Episode 34: Measures Employers Should Incorporate to Mitigate Risks Under PAGA

Welcome to the Workplace, a podcast by Cal Chamber. I'm Erica Frank, Cal Chamber's Executive Vice President. And with me today back on the podcast for the second time is Mr. Mike Nader, who is a wage and hour class action expert with the Ogletree Deakins law firm in Sacramento. Welcome, Mike.

Thank you, Erica. Thanks for having me back.

Oh, absolutely. Our pleasure. So thank you. Mike. Last time that you were on the podcast, you talked about or we talked about meal and rest breaks and you had this fabulous poem that summarized the meal and rest break issue. Today we're talking about PAGA lawsuits, which I know is a particular area of expertise in your practice area. Do you have a poem for us on paga?

Absolutely. For the Chamber, anytime. When I think of paga, I, you know, I start getting creative and I'm glad to draft a poem.

Well, you know what, let's do something different this time. Let's start off our podcast with this poem so that all of our listeners know what we are going to be talking about today.

So the poem is called the PAGA Saga. Let's discuss that well known acronym that we lawyers call the paga. It's an act of legislation that itself is quite a saga. The full name is the Private Attorneys General act, also known as the sue your boss law. But as a matter of fact, it has become a litigation free for all. The PAGA had an interesting start, signed by Governor Davis just before he would depart. You see, it was after he learned of his recall that on his last day in power, he signed the PAGA law. And now we are stuck with the paga and it's making plaintiffs lawyers twice as rich as Lady Gaga and a burden on employers. From San Diego to Moraga, the PAGA is in labor code section 2698. And since 2004, it's been a scourge to the state because it rewards employees who litigate instead of cooperating with their employers to mitigate. Even the courts have not provided relief precluding PAGA claims from arbitration, bringing employers even more grief by trapping them into more POGA litigation and expanding PAGA discovery leading to more costly litigation drudgery. Know that PAGA isn't maga, for I shouldn't have to state again that the only thing it does is make the profits of plaintiffs lawyers. Great again, all this litigation abuse just might end up killing the golden goose. So what can employers do? Provide all meal and rest breaks and more time to chill out on hot days. And don't forget lactation breaks or face big penalties for Such mistakes implement a process of attestation to memorialize all breaks for meals, rest, heat recovery, and lactation. Then you can prevent class certification and limit the risk of PAGA litigation on your break. Policies provide employee training and for complaints, a way for them to report. Otherwise, allegations will follow from much feigning, and they will take you to court audit with your lawyer to be more secure. An ounce of prevention is worth a pound of cure. The most important thing you should know is that documenting your compliance is the key to protecting your dough. And along with compliance, employers need an alliance. Work with the Chamber to rein in the PAGA and help bring an end to this dreary saga.

Mike, thank you so much. That was absolutely fantastic. So let's start this off with what the heck is paga?

Sure. PAGA is the Private Attorneys General act, which we lawyers call the acronym of paga. It was originally nicknamed the sue your boss law. It was signed by Governor Davis back in October of 2003, five days after he learned that he had been recalled. He signed the new law on the very last day he was empowered to do so. The law provides, among other things, that any provision of the California Labor Code that authorizes the assessment and collection of civil penalties by the California Labor Commissioner may, as an alternative, be recovered through a private civil action.

Okay, so let me break this down, Mike. So in addition to whatever the violation might have been, let's say a missed meal or rest break. Okay. There's liability for that meal and rest break. Meal and rest break. And then on top of that, somebody can say, now I'm bringing a PAGA suit against you employer.

That's correct. So if they are within the one year statute of limitations for paga, they can seek the statutory penalties, which are the premiums, but they could also seek the PAGA penalties during the PAGA period.

Okay. And when you said, as far as the penalty goes, it's for each aggrieved employee, and we could talk about that in a second. Per pay period, per day, per pay period.

So if they have one violation, for example, if an employee is paid on a weekly basis.

Yes.

And they have one violation during that entire week, then that will enable the employee to receive a Paga penalty of $100 for that payroll period.

So I can see how this adds up quickly, because when we talk about aggrieved employee, do we mean one employee might say, hey, I didn't get my meal on rest break, and talk to all the other employees in the organization, and they can all rally together and bring One, and then the employer needs to pay those penalties for each employee that's now joined the party, so to speak.

That's correct. It's considered a representative action. So they claim to represent other aggrieved employees, all other employees who were kind of in the similar situation and have the same allegation. But consider how that really adds up, even though it's a one year statute of limitations. You know, if you have 200 employees in the Paga period and you pay them weekly, so 52 pay periods per year, just using the initial violation of $100 per employee per pay period, you already have over $1 million in potential penalties. And if you include the subsequent violations, that would double to around $2 million of exposure.

Mike, when we first started off talking about this topic today, you mentioned the historical basis of the PAGA Act. It used to be that called the sue your boss bill. It's been around for quite some time now. Have you seen a steady increase in the number of PAGA claims that are brought against employers?

