PAGA Penalties & Damages FAQ

Under Labor Code Section 2699(f), the default civil penalty structure for most Labor Code violations is $100 per employee per pay period for initial violations and $200 per employee per pay period for subsequent violations. These penalties apply when a specific Labor Code provision does not prescribe its own penalty amount.

The distinction between initial and subsequent violations is critical: the first instance of a particular violation type is considered an initial violation, while all following instances are subsequent violations, which carry double the penalty. This tiered structure incentivizes employers to promptly correct violations once discovered.

The penalties are designed to be substantial enough to deter violations while providing some leniency for first-time offenses. In calculating total penalty exposure, courts multiply the per-employee, per-pay-period penalty by the number of affected employees and the number of pay periods during which violations occurred, subject to the one-year statute of limitations. These default penalties can result in significant aggregate liability in representative PAGA actions involving many employees over extended time periods.

Wage statement violations under Labor Code Section 226(e) carry enhanced penalties compared to the default PAGA penalty structure. For violations of the itemized wage statement requirements, the penalties are $250 for the initial violation and $1,000 for each subsequent violation per employee.

This substantially higher penalty amount reflects the Legislature's determination that accurate wage statements are critically important for employees to verify they are being paid correctly and to protect against wage theft. Labor Code Section 226(a) requires employers to provide itemized statements showing: gross and net wages, total hours worked, piece rate information, all deductions, inclusive dates of the pay period, employee name and last four digits of social security number, employer name and address, and all applicable hourly rates and corresponding hours worked at each rate.

Violations of any of these requirements can trigger the enhanced penalties. Given that wage statements are issued every pay period (typically twice monthly), the potential penalty exposure for systematic wage statement violations across a large workforce can be substantial, often reaching into millions of dollars in representative PAGA actions.

Waiting time penalties under Labor Code Sections 201-203 operate differently from standard PAGA penalties and are among the most significant potential liabilities employers face. When an employer willfully fails to timely pay all wages due to a discharged or quitting employee, the employee's wages continue as a penalty at the same daily rate for up to 30 calendar days.

For employees who are discharged, all wages are due immediately upon termination (Section 201); for employees who quit, all wages are due within 72 hours or immediately if the employee gave at least 72 hours notice (Section 202). Section 203 provides that if the employer willfully fails to pay within these deadlines, the employee is entitled to continue receiving their daily wage rate for each day payment is delayed, up to a maximum of 30 days.

For example, if an employee earning $200 per day is not paid their final wages for 20 days after termination, the waiting time penalty would be $4,000 (20 days × $200), plus the actual wages due. These penalties can be recovered through PAGA representative actions on behalf of all affected employees who experienced late payment of final wages, creating substantial liability for employers with systemic final pay timing issues.

The issue of penalty stacking in PAGA actions is complex and has been addressed through various court decisions. Generally, PAGA allows for separate penalties for each distinct Labor Code violation, even if the violations are related or arise from the same underlying conduct. However, courts have limited penalty stacking in certain circumstances to avoid duplicative recovery for what is essentially the same violation.

In ZB, N.A. v. Superior Court (2019), the California Supreme Court held that where a single course of conduct violates multiple Labor Code sections that impose penalties, and one penalty provision explicitly incorporates or encompasses the other violations, courts should not stack penalties but instead apply the most specific penalty provision.

For example, if an employer fails to provide meal breaks, this may violate both Section 512 (meal break requirements) and Section 226.7 (requirement to pay premium for missed breaks). Courts examine whether the penalty provisions are cumulative or whether one subsumes the other. Where violations are truly distinct, penalties can stack. The analysis requires careful examination of the statutory language and legislative intent behind each penalty provision to determine whether multiple penalties were intended to apply to the same conduct.

Labor Code Section 2699(e)(2) grants courts discretion to award a lesser amount of civil penalties than the statutory maximum based on consideration of specific factors. Courts may consider: the nature and severity of the violation, whether the violation was isolated or widespread, the employer's good faith in attempting to comply with the Labor Code, the extent of the employer's efforts to cure violations after receiving notice, the employer's prior history of Labor Code violations, the financial condition and resources of the employer, and any other factors the court deems relevant.

This discretionary reduction authority serves important policy goals by allowing courts to tailor penalties to the specific circumstances and avoid penalties so severe they would be punitive beyond the remedial purpose of the statute. However, courts exercise this discretion cautiously, particularly where violations were knowing, repeated, or affected many employees.

In Viceral v. Mistras Group, Inc. (2023), courts clarified that the burden is on the employer to prove entitlement to penalty reduction and to present evidence supporting each factor. The discretion to reduce penalties does not extend to eliminating them entirely except in extraordinary circumstances. Employers seeking reduction must affirmatively demonstrate good faith compliance efforts and other mitigating factors.

Labor Code Section 2699(i) establishes the mandatory distribution formula for civil penalties recovered in PAGA actions: 75% of the penalties are paid to the Labor and Workforce Development Agency (LWDA), and 25% are distributed to the aggrieved employees. This allocation reflects PAGA's fundamental purpose as a law enforcement mechanism on behalf of the state.

The 75% share going to the LWDA supports the agency's labor law enforcement activities and acknowledges that PAGA claims are prosecuted on behalf of the state's enforcement interests. The 25% share distributed to employees serves to incentivize private enforcement by providing a direct benefit to the workers who bring PAGA actions and experience the violations.

The employee share is typically distributed pro rata among all aggrieved employees based on the number of pay periods they worked during the violation period. Settlement agreements must clearly allocate amounts between PAGA penalties and other claims (such as unpaid wages or damages), as only the PAGA penalty portion is subject to the 75-25 split. Attorneys' fees and costs are generally paid from the 25% employee share, though courts have discretion in complex cases. This distribution formula cannot be altered by agreement of the parties, as it serves the public interest.

PAGA penalties are fundamentally different from compensatory damages, and understanding this distinction is crucial for both employees and employers. PAGA civil penalties under Labor Code Section 2699 are statutory penalties that belong to the state and are enforced through the Private Attorneys General Act mechanism. These penalties are not designed to compensate individual employees for economic losses but rather to punish Labor Code violations and deter future non-compliance.

In contrast, compensatory damages are designed to make the employee whole by compensating for actual losses suffered, such as unpaid wages, overtime, meal and rest break premiums, unreimbursed business expenses, and emotional distress damages. Employees can simultaneously pursue both PAGA penalties and compensatory damages in the same lawsuit, though they are distinct causes of action.

PAGA penalties are distributed 75% to the state and 25% to employees, while compensatory damages go entirely to the affected employees. The statute of limitations differs: PAGA penalties are subject to a one-year limitations period, while most wage claims have a three-year or four-year statute of limitations. PAGA penalties are calculated per employee per pay period, while damages are calculated based on actual economic loss. A settlement or judgment should clearly allocate amounts between PAGA penalties and compensatory damages, as they have different tax treatment and distribution requirements.

The ability to cure violations and avoid PAGA penalties depends on