials that are needed for a productive mediation. Formal discovery is still useful, of course, but an informal exchange is attractive to the defense; they may provide evidence that they otherwise would not. Also, there is not a time-consuming meet and confer process, a discovery motion practice, and the delays that are involved in these.
Defendants typically ask that discovery be delayed until mediation takes place. If an attorney agrees to a stay discovery, he or she should inform the mediator so that any gaps in the record go in one’s favor. It should be remembered that whatever the defendant agrees to produce informally, he or she will continue to use his or her complete access to witnesses, employees, and relevant records. If an attorney is facing a problematic defendant or unhelpful defense counsel, then it may be wise to choose a Belaire-West administration, begin speaking with putative class members, gather their declarations, and notice some depositions prior to appearing at mediation.
When an attorney negotiates the scope of the pre-mediation exchange, he or she should remember that a plaintiff’s right to statewide discovery is very broad in wage-and-hour class and PAGA lawsuits. If the defense is not being forthcoming or easy to work with, then it may be well to remind them that class action and PAGA settlements must get court approval. If there is no reasonable exchange, then a settlement might not get approved by a judge.