PAGA Reform Changed the Defense Equation for California Retailers

For decades, California’s Private Attorneys’ General Act (PAGA) proved to be one of the largest litigation threats to retailers operating in the state, creating massive penalty exposure for what had been routine storewide retail pay practices. Thanks to legislative reforms in 2024, PAGA now offers employers various opportunities to reduce or eliminate that risk. But are retailers taking full advantage of these new mitigation pathways?

Quick Background

• PAGA and the LWDA. PAGA allows California employees to sue their current or former private employer to recover civil penalties for alleged violations of the state’s Labor Code. PAGA actions are monitored by California’s Labor Workforce Development Agency (LWDA) and subject to certain administrative requirements.
• 2024 PAGA Reforms. Governor Gavin Newsom signed legislation in July 2024 that made significant changes to PAGA as part of an effort to prevent a contentious PAGA-related proposition from appearing on the ballot later that year. The reforms offered much-needed relief to employers, such as restructured penalties and various measures aimed at reducing litigation, but also created some new challenges.
• 2026 Proposed Regulations. The LWDA issued a proposed rule in February 2026 that aims to bring long-awaited clarity to the administrative requirements and procedures under PAGA, especially in light of the 2024 reforms. The LWDA issued a notice on Aug. 3 about new modifications to the proposed PAGA rule. 

Toolkit: Complying with California Wage and Hour Laws

Why Retailers Were Hit So Hard by PAGA Before the Reforms

Three aspects of pre-reform PAGA, and the unique nature of retail operations, are combined to create complex litigation issues for retailers.

• First, a plaintiff could sue over violations they never personally suffered, creating the potential for a large penalty over a routine storewide retail practice.
• Second, penalties multiplied across every employee and every pay period, broadening the risk from one store to the entire state chain.
• Finally, one underlying wage error could produce several (or stacked) “derivative” penalties at the same time. Penalties were historically split 75% to the LWDA and 25% to aggrieved employees, and plaintiffs’ counsel could also recover fees.

Retailers were also particularly vulnerable given the unique nature of their operations. Ordinary store operations repeatedly faced scrutiny under California’s stringent rules on accurate time entries, meal and rest breaks, seating requirements, off-the-clock work, and payroll requirements. Retailers have notoriously high turnover rates (and therefore many former employees) and large workforces paid on a biweekly basis, all working under a uniform payroll policy that creates the potential for enormous penalties. Finally, even though corporate may have well-written policies drafted for all stores to follow, front-line decisions regarding coverage, break timing, and whether employees stay late are often made by local managers trying to adjust to localized store and client needs.

All of this made retailers natural targets, particularly given the breadth of wage and hour compliance requirements applicable to their operations.

As a consequence, prior to reform, retailers had little incentive or opportunity to fix problems early. PAGA’s prior cure mechanism covered only two Labor Section 226 wage statement defects: missing pay-period dates and an incorrect employer name or address.

Specialty Credential: California Law HR

2024 PAGA Reforms: What Changed?

While the reforms did not alter the underlying wage and hour rules applicable to retailers in California, they did make exposure more proportionate and provide an opportunity for retailers to fix problems early and take a defensive posture before a claim arrives. Here’s a snapshot of some of the key changes made in 2024:

• Limit on Standing. PAGA now authorizes aggrieved employees to sue only on behalf of themselves and any other current or former employee who has experienced each of the alleged violations.
• No Derivative Penalties. Employees may no longer seek PAGA penalties for: derivative violations of Labor Code Sections 201, 202, and 203; derivative violations of Labor Code Section 204 that are neither willful or intentional; or violations of Labor Code Section 226 that is neither knowing or intentional nor a failure to provide a wage statement.
• How Penalties Are Divided. Recovered PAGA penalties are now split 65% to LWDA and 35% to the aggrieved employees.
• Ways to Significantly Reduce Penalties + Expanded Cure Opportunities. Thankfully, the 2024 PAGA Reforms changed the defensive posture for retailers, providing a roadmap for preventive compliance to dramatically mitigate risk and to embed its defenses early on its processes. 

HR Q&A: What are the waiting time penalties in California?

How Retailers Can Mitigate Risk in the Post-Reform Landscape

PAGA cases remain a threat to retailers. Our own internal review of LWDA court complaint data revealed that:

• 517 claims were filed before PAGA reform between May 1, 2022, and June 30, 2024.
• 1,043 claims were filed after PAGA reform between July 1, 2024, and Sept. 18, 2026.

While PAGA is not going away (at least for now), retailers can now take advantage of various opportunities to reduce penalties or avoid them altogether.

Opportunities for Significant Penalty Reductions

The amount of potential PAGA penalties available depends on the type of violation, but employers may now qualify for a significant penalty reduction if certain conditions are met. (Note: These penalty caps do not apply when civil penalties are increased to $200 for each aggrieved employee per pay period due to certain aggravated circumstances).

• 15% cap if employer takes “reasonable steps” prior to a dispute arising. If, prior to receiving a PAGA notice or a records request from the aggrieved employee (or their counsel), the employer takes “all reasonable steps” to comply with the Labor Code sections identified in the request/complaint, the civil penalty that may be recovered shall be no more than 15% of the penalty sought.
• 30% cap if employer takes “reasonable steps” after receiving a PAGA notice. If, within 60 days of receiving a PAGA notice, the employer takes all reasonable steps to comply with provisions identified in the notice, the penalty amount shall be no more than 30% of the penalty sought.

Practical Takeaways

Here are some examples of “reasonable steps” retailers can take to qualify for the penalty caps and prepare their defense before a dispute arises:

• Conducting periodic payroll audits and taking corrective action based on the results. Regular audits of payroll, timekeeping and wage statements can identify violations before they become PAGA claims. Consider working with counsel before finalizing internal audits. (With regard to the 30% penalty cap, reasonable steps include conducting an audit of the alleged violations and taking action based on the results).
• Disseminating lawful written policies regarding the relevant Labor Code provisions to employees. Update them as necessary (especially because minimum wage laws fluctuate frequently in California on a local level) and distribute in English and other languages spoken by a significant portion of the workforce. 
• Training supervisors on compliance with Labor Code requirements and applicable wage orders. Supervisors approve timecards, manage breaks and answer pay questions, so provide regular training compliance. Retain attendance, content and acknowledgment records to support a reasonable step defense before the LWDA.
• Taking appropriate corrective action regarding supervisors who fail to comply.

No Penalties for Fully Cured Violations 

In addition to the possibility of reduced penalties as described above, PAGA now gives employers expanded opportunities to “cure” violations to avoid litigation and potential penalties altogether. The options to cure violations include:

• Small Employers. An employer that had fewer than 100 employees in total during the period covered by the PAGA notice may, within 33 days of receiving the notice, submit a confidential proposal to the LWDA to cure one or more of the alleged violations.
• Large Employers. An employer that had 100 or more employees in total during the period covered by the PAGA notice may request an early evaluation conference in court once the PAGA lawsuit is filed. In that request, the employer must state whether it intends to cure any or all the alleged violations. If it does, the court will subsequently issue a court order that, among other things, directs the employer to submit, within 21 days, a proposed plan to cure those violations. The employer must then follower a multi-step, court-administered cure process.
• All Employers (Wage Statement Violations Only). An employer of any size may cure certain wage statement violations (if this is the only type of violation it seeks to cure) by completing the cure actions and notifying the LWDA and the employee about the cured violation within 33 days of the PAGA notice’s postmark date.

Practical Takeaways

Retailers that wish to cure a violation must initiate the cure process in certain manner and within a certain timeframe. Then, the retailer must follow a multi-step process and timely complete the cure. Different violations require different types of cures, as summarized below.

• Wage statement violations involving failures to include the correct name and address of the employer on the wage statement can be cured if the employer gives “written notice of the correct information to all employees affected.”
• Wage statement violations involving any of the other itemization requirements can be cured if the employer provides “the corrected wage statements containing all required information to each affected employee for each pay period during which the violation occurred going back three years from the date of the PAGA notice.”
• Other types of cures generally require the employer to “correct the violation alleged by the employee, be in compliance with the underlying Labor Code sections identified in the PAGA notice and make each aggrieved employee whole.”
• If an employee is owed wages or business expenses, the cure is not complete until the employee has received:
  • All payments owed under the applicable Labor Code sections going back three years from the date of the PAGA notice.
  • 7% interest on all payments.
  • Any liquidated damages required by law.
  • Reasonable attorneys’ fees and costs as determined by the LWDA.

Laura D. Heckathorn is an attorney with Fisher Phillips in Boston. Frank F. Martinez is an attorney with Fisher Phillips in New York City. Hannah Sweiss is an attorney with Fisher Phillips in Woodland Hills, Calif. © 2026 Fisher Phillips. All rights reserved. Reposted with permission.