2024 PAGA Revamp: The Era of Proactive Compliance

[Chantelle Egan] (0:04 - 6:54)
Hello and welcome everyone to talk about new PAGA today. Welcome, my name is Chantelle Egan. I'm a partner at Medina McKelvey and I am here today with my partners Alex Medina, one of our founders, as well as Tim Nelson who leads our wage and hour practice group. Just a couple of days ago, there was new legislation that passed just on Thursday which completely turns on its head PAGA, which has been a long-standing law focused primarily on wage and hour issues here in California. And with these big changes, we've been having really exciting conversations internally. And we had this idea, you know what, let's just bring everybody into this conversation. We've been talking about the compliance element, the ability to combat PAGA liability through making remediative change for years. And frankly, this new law really excites us because it codifies what we've been doing as a strategy for frankly years. So I wanted to welcome you all to the conversation today. I just want to just level set for you all about what it is that we're hoping to cover. And I say the most important thing that I ask of you is make sure that if you have questions and we're not talking about it, throw them up in the Q&A. There's no such thing as a bad question. Go ahead and put those up in there. And our hope is that after we get through our content, we'll be able to tackle your questions. And additionally though, I'll be monitoring it throughout the webinar. So if there's something that is applicable to the conversation at hand, I'll just grab it from the Q&A at the time. So please, please don't be shy about using that. Just at a high level, I want to talk through about what it is that we're hoping to cover today. First of all, we're just going to level set. We're going to talk about what is PAGA and how does this new legislation impact how PAGA is going to be enforced. We also want to talk through why there's been this interest in change. This has been a long time coming. There was a lot of negotiations to get us to this point. So I think it's really important for us to kind of understand the history about why we got to this moment in time and had this bill orchestrated to see some change with PAGA. We're also just going to get practical, talking through what are actually some of the changes that you're going to see with new PAGA. And in particular, we're going to be going through the penalty structure so that you understand how liability now has changed under this new structure. But I'll just, you know, spoiler alert, it's going to be the employer's responsibility to take advantage of those new penalty caps. And we'll show you, of course, how to make that happen. And then, of course, we're just going to walk through how best to limit your liability. And with that, I just want to make sure that we talk through, you know, getting ourselves like, all right, that's the base level. And Alex, I think this is a good question for you to start. Can you just help us understand what PAGA or, as I now like to call it, old PAGA was like prior to these reform laws? Yeah, sure. And first of all, I was really excited to see how many people are here. So thank you for those of you who signed up for this kind of on short notice. And as I looked at the list, we've got a really interesting and broad spectrum of folks. We've got folks here with small businesses, medium-sized businesses, extra-medium, large, extra-large. We've got general counsel, we've got some outside counsel, we've got some HR folks, owners, and whatnot. So what we're going to try to do today is give something to everyone. Some of this might be a little bit elementary, but essentially what I'll talk about in terms of what old PAGA was will set the stage for new PAGA and kind of where we go from here. So I've been saying for years that PAGA is a four-letter word. And old PAGA, if I could just kind of boil it down, old PAGA is an R-rated four-letter word. And what we're going to talk about now is kind of new PAGA would say maybe PG-13 four-letter word, how we can get you to that G, kind of that G rating. Old PAGA is a statute that has been in place for 20 years, and it's got a lot of momentum. It's been going and it's actually spawned its own industry. It's a multi-billion dollar industry in this state. And as quick as I can say it, it allows one employee with the help of a lawyer to file a lawsuit on behalf of all non-exempt hourly employees in the state of California for one violation of the labor code. It could be something like failure to provide potable drinking water, a 29-minute lunch break instead of a 30-minute lunch break, a nine-minute rest break, anything. And that employee didn't even need to experience the harm, and they could sue on behalf of everybody else for one year and 65-day period with a very, very punishing penalty structure that stacks on top of other penalties. So you could have one violation that gets you for, let's say, unpaid overtime, and then your wage statement's wrong. And then if they become a former employee, you've got to pay penalties on top of that. So very quickly, it was easy, I should say, for a company with even as a low amount of 50 employees to have something like seven figures in exposure. And it was really just an audit. It's a math issue. It's almost like a tax. You got sued. We look at the records. What's your violation rate? This is what you pay in terms of penalties. And then before we kind of talk about how that's changed, which is very important, and why it's changed, I would be remiss if I didn't tell everybody on this meeting if the difference between a PAGA action and a class action. And I'll just spend a little time on that. So a class action is similar to PAGA, except that it's one employee violation of the labor code, but it goes back four years for all non-exempt employees in California. A little bit of a different penalty structure. There's some different procedural elements to it. And there's some different things that you can do proactively, which you should be doing proactively, including an arbitration agreement with a class action waiver if you don't already have one. To be 100% clear, what new PAGA does versus old PAGA doesn't touch class actions. That's a separate conversation. If you don't already have arbitration agreements, if you don't already have something in place to help prevent class actions, that's something that you should talk to your in-house counsel, outside counsel, or us. And Tim, why don't you talk a little bit about why there was this interest in reform? I mean, obviously, Alex teed up for us that it's a bit of a doom and gloom structure that PAGA had in terms of putting the crunch on employers. But why was there actually this interest in making the change, and who was at the table?

[Tim Nelson] (6:54 - 9:06)
Yeah. I mean, from our perspective, representing businesses and employers in California, there's always been an interest in reform for the last 20 years. One of the frustrating things, being a defense lawyer and taking these cases through litigation or mediation, is we'd have to constantly tell our clients, like Alex said, this is a tax. It's strict liability. There's not a whole lot you can do under the penalty structure. So there was an interest, obviously, on the business side because, as Alex also said, even small businesses, you could pencil out penalties in the seven figures. And the statute allowed for judges have discretion to reduce penalties. But what I always told clients was, that's great, and we're going to argue that at mediation or throughout litigation, but you have to go through trial and have a judgment before the judge can do that. And that doesn't serve anyone. So businesses had a huge incentive to reform PAGA. The question is, why would the plaintiff's lawyers and labor groups be interested in reform? And the reason for that is, as many of you probably know, there was a ballot initiative that was scheduled to be on the ballot in November of this year, and it would have made even more drastic changes to PAGA. And so I think from the plaintiff's side, the labor group side, there was incentive there to come up with some sort of a compromise to avoid that ballot measure that could have essentially almost completely gutted PAGA. So everybody gets a little victory here. From my perspective, I think it's really exciting for employers. It's the relief we've been asking for for a long time. And frankly, you know, I was always pessimistic that we would ever see that. But luckily, here we are. We've got some reform, and we're happy to talk to you about it.

[Chantelle Egan] (9:06 - 12:53)
You're a good lawyer, Tim. You have to have a little bit of pessimism in order to be a lawyer. That's our role, right? Well, and one of the things too I just want to comment on, because I've been thinking about this too, like how did we get to this point where we could actually have these types of changes? And I think part of it is how the new law is structured. And when we think about labor groups and the groups that were representing employees at the table, is at the end of the day, the goal, even for old PAGA, was to get employers to comply with the labor code and give employees the rights that are spelled out in the labor code. And the new PAGA still allows for that, and rather requires, you know, proactive compliance. So I can see if, you know, sitting on the other side of the table, although I typically represent employers, that I can see employee groups seeing that this is a win for them as well, because this is a way for them not to have to litigate to get their rights, but actually getting their rights. And as an initial step, whether with new PAGA or old PAGA, you know, you still need to go through the LWDA in order to, you know, provide initial notice of a PAGA interest and provide your PAGA notice. So Alex, does the LWDA still have the ability to pursue a matter that it's interested in, and what happens if they're not interested in pursuing it? Yeah, they still do. And just briefly under old PAGA, it was in, we would call it when the LWDA would actually get involved in a PAGA case. And by the way, collectively, the lawyers and the, and we've got in-house mediators here as well. I think we've got over a thousand of these cases under our belt now with class and PAGA kind of collectively. We would call the LWDA getting involved a uniform, because it's so rare. Because, and we're not going to get, you know, political on this. It's just kind of a fact of what it is. It's how staffed and how resourced the LWDA was, right? And some people have said that the LWDA existed solely to collect the checks for the state. Other people said that they existed to help enforce the labor code. I'm not going to make a judgment on that. All I know is based on, we're a very data-driven law firm and the cases that we've had and in talking to other people, it's very, very rare for the LWDA to get involved. Under new PAGA, it's kind of the same, but there, and we'll talk about this in a little bit. I don't want to bog us down too much into the weeds, but there are what I would call a lot of very mushy provisions in legislation. If you follow the law, if you're a lawyer, if you've been around the, you know, the employment debates over the years, that's essentially how it works, right? A law gets passed and then everybody else on the ground in the trial courts and mediation, we have to figure out what the heck it means. So some of the provisions, including some of the provisions that allow for curing with the LWDA, we won't frankly know how that's all going to work until it's actually in practice. We kind of troubleshoot it. It'll get hashed out in mediation. It'll get hashed out in the trial courts and more likely than anything else, it'll get hashed out in the appellate courts. But at least on paper, there is an opportunity and perhaps an increased opportunity for the LWDA to take a more personal look in potentially getting involved, number one, and number two, in attempting to work through curing provisions, either for companies below a hundred employees or over a hundred employees. Whether they have the resources and the infrastructures to do that, I have no idea. So Tim, if a, you know, would-be plaintiff or an aggrieved employee has a claim and brings it to the LWDA and then ultimately ends up pursuing the action themselves, do they still have carte blanche in terms of the penalties that they can seek or is there a narrowing now with NUPAGA?

[Tim Nelson] (12:53 - 14:14)
Yeah, that's one of the that's one of the aspects of NUPAGA that is really important. The statute actually changes the standing requirements for employees. So before, as Alex mentioned, you could have an employee who worked for one day, maybe they had a rest break that was nine minutes instead of ten. Now they have the opportunity to seek penalties on behalf, penalties for all potential labor code violations. So meal break violations, wage statement violations, overtime violations, all of that, even if they didn't personally experience that violation. The NUPAGA statute says that the employee has to have suffered the labor code violations that they're alleging personally. So they have, that plaintiff has to have, you know, suffered an overtime violation, a meal period violation, a rest period violation. On top of that, there was some court case authority that suggested that this employee could experience a labor code violation, you know, basically at any time. So not within the statute of limitations of the PAGA claim. That's also changed under NUPAGA. So now that employee not only has to have suffered the labor code violations that they're alleging, they also have to have suffered those violations within the one-year statute of limitations.

[Chantelle Egan] (14:14 - 14:35)
So as we talk about this PAGA notice, we've had a couple questions about this. So what if somebody had a PAGA notice that was dated June 1st, or they're already in a PAGA suit? As we go through these changes, are they going to be able to take advantage of NUPAGA? Tim, what do you think on that?

[Tim Nelson] (14:35 - 14:57)
No, unfortunately no. The statute is pretty clear that it's effective as of June 19th of this year. So, you know, I think we can pull some principles out of NUPAGA and argue them in old PAGA cases, but the statute is pretty clear about what cases it applies to.

[Alex Medina] (14:57 - 19:58)
If I could jump in there, Chantelle and Tim, I want to talk, I think there's a little bit more nuance to that that I think would be interesting for folks to hear. Can this, it previews a little bit about what we're going to be talking about compliance, and I think this is an important point. So let's say you're in the midst of a current PAGA lawsuit, and you, unfortunately, your LWDA letter was dated June 18th or something like that. Technically, no, you can't go to the two statutes that are at issue and say, I've cured it, I've, you know, taken reasonable steps to comply, but one of the things that you can do, as Tim was already alluding to, is you can still take the same principles, and those are the things that we at the law firm have actually been, already been doing for years, because PAGA at its core has always had a discretionary component to the penalties. The court, one of the few tools, so to speak, that employers and defense attorneys have had who handle PAGA cases is we argue that the penalty should be reduced based on that discretion, the discretion given to the trial courts, and there's a pretty fulsome body of law of courts reducing PAGA penalties under old PAGA, so we have a little bit of a template on that. The problem with it is it wasn't codified, it's not systematized, it's essentially kind of a case-by-case basis. There are some factors on things that courts look like, and we'll get into this a little bit later, I don't want to bury the lead here, but essentially, for at least the last two years, if not longer, what we have been doing in terms of proactive compliance, including training, testing, and certification, we have been using that in mediation to argue that PAGA penalties under old PAGA were essentially worthless, and we have actually been achieving what I would call a below-market settlement with PAGA penalties under old PAGA at pennies on the dollar based on the compliance efforts, arguing that if we went to court, the court would look at all of the remediation efforts our clients have done, and they would have no choice but to drastically reduce the PAGA penalties. So if I can't see the list of panelists here, you might be one of my clients, we might have a mediation coming up. One of the arguments that I'm going to be making on your behalf is that we have already been getting below-market settlements. PAGA remediation has already been helping. We will have very strong arguments at trial. And look, the state legislature essentially blessed what we've been doing for years. So let's get into the weeds a little bit on this, because as we've kind of been circling around is that there was this discretionary element with old PAGA, where we could argue that compliance should reduce penalties. And now, there's been a codification with new PAGA to help us kind of understand where these new penalties are. And I think at this point, it would be helpful for us to kind of get into the weeds and talk through that. Tim, I'm going to pop up that slide that you prepared, and then you can walk through the penalties and how they've changed. Yeah, there's a lot of very significant elements to new PAGA, but this is probably one of the top ones. So under old PAGA, the statute says that the old penalty structure was basically $100 per violation per employee per pay period for initial penalties, and then $200 subsequent penalty. And there's a whole body of law that was litigated what subsequent penalty meant. We won't get into that too much, but that's the penalty structure for labor code violations that don't have their own separate penalty structure. Old PAGA, and Alex mentioned this, old PAGA specifically provides that courts, judges have discretion to reduce penalties for a number of different factors, whether the penalty award would be oppressive, things like that. So there was discretion, and that's what we're continuing to argue in our current PAGA cases. So that's the old PAGA, 100, 200 stacking. So like Alex said, you know, you could get $100 penalty or a 50, well, I won't go into that, but it's $100, and then you would stack a wage statement penalty on top of that. And there was actually a more punishing penalty structure for wage statements that actually made it 250 to $1,000, depending on the wage statement violation. So it was really, really punishing under the old penalty structure. So the new structure, the baseline is $100 penalty. There's no subsequent penalty under the new, there's no subsequent $200 penalty under the new structure. There is, however, a $200 penalty if the employee can show that within five years, the employer had received a ruling from a court or from the LWDA that the particular policy in play was unlawful, or if the conduct was malicious, fraudulent, and oppressive. Those are the two circumstances where you could get the $200 penalty. Otherwise, yeah.

[Chantelle Egan] (19:58 - 20:20)
Can I ask you a quick question on that? So we talk about that, you know, bump up in penalties of $200 and within the five years. So that doesn't mean that you've had a PAGA case within the last five years, but rather that there's been an actual ruling that a policy was unlawful either by the agency or a court. Is that how you're reading the statute?

[Alex Medina] (20:20 - 22:51)
Yes, absolutely. It's not enough to just have a prior case. You have to have a ruling from a court or the LWDA that the policy at issue was unlawful. And then on top of that, there are several other penalty reduction options. And, you know, we don't have enough time to go through everything and the nuances and how the statute is unclear and everything, but it's important. I'll just quickly run through them. So the new PAGA allows an employee to take, sorry, an employer to take reasonable steps to bring itself into compliance. If you take those reasonable steps before you receive a notice to the LWDA or before you receive a records request from the employee that files the LWDA letter, you get an automatic reduction down to 15% of the maximum penalty. If you take the reasonable steps within 60 days after receiving the LWDA notice, you get a reduction down to 30%. So right there is a significant change to the statute. If you cure the violations, we're going to talk more about what that means. Spoiler alert, we're not entirely sure what that means, but if you cure the violations and you take the reasonable steps, you get zero penalties. So there's an opportunity to avoid pocket penalties completely. And then if you cure the potential violations, but you don't take reasonable steps, it's a $15 penalty. In addition to that, there's some changes to how wage statement penalties are assessed. It's basically a $25 penalty or a zero penalty if you cure those violations. And then finally, there's a 50% reduction in penalties if you are an employer that pays on a weekly basis as opposed to a bi-weekly basis. For staffing companies that might be on this webinar, that's a big change because staffing companies are required by law to pay weekly, and yet what that was doing was doubling the potential pocket penalties at issue. So the statute corrected that.

[Chantelle Egan] (22:51 - 22:56)
I know you have a couple of slides, Tim, so let me know if you need me to advance anything.

[Tim Nelson] (22:56 - 24:11)
Yeah, why don't you go to the next slide and we'll just continue that discussion. So this basically covers everything I just said. The key takeaways from this are the cure provisions and the taking reasonable steps to bring yourself into compliance provisions. Those are going to be the key provisions that employers can utilize to really drive down the value of pocket penalties. On top of that, I want to also mention that the statute still says that a judge has discretion to reduce penalties. So from our perspective, if you get yourself down to the $15 cap or the 15% or the 30%, that's the ceiling. So the judge still has discretion to reduce penalties even beyond that. So what we're going to continue to argue is, let's say we have a client that takes the reasonable steps according to the statute and we're at the 15% level. When we go to a mediation or trial or whatever, we're still going to argue that that penalty amount is still oppressive and should be reduced even further.

[Alex Medina] (24:11 - 27:56)
I have a couple thoughts on that, if I may, Tim and Chantelle. What Tim said kind of sparked something for me when we talked about going to mediation versus going to trial. I just want to be clear here, and I answered one of these questions in the Q&A, by the way. The new PAGA, although it reduces the, it potentially reduces the amount of penalties. And by the way, I read all this stuff. I've read quite a bit. We all have. And my reaction after reading everything is this is essentially clear as mud. Like I said, a lot of this is going to be played out in mediations and in the courts. One of the things that has not changed is that the plaintiffs are still entitled to their attorney's fees. So there is, in a sense, a financial disincentive to go to trial because let's say, you know, we represent you and we go to trial and we have an absolute home run and we have a 99% compliance rate and there's a $15, you know, judgment, you would still be on the hook for their attorney's fees. And there's a new provision even that allows, if you try to cure, I don't know how it's actually supposed to work, but there's a way that you can even potentially get additional attorney's fees for forcing the cure provisions or something like that. So the way that it works most often just in practical terms, both under old PAGA and new PAGA, is 98 to 99% of these cases end up in early settlement discussions or mediation. Early is a bit of a misnomer because there's so many of these cases that anybody who's halfway decent at mediating, I'm going to give a plug for M Resolution, we're more than halfway decent there, but they're usually booked out six to eight months in advance. And so an early mediation in a PAGA case is probably six to eight months after you've been sued. It's only the very, very, very large corporations and businesses that have a significant war chest to fight and want to impact what the courts are doing by going to trial, potentially appealing the decision to help make or shape the law that really go to trial. So where this all usually comes out, and again, under old PAGA and new PAGA, is it's when we look at the potential exposure, when we talk about the settlement analysis at mediation, when we try to handicap, so to speak, what the potential settlement ranges are, and make no mistake, there is a way to analyze very early on in a PAGA case and a class action case, old or new, what a potential settlement range is. It's based on certain types of data. It's based on the fact that all of the settlements are a public record. And so by knowing what the new penalty structure is, essentially what that does is it just takes the goalposts down. It changes it from maybe very, very high to a more reasonable amount. And then when we go to try to resolve the case at mediation, what are the steps that we can take? How much ROI, how much return on investment will some of the efforts you take and your prior compliance record, how will that impact essentially the discount that you could potentially get under new PAGA at mediation? I want to make one more point that I didn't make earlier, because this is very significant. You'll see it down at the bottom of that slide. The statute now basically prohibits derivative penalties. So for those who've been through a PAGA suit, you know, and Alex mentioned this earlier, oh, there's a rest break violation. Okay, that's a potentially $50 penalty, potentially $100 penalty. On top of that, now your wage statement is incorrect because a rest period premium wasn't paid. That's another anywhere from $100 to $250 penalty. The statute now says you can't have derivative penalties. So that's going to be very significant when we're valuing these cases, when we're trying to resolve them. That was a huge source of driving up the numbers of penalties, you know, leading to these seven-figure, even higher potential penalty awards. That, you know, that's a very significant change.

[Chantelle Egan] (27:56 - 35:29)
One of the things that always was really hard for me when dealing with clients that were faced with a PAGA suit was just their, just the gut punch they got, where they felt that they were trying to do right by their employees, they were trying to follow the law, and then they just, it felt like a sucker punch, the old PAGA. You know, the theme with what Tim was just saying is these reasonable steps, if you do reasonable steps. I mean, Alex, can you speak to that? Like, what is a reasonable step so that you can take advantage of these penalty changes? Sure. Well, and it's, again, it's like any time, if anybody has ever spent time, you know, reading statutes, again, they're very murky. So I'll start with what the actual, you know, new PAGA statute says in terms of reasonable steps. And again, it reads like a law textbook, but it's may include, but are not limited to, any of the following. Don't know why I'm using that voice, but it's conducting a periodic... That's your lawyer voice, right, Alex? It is. And the more I sound like a lawyer, and the more I look like a lawyer, the more I regret my life choices. So I'm trying my best to be an actual practical person who helps businesses. Essentially, it's, you know, doing an audit, making sure that you disseminate lawful written policies, training supervisors on labor code and wage order compliance, and taking appropriate corrective action with regard to supervisors. There's a few other things that we do that the statute says, and this is where I geek out. This is where I get really, really excited. And this is where I'm going to throw off all shackles of pretend modesty. And I'm going to brag on our firm a little bit because every once in a while, something will happen. And I'll be able to say, I told you so. And so one of the reasons that I co-founded Medina & Mckell 10 years ago was because I was tired of the way that there was an approach to lawsuits like this, which is, we always do it like this. We fight, we do discovery, blah, blah, blah, blah, blah, client complains about the bill, and then eventually we go to mediation. And I, you know, was always the type of person, why don't we do it this way? No, why not? That's because the way we always do it. That wasn't good enough for me. So really throughout our history, particularly with Wage & Hour, and we started as a Wage & Hour boutique, and we've kind of expanded, you know, expanded full service, is how can we be proactive in terms of compliance? And compliance is another one of those mushy words, like what does that even mean? And so one of the things that's been really neat as we've been refining our compliance process is we had the California Supreme Court step in. We did another webinar actually back in 2021. The key case, some of you might have heard of it, but it's called Donahue with an O, Donohue versus AMN Services, February of 2021, was a game changer. And it's one of those cases that did not get a lot of press for some reason. There was a lot of press about one of the holdings in the case, which was don't round your meal periods. So if somebody takes a 29-minute lunch break, don't round it up to 30. Well, duh, right? Why would you do that? If you're doing that, talk to me. Shouldn't do it. But what a lot of the, what a lot of folks missed was that there were some really key holdings in that case that I, in my opinion, completely changed the game in Wage & Hour cases and mediation. One of those is the Supreme Court said that meal periods should be treated like a health and safety issue. And I think you can extrapolate that based on what we've been seeing on the ground in hundreds of mediations is it applies to all Wage & Hour issues. And the Supreme Court was so, I don't know, emphasized it so much that they said that they shifted the burden of proof. So instead of the plaintiff, like in almost any other case in California, having the burden to prove their claims, now proof of one meal period violation, it's presumed to be the fault of the employer. And the employer has the burden of proof to disprove the violations. The problem with the Donahue case is the court didn't say how employers are supposed to treat Wage & Hour compliance like a health and safety issue. So we looked at that and we said, hey, how do you treat a health and safety issue if Wage & Hour is like a health and safety issue? Well, and I'll use the forklift driver an example, because I have a lot of manufacturing clients. You're not going to let somebody drive a forklift until they know and they could prove that they know how to drive a forklift without, you know, causing catastrophic property damage. They're trained, they take a test, and then they get certified. So if something does happen, that can help prevent something from happening. But if it does happen, you have documentation to show that you did everything possible. So that's when we started doing proactive compliance training, testing, and certification. We can dive into that a little bit more, but I believe, I don't have verification of this, but I believe that we're the first and the only law firm in California that does an online Wage & Hour training, testing, and certification, as well as a full-scale audit, as well as an assessment, and then a certification for Wage & Hour practices. And one of the things that's really neat is we went, we started using this in mediations when I was talking about that PAGA remediation under old PAGA. I had one of the most legendary Wage & Hour mediators in the state of California tell me that our compliance plan process is the answer to the unanswered question in Donahue as to how employers are to treat Wage & Hour compliance like a health and safety issue. So from my perspective, if we were already getting killer deals at mediation doing that, now we've got the legislature saying, we've got Donahue on one side, the California Supreme Court, one branch of the government, and then you've got the legislature saying, yep, training is one of the keys to take reasonable steps. From my perspective, I think that is probably the new standard in terms of what does it mean to take reasonable steps? What does it mean to cure? Training, testing, certification. So I'm going to get personal for a second. So two years ago, I joined the firm. I had been a partner at a large international firm. And one of the reasons that Alex convinced me to come over as well as Tim was just their approach to litigation, which I was just personally frustrated that very often when we were defending Wage & Hour suits, it was a, okay, let's just maintain the status quo. Nobody do anything. Don't change anything. And then we'll wait until there's resolution. And then we'll do compliance. Then we'll make the fixes. And frankly, if there's money left over, we'll make the fixes. And I was just really frustrated by that concept. I felt that it wasn't fair to the employers because it just protracted this kind of really tough time as well as the standards of the labor code is that you're supposed to be in compliance. So as Alex teed up, he was already, and Tim was already using this as a defensive strategy to say, okay, let's proactively get into compliance. In essence, let's take those reasonable steps now and try to use that in mediation down the road, whether it's motion practice, but primarily in mediation to say, hey, this is a discretionary statute. It's designed to punish. And once we figured this out, now we're not going to punish anymore. There's no reason to punish you because we fixed it. And what's really exciting about this new PAGA is in essence, it's taken that defensive approach and codified it because now we have an even stronger argument that the settlement agreements should be lower and the value should be lower because the penalties have been reduced and now there's caps imposed. Tim, Alex, would you agree with me on that?

[Alex Medina] (35:29 - 35:30)
Yeah.

[Chantelle Egan] (35:30 - 44:51)
You heard it here. These two gentlemen agreed with me. I'm glad this is being recorded. I want to actually take a moment to kind of talk through our compliance plan to help people understand how to tackle reasonable steps. One of the things I always struggled with when, you know, the long history of helping employers work through wage and hour issues and other advice and counsel issues. And one of the things that can be so daunting was just how do I start and then how do I solve for that problem? It was in some ways almost paralyzing when you know that there is hundreds of ways that you can violate just the labor code. Like how do you even figure out what's going on? So, you know, I can't take credit for this. This is actually the brainchild of Alex and Tim together. And then I just was lucky enough to take the reins and, you know, continue to fine tune it over the years. But we developed something called a wage and hour compliance plan. I'm going to show you a for this just to help you all see the visuals on this. And what it was, this is a systematic approach to tackling compliance. In essence, those reasonable steps that Alex teed up, this is the way that you can actually show that you are doing reasonable steps. And how we do this is one, we have a customized survey that we have created based on, you know, decades of litigating these types of cases, thousands of cases. What are the hot button issues? What are the things that are going to bring the most liability? And also, what are the things that you may not know you're doing wrong? Because perhaps it's, you know, nonsensical. I always joke that that's like the lever set with the labor code. If it seems like it doesn't make sense, then it's probably something that's required under the law. And helping employers really kind of look under the hood. Alex, you have actually a great analogy about how the survey process helps people understand what's going wrong. I don't want to steal your thunder. So can you share your analogy on that? Uh-oh. I use a million analogies every day. You got to tee that one up for me. I'm thinking of the one in the kitchen and, you know, looking underneath the... Oh, yeah. So I have a lot of restaurant clients. And one of the things when I get a new client is, you know, I've got different versions of folks who are at different levels of compliance. Some have gone through PAGA one, two, three times, God forbid. Some had never even heard of what it is, don't even know what it stands for. And so it's really, really important to kind of level set and identify what the potential issues are. I will just tell you categorically, because we've just been doing this for so long, most of our clients and most people in general think they're doing better than they actually are. And it's just because there's so many nuances. There's so many ways to violate the labor code. I think there's 305 different ways you can violate the labor code. And unless you have been doing it systematically with somebody who has on the ground PAGA and compliance experience, even an outside HR person might not have the nuance necessary. Even an employment lawyer might not even have the nuance necessary to figure out what those issues are. Once you kind of get under the hood. And I say that for restaurant clients, because restaurants, they will often do kind of deep cleanings. Sometimes it's monthly, sometimes it's quarterly, sometimes it's yearly. Yikes. But essentially what you do in those deep cleanings is everything might look awesome, right? On the outside, somebody kind of comes in, but there's literally the hood, right? You know, and you, and you pull that thing out and there's stuff that's growing in there that, you know, might even be a new life form. It might be something that's toxic. It might just be plain old gross, but it's something that needs to get fixed. And that's why you do the deep cleaning is to make sure it doesn't become a bigger problem, which can have, you know, if we're tying the analogies together, a health and safety effect in a restaurant. And so what the survey is designed to look at is what's under your hood. And I think that that's part of the kind of beauty of the survey is that it is really targeted to address all these issues and how they all interact with one another. And then I'll say like, well, what do I, what do I do with all this information? Because it can be really overwhelming. So that's when we move on to the assessment piece. And, you know, for those of you that are in California, you know, we adopt a color-coded assessment. I always think of it in terms of fire safety or air quality. But it's obviously if you're in the red, then you're in trouble and we need to make some acute changes. Then there's other things that you may be doing that's in the green or yellow that, you know, maybe some areas of improvement, but you know, the house isn't on fire. And we break it down into discrete categories instead of it just being like your overall health. What are the particular areas that you need to have for compliance? Both the ticky tacky things when it comes to, you know, what does your wage statement look like? And are you giving enough time for your meal and rest breaks? But also kind of going back to that health and safety issue, are you training your employees? Do they know about this? How are you educating people and giving you a score on that? And also, and I really like this part, is as part of the assessment, we also identify what you're doing right. Because that's the piece of the puzzle where it often gets forgotten with lawyers because we're so focused on fixing the things that are wrong. But we really want to highlight the things that you're doing right, not to make you feel good, even though hopefully that helps, but to help you say, I don't need to change this. This is not something I need to have my attention on right now because I'm already doing it well. And then we move forward to saying, okay, now we have this assessment, but how do I tackle these problems? And we create a prioritized action plan. In my old life, when I was doing audits very frequently, there would just be like a laundry list of things that you need to change. We have a different approach and it depends on which stage of a potential lawsuit that you're in, whether you're trying to fend off a lawsuit, whether you're just being proactive in compliance, will help inform that prioritization. And part of how we deal with that is thinking about not only like what are the things that are big sources of liability, but also what are the things that are as easy as you going to your computer, printing out a document, and putting it on your bulletin board that puts you in compliance. Both of those things can end up being at the top of the list. And we also, while we come up with our initial thoughts on this, we have a meaning to work with you to make sure from a business perspective, that this prioritization matches your particular business priorities. Then of course, we work with you to execute the plan. And once the plan has been fully executed, and we look back and say, okay, we're going to double check, we'll make sure that you've done everything that we said we were going to do, and all the ticky tacky things with regular rate have all been done, then we issue you a certification document. And I just want to pause on this point, because compliance, I keep wishing there was a different word for compliance, because it just sounds like such a drag, right? It's like, oh, I got to get in compliance. That just sounds awful, right? There is a lot of benefits to getting in compliance proactively. One, because of this new setup of new pocket, you obviously have a penalty structure that is going to reward employers that are doing this. But the other piece of the puzzle is because it is something that really kind of can foster a strong community, a strong culture in your workplace, make people want to continue to work with you, you'll have less turnover. There's so many upsides. But why we decided to have an actual compliance certificate is because if you're going to do something, and you're going to be in compliance, and you're going to do something right, you want credit for it. And so we want to have a document that shows that you are in compliance, you've taken reasonable steps, and it's been vetted. And we've actually designed it so that those steps one through three, that's done under the cloak of privilege. So for example, if you're just working with an HR outside consultant, just working with your HR professional, those conversations, and some of which are going to be highlighting things that you're not in compliance, those are not protected from a future lawsuit. But rather, if you work with an attorney, then we can cloak this all in privilege, we can deal with it in a bubble, we can speak freely with one another without worrying that if there's a lawsuit, someone's going to find this, you know, paper trail that you are working to get in compliance, but you're not there yet. But the certification piece, we've designed that to be a non-privileged document so that you can use it when faced with a lawsuit. So Alex and Tim, I know that you've used these certifications in your defensive lawsuits previously, how have you leveraged it? I'll let Tim go first, and then I'll share some stories too.

[Alex Medina] (44:51 - 45:57)
Yeah, so like we talked about earlier, the old PAGA has a provision that allows a judge to reduce penalties. So we would always use these compliance plan, you know, any client that goes through a compliance plan, we would bring this up at mediation, it would be front and center in our mediation brief, show the mediator, look, this client has gone through all of these efforts to come into compliance. And as Alex mentioned, you know, we've been complimented by numerous mediators on these compliance plans, and it really has helped us drive down the value of these cases. And, you know, the mediators looking at when trying to get the case settled, the mediators looking at, you know, what is a court going to do with penalties here? And if we have strong evidence of compliance, which this compliance plan is the best evidence of compliance that you can have, it really convinces mediators that, you know, this is not a good PAGA case, the PAGA penalties that could potentially be awarded are not going to be that high, and it really drives down the value of the settlement. Go ahead, Alex.

[Chantelle Egan] (45:57 - 53:21)
Yeah, let me, yeah, I'll share some stories. And the reason I have a standing desk is because I can't sit down because this stuff is super exciting to me, because we have real life data, right? We, a class in PAGA case is essentially like real estate, like you can go on Zillow and find out how much a house is in Stockton versus, you know, a beachfront home in Malibu. There's a market value to these cases. And if you do nothing, essentially, the market value is between kind of two, you know, two goalposts. But in terms of what we do on compliance, we can argue very strongly because we have the data and we have the comps for, you know, from the real estate analogy to look at what reduction would be. Can you please put up that compliance plan slide? Because I want to, I want to share just a couple of really important points of how we use this, because it's not one size fits all. It's not an off the shelf type of thing. And so really, when we do the survey, we get the assessment, that's your report card. And forgive me for this analogy, but I've got a kid who's going to be a high school senior, and he's going to be applying to colleges soon. And so, you know, if you're applying to colleges and you've got a 3.7, that's great, right? That's an A-minus. You have a 3.7 GPA in a POGIT case, you're going to pay six figures. Just period. I don't really care how big your company is. That's essentially the market value old POGIT. New POGIT comes down a little bit. What we want to figure out is how close to that 4.0, how close are you to the, you know, summa cum laude, all that kind of stuff. But when we do the action plan and we have in our assessment, and then we give you recommendations, it's going to be based on really the size of your company and the potential risk. So one of the other things that we didn't really talk about is we're looking at this from a litigation perspective. If you're in an existing class in POGIT action, we can use this to identify continuing liability issues to stop them. So the plaintiff's lawyers at mediation can say they've got a rounding issue. Nope, it stopped. If you're not in an existing litigation, we look at it to help prevent POGIT actions and to meet the new POGIT strictures in terms of curing and things of that nature. But we will always look at it, whether you're in litigation or not, in terms of how much time, effort, money, expense, hassle, stress you're going to put into this. And it's based on the potential exposure. So we're going to be able to look at it through a census of your employees in California. If you got sued in a POGIT action, what do we think the potential exposure could be? If you're massive and you've got huge exposure, we're obviously going to tell you to maybe do more, maybe spend a little bit more time and effort on these things. If you're smaller, we're going to be very strategic and work with you on that. What's really cool about the certification piece, though, and as part of it, by the way, one of the things that we do as the recommendation for every single action plan is not only to identify continuing liability issues, maybe revamp some policies, add some policies you maybe never had, and maybe do some training, but it's that online training, testing, and certification program. That's through a separate company that I also own and founded. It's called California Compliance Solutions. It's CalComply. It's a 30 to 45-minute online training on wage and hour issues, and they get certified. They affirm that they're going to comply with company policies. It's rigged. They have to get 100% to pass. It's like driver's ed. I will always go to the speed limit, so I wouldn't know, but I've heard that if you do driver's ed online and you take a test, you get certified. What's so neat about the certification piece is we've been able to take that to mediation as well as it can act as a deterrent for plaintiff's lawyers. Many, if not most, class and PAGA actions start with a records request. Those of you on this meeting might have even gotten some of those. I won't name the law firms, but there's some frequent flyers and frequent filers, and they will ask for your employee's personnel file and their time and pay records. One of the things that we can do is you can have the personnel file preloaded, essentially, for your folks to help prevent PAGA. First document will be most likely arbitration agreement, and then their training, testing, and certification. It's proof that your company is treating wage and hour compliance like a health and safety issue. There's gazillions of employers in California. If you're a plaintiff's lawyer and you're looking to, essentially, bring a case, take your 35% without putting significant effort working up the case, if you see that a company is already doing what new PAGA says, most likely the plaintiff's lawyers are going to look elsewhere. Maybe they'll go after your competitors and not you. I've seen that. I have actually, in a confidential setting, I have talked to plaintiff's lawyers about some of these principles, as well as with mediators. We have, time and time again, have received that feedback that this type of certification, this type of compliance, with it being proactive, would be a deterrent to them wanting to sue a company. That proactive piece, the part that really excited me about the statute, there were so many things, and hopefully no one rolls their eyes when they hear a lawyer talk about getting excited about a statute, but was this element, too, about periodic assessments. Compliance is ever-evolving. For those of you that are diligently on top of your handbooks, for example, in California, the last couple of years, it has required a revision to your handbooks on an annual basis. The other thing that I think is really important about tackling compliance is that it's not a, you did this once and it's over and it's done, but it's really about, you know, even just like getting your car checked or going in for your annual health exam, that you are going in and you're checking to make sure that, okay, has anything changed in the law? You know, it turns out we changed payroll providers. This is a good time for me to do, look under the hood, make sure everything's going okay. The beauty of starting from our compliance plan is when then you start doing those periodic annual checkups, which is now in essence required by the law as part of your demonstration that you've engaged in reasonable steps, is it's a much more targeted approach. You know what you're looking for, you can get in and get out, and I don't think that every single time you're going through compliance you're going to be moving a mountain. Rather, it's going to be much more strategic as you deal with this on an annualized basis, and then when we look at that certification, then all of a sudden you have this stack of certification documents that's like, oh, I do this on an annual basis. I got a clean bill of health on my wage and hour rules, you know, every single year, and that's something that, you know, if you're getting an LWDA letter that preemptively before there is a PAGA suit, that could be something from a strategic perspective that we could disclose up front to the plaintiff's counsel to let them know this may be not the case that you want to pursue. You know, we have a couple of minutes left before the end of the hour. I want to just make sure that, you know, if anyone has any questions that we make sure that we tackle them, and we've gotten a couple of them just in terms of, you know, at a really kind of high level, would you say, is there any, you know, we've obviously been gushing praises about new PAGA. Is there anything that gives you any kind of pause about new PAGA or that you feel like is still an open question about new PAGA and employers need to have that in their mind as they kind of tackle this new frontier? Tim or Alex, either of you on that one? Go ahead, Tim.

[Alex Medina] (53:21 - 55:02)
Well, there's a couple other things, and this may be too in the weeds for our purposes today, but one of the things that plaintiff's lawyers have done to drive up costs and attorney's fees, they typically will file two separate actions. They'll file a class action and a PAGA action, and the statute actually, we've been trying to consolidate those cases for a lot of years, and that's been a litigation strategy. The statute now actually gives the judge discretion to consolidate. So now, you know, we can file a very simple motion that says, judge, you should consolidate these cases, cite the statute, and it should be a no-brainer. So that's going to cut down on some of the attorney's fees and costs as well, and then there's this other issue of, you know, in a class action case, you have to prove that there are common issues, and there's a whole procedure you have to go through for a class action to proceed. That was never the case in PAGA, but we would always argue the same thing in PAGA, and then the California Supreme Court, we would make what is called a manageability argument. You can't try this PAGA case on behalf of all of these employees because it's not manageable. California Supreme Court said that's not a requirement for PAGA to go forward, and so we've been in this kind of gray area where, you know, how do you prove PAGA violations on behalf of all these employees, but, you know, there isn't this procedural requirement. The statute now says that courts have discretion to manage PAGA cases, and you can actually make a manageability argument. So those are two small, well, two maybe, those changes don't get the same press that all these other changes make, but I think they're very important for employers.

[Chantelle Egan] (55:02 - 55:32)
So, Tim, we've got a couple of questions that have popped up about PEOs and staffing. Being you represent so many staffing companies, I'm just curious if you can speak to, you know, what if you're a company that doesn't control the timekeeping mechanisms, and, you know, you may have policies in place, but you don't actually control the day-to-day. How do you think new PAGA is going to impact those types of employers?

[Tim Nelson] (55:32 - 56:32)
Yeah, what I would say to that is you can only control what you can control. So for a staffing agency, for example, go through the compliance plan process. Take the reasonable steps now, and, you know, make sure your handbook is correct. Make sure it's as up-to-date on wage and hour policies as it can be. Make sure you're training your employees, you know, training your managers. Do all of the reasonable steps that you can control, and then when you're negotiating contracts with clients, you know, have an eye towards reasonable steps. Have an eye towards making sure if you have to use their timekeeping system, make sure it's compliant. You know, sometimes I've seen staffing companies that, you know, the client has a security check, and they add an extra two or three minutes a day to account for that. Make sure you're doing everything you can within your control. I think that's going to put you in the best position possible to take advantage of these reasonable steps that are in the statute.

[Chantelle Egan] (56:32 - 58:35)
I really like how you emphasize incorporating the reasonable steps into the contract itself. I didn't thought of that, and I think that that's quite clever, and it's also a way for perhaps staffing companies and similar joint employee arrangements to kind of level set about what their reasonable steps are going to be, and, for example, giving them the ability to run an audit. Doing a periodic check, and these are all the ways that then a staffing company can turn around and say, this is what's reasonable in light of what we can control in this circumstance. So I think that's a really good marriage between the kind of the realities of the business and the benefits of the law. Yeah, and just to piggyback on that, if that question that we just answered was geared more to a third party payroll provider or a PEO, it's a little bit more nuanced than that. There's a case law on that. There's a lot of exceptions to that case law. The joint employment rules in California are very, very liberal, and so it's kind of hard to get kind of a bright line rule to say if you are a third party payroll provider or a PEO or something of that ilk that you will or will not be dragged into the lawsuit. Most often what happens is because, again, 98 to 99% of these cases go into mediation. It's just an argument, and oftentimes it's a fight between the company and the provider of who's going to contribute what, and there are sometimes those cases get litigated, but it's a lot more complex than we have time for on this. Of course, and I think part of that element is that contractual piece between those joint employers on the front end. Once again, another option to be proactive and try to get ahead of these requirements. So, you know, we're here at the top of the hour. Thank you all so much for joining us with this conversation, and we look forward to continuing the conversation with you. We will be sending out a recording of the webinar as well as our slides, and in the slides we send out, we will have our contact information. Feel free to reach out, and thank you so much for joining us today. Thanks, everybody.