Absolutely. More pocket claims. As you may recall, in April of this year, the United States Supreme Court issued the LAMPS plus decision. And in Lamps plus, the court said that unless an arbitration clause specifically contains an agreement by the parties to arbitrate class actions, the class claims go away and only individual claims could be arbitrated. Now, since the law is that the PAGA claims are not arbitrable, they cannot be compelled into arbitration. A lot more plaintiff's lawyers are filing POGA claims to protect themselves from being compelled to individual arbitration with their class claims.

So I can see that decision probably and will create a flurry of additional representative actions on paga. When we had you last time we talked about meal and rest breaks, do you still see a number of PAGA actions on meal and rest break claims?

I do, and it's almost every case. What they're claiming are the standard ones, that people did not receive their meal and rest breaks, that they were short, missed or late. But they're also adding new allegations now. For example, they're claiming that the meal period or rest break premiums should have been paid at the regular rate of pay rather than the base rate of pay.

So let's talk about that for a second, because I know there was a recent case that came down talking about that very issue, because if I recall, and correct me if I'm wrong, I. Under the statute, it says regular rate of compensation, not regular rate of pay. When you're looking, I know that. Same, same, but different. In the legal world, the Specific words do make a difference when we're talking about statutory interpretation. I know that there has been a lot of discussion over, well, what did the statute, what does that mean? Is it regular rate of compensation, meaning their base rate, or do you have to do that regular rate of pay calculation?

And that's really the split amongst the courts. Several federal courts have said that regular rate of compensation equals regular rate of pay for overtime purposes, meaning that you had to include all non discretionary compensation and calculate that one hour of pay according to the regular rate of pay, like in overtime. But several other courts, and especially the two most recent decisions on this issue, have said that no regular rate of compensation means the base rate of pay and that the legislature knew exactly what it was doing when it allowed those different wordings in each different statute. For example, Labor Code 226.7 that deals with the premium payments says regular rate of compensation. Labor code 510, which deals with overtime, states regular rate of pay.

There we go. Difference of regular rate of pay versus compensation. Pay versus compensation. I know that this is one of those tricky areas and one where, according to what you've just told us today, it is a hot button topic for POGA claims. What are employers supposed to do right now? I mean, meal and rest breaks is one of those things that's easy to talk about because it's an issue that all employers or most employers have to deal with because usually most employers do have at least one hourly employee on the payroll, if not more. They're easy targets, and employers may not know that there's these requirements. Now we have this whole pay versus compensation issue as far as paying that premium payment. What are some things that employers can do to try and mitigate being sued and having to call someone like you to help them?

Well, there's a lot they can do. Employers should develop a proactive approach to litigation management. They want to avoid the if only situations. As you know, I hear from a lot of my clients, they received the complaint, it's already been served, and now they're stating the following well, if only we could prove that the employees took rest breaks without the expense of interviewing everyone and asking for their declarations. Or if only we could prove that the plaintiff received and understood our meal and rest break policy. Or another example, if only we had a current employee who could testify that he or she witnessed the plaintiff going on her meal and rest breaks on a regular basis. So some executives, when they acknowledge the high stakes involved with class and PAGA actions in California, believe that the Only reasonable option is to engage in very expensive compliance initiatives intended to ensure absolute perfect compliance at all times. But the employment laws always involve a human element and human error, even despite the best efforts of the employer.

So I think that that's important for folks to really focus on is there's that human element in error among humans. It's just natural for us to be making mistakes. And I think that if only is something we do by human nature as well. It's that hindsight's always 20 20, and we learn from our mistakes. Unfortunately, here we're talking about mistakes that can be extremely costly. And I'm sure you've seen put some businesses out of business when we talk about kind of the if only. What are some examples of that human element or human error?

A couple of examples. For example, consider the retail employee who, despite knowing the policy encouraging rest breaks, skips her rest breaks because she doesn't want to risk losing a commission sale. Or consider a warehouse employee who, despite knowing the policy requiring meal breaks, still decides to clock in early so that he can increase his productivity levels and eligibility for a performance bonus. Now, technically, we can argue that we complied with the law by giving them the full and fair opportunity to take meal and rest breaks. But the fact is the time records will indicate, at least for the meal period example, that the break was not compliant. And then we have an issue of an employee who later, for example, may claim that they were not truly afforded an opportunity to take a compliant break.

You know, one of the things that I'm sure is frustrating for some of our listeners, particularly those who are employers, and just say, well, that's all great.

How do we try to mitigate that human element or human error that exists by nature of who we are? Are there any solutions that you can offer?

Sure. A proactive approach to implementing common sense compliance solutions can significantly reduce class and PAGA action liability. I can think of four examples. For example, attestation procedures, more training, providing reporting protocols, and auditing.

So when we talk about attestation, that's a real legal word. What exactly do we mean?

It's just a process where employees memorialize their understanding or conduct in a particular situation. So, for example, in the context of meal and rest breaks, the employees document their understanding of the policy and the fact that they had the opportunity to take meal and rest breaks on any particular shift or during any particular pay period, and that they actually took them. The frequency of attestation could vary. Employers could develop attestation procedures for every work shift or every payroll period. Or every month or even every quarter.

Okay. So it's really kind of that evidence that the employer can hold onto to demonstrate that we have a meal and rest break policy and protocol in place. The employee is acknowledging that, and there's some kind of documentation that the employer can hand to counsel if they're in that situation to say, no, no, no, no, we were following what the law is telling us to do.

That's right. And the attestation could contain several factors. For example, that the employer received the training about how and when to take the meal and rest breaks, that the employee read and understands the company's policy, that the employee actually took all of his or her breaks, that the employee understands that the company is relying on the accuracy and honesty of the employee's attestation, for example, in determining whether premium payments are due, that the employee is aware of the company's process for reporting meal and rest break violations, and that the employee made no reports.

So you talked about two different things right there when you were giving a sample of what types of factors. The acknowledgement or attestation is the term that you use. Training and reporting protocols. So talk a little bit to me about training. Is training one of your recommendations or solutions for.

It is. And in the right context, training should be customized for specific issues, rather than sort of a broad orientation training that covers all policies of the company, maybe over the first couple days of orientation. That's good in and of itself, but I would recommend, at least for the high level of risk on meal and rest breaks and other wage and hour issues with PAGA and class actions, that companies actually institute training for these specific issues. So, for example, the training could include, in the context of meal and rest breaks, regular reminders of the details of the policy, maybe quarterly or biannually include reminders on how to report any concerns and provide a flexible reporting process. Also remind employees that they are encouraged to report any concerns about meal and rest breaks without the threat of retaliation. Ensure that employees acknowledge receipt of the training and keep records of the acknowledgement, and separately provide training for managers and supervisors on the policy encouraging breaks and prohibiting any retaliation against employees for making any complaints.

Okay, so we have the attestation training reporting protocols. Are we talking here about keeping good time records? Are we talking about the employee? Hey, supervisor, I wasn't able to take my meal break. Or I just realized that I clocked out a little too late. I'm past that 4 hours and 59 minutes. What are we talking about with reporting protocols?

Well, it could include all the above, for example, you want to establish a complaint procedure for wage and hour issues, including meal and rest break concerns, so that employees feel free and are clearly understanding how they can make a complaint of any concerns. You want to encourage employees to share their concerns, require them to disclose violations of company policy, assure them that they will not be retaliated against for raising good faith complaints, provide multiple avenues for raising complaints. Don't just restrict their complaints to their direct supervisor. Allow them to go to HR and allow them other avenues as well, and provide a mechanism, perhaps for anonymous reporting as well, so that the company demonstrates that it really encourages any sort of concerns to be raised so that they can provide an effective response. And in addition to providing that avenue to complain, the company certainly wants to establish an effective response system to the complaints, which should include a designated gatekeeper who was properly trained to provide proper and consistent responses to all complaints, an investigation process that takes every complaint seriously, and a process for retaining all records of complaints and investigations.

And, you know, some of this is just real good HR101 as well. Right? As far as keeping good documentation, keeping good records and whatnot. And we can see that that goes a long way with when we have good records. And I'm sure you see that a lot. Well, you may not see it a lot when you're in litigation, but when you do see it, you're happy to see that you've got those records that you need.

Absolutely nothing better than sitting at a deposition, taking the plaintiff's deposition, and having those records available and asking them about that, and also demonstrating that the company has that policy, a living, breathing policy that's effective, that is responsive and properly investigates all complaints.

Okay, I think these are all extremely good tips. One last thing that I want to bring up is to avoid that, if only, or to avoid that we had no idea this was happening. We had no idea that everyone in department 52 is working through their meal break or their lunch break or they weren't clocking out. Is there some kind of auditing or some kind of back checking that employers could do to avoid such a huge lawsuit or such a huge hit if they were to get hit by a lawsuit?

Certainly, I would recommend that employers can develop an internal auditing process that regularly audits the proactive activities that they implemented. So, for example, they can certainly review the complaints they received about meal and rest break violations. They can determine hot spots of potential liability, how to address them. You know, it could be a technical issue, maybe with the timekeeping system, or it could even be, you know an issue with an individual supervisor's management style. Second, a review of the time records of meal breaks. You want to look for short, missed and late meal periods in the records and consider what the issue was, investigate it and provide a remedy. Third, you want to review the premium payments provided and all companies should have a premium payment process. Otherwise, in a sense you're representing that you have an absolutely perfect process and no one has a late or missed or short meal period or rest break. So you want to provide a premium payment system for both meal and rest breaks that are not properly provided. And with that system then you can track the premium payments and learn from that, learn from your mistakes about again potential hotspots of liability and then finally review anonymous hotline complaints to determine if there have been similar complaints in specific areas of the company. But also consider issues of privilege and work with your employment lawyer before initiating an audit.

Thank you Mike. You've just provided our listeners with four great tips on how to stay compliant and how to mitigate potential PAGA lawsuits in the area of meal and rest breaks. So thank you very much for coming today.

Thank you very much for the opportunity, Erica.

And thank you to all of you for joining us on the Workplace. Please comment, share and subscribe to Cal chambers podcast@calchamber.com.