PAGA penalties drastically slashed by CA court

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Good faith compliance by employers can go a long way these days.  We have been keeping our readers apprised of the Private Attorney’s General Act (PAGA) legislative reform process, which culminated with California Governor Gavin Newsom’s signing of legislation that led to a successful compromise between business and labor groups to strengthen worker protections, encourage employer compliance, and streamline litigation processes.

Specifically in the area of PAGA penalties, PAGA reform has highlighted the trend seen in California courts allowing for employers to reduce potential fines through proactive compliance and correction of Labor Code violations. Employers who take “all reasonable steps” to comply before receiving a PAGA notice or employee records request are noticeably being rewarded for such positive conduct.

Take the recent Court of Appeal case of Taduran v. Glidewell, which nicely illustrates how good faith compliance can yield reduced penalties for employer errors. The Court of Appeal upheld the trial court’s decision to reduce PAGA penalties against the employer by 99% by weighing such circumstances as the nature of the violations, the limited harm to employees and the employer’s good faith corrective actions.

Background on PAGA:

The California Labor and Workforce Development Agency administers PAGA, codified at Labor Code sections 2698, et seq. PAGA was enacted in 2004 to augment the state’s limited staffing and resources to increase enforcement for violations of employment and workplace requirements. The law achieves this goal by allowing employees to file lawsuits against their current or former employers for Labor Code violations on behalf of the state to recover civil penalties that otherwise would be recoverable only by the state.

Taduran v. Glidewell:

The Claim: Plaintiff Abraham Taduran sued his employer over wage statements, rest-period rounding, and unpaid overtime, calculating a maximum theoretical PAGA penalty of roughly $55.9 million.

Penalty Reduction: The trial court slashed the penalty down to $516,965 (less than 1% of the demanded amount) because the actual wage losses were minimal and technical. Taduran argued reductions must follow a per-pay-period formula, but the Fourth District Court of Appeal held that trial courts may use any reasonable method (per employee, per pay period, or flat percentage) to avoid unjust or oppressive awards under Labor Code section 2699.

Attorney Fees: Taduran requested over $1.57 million using a 1.5 enhancement multiplier on a $1.05 million lodestar. The trial court instead applied a 0.70 negative multiplier—awarding $733,440—due to inflated billing rates and the straightforward nature of the claims. The appellate court affirmed this reduction.

Good-faith Compliance:

Courts evaluate good-faith compliance in PAGA claims by looking at the totality of the circumstances regarding an employer’s conduct. Following the 2024 PAGA legislative reforms and major judicial rulings, an employer’s documented history of trying to follow the law is no longer just a loose argument for fairness—it is woven directly into the statutory defense framework.

Courts weigh specific criteria and use defined legal frameworks to assess an employer’s good faith:

1. The Statutory "Reasonable Steps" Threshold

Under the reformed statute, an employer can legally cap their civil penalty exposure to 15% or 30% of the maximum amount by proving they took "all reasonable steps" to comply with the California Labor Code. Judges look for specific evidence of proactive compliance:

·         Periodic Payroll Audits: Regularly scheduled reviews of pay stubs and time cards to spot anomalies.

·         Lawful Written Policies: Disseminating up-to-date employee handbooks detailing compliant meal/rest breaks, overtime protocols, and expense rules.

·         Supervisor Training: Documented proof that management was routinely educated on labor code mandates.

·         Swift Corrective Action: Demonstrable evidence that when a payroll or tracking error was brought to light, management fixed it and disciplined or coached offending supervisors.

2. Timing of the Compliance (The 15% vs. 30% Caps)

Good faith is heavily judged by when the employer acted. Courts look for two different windows of time:

• Proactive Good Faith (15% Penalty Cap): The employer took the "reasonable steps" before receiving a PAGA notice or a formal request for payroll/personnel records.
• Reactive Good Faith (30% Penalty Cap): If the employer was non-compliant initially but immediately investigated and implemented corrections within 60 days of receiving the PAGA notice, they are capped at 30% of the penalty.

3. Objectively Reasonable Beliefs (The Naranjo Standard)

The California Supreme Court established in Naranjo v. Spectrum Security Services, Inc. that if an employer holds an objectively reasonable, good-faith belief that they are complying with the law, certain derivative statutory penalties are precluded.

·         Courts look at whether the employer’s interpretation of the law was plausible at the time, even if a judge ultimately finds it was technically mistaken.

·         For instance, if an employer used a specific time-card rounding method backed by historical precedent (like the defendant in Taduran v. Glidewell), courts will see the practice as an engineered, good-faith business process rather than a willful attempt to cheat workers out of wages.

4. Intentionality and Harm

Judges exercise broad judicial discretion under Labor Code section 2699(e)(1) to lower penalties if the aggregate amount would be "unjust, arbitrary and oppressive". When weighing this, courts ask:

• Was the violation isolated, technical, or inadvertent?
• Did the employees suffer actual economic injury?
• Did the employer act with malice or try to conceal the violation?

If the employer can show clear tracking records and a history of active compliance, the court will lean toward treating any remaining violations as simple administrative errors, triggering steep penalty cuts.

Employers, now is a good time to review your human resources practices to ensure compliance and meticulous logging of records.  If you have any questions about how this might affect your workplace practices, do not hesitate to contact Rosasco Law Group for all of your labor and employment needs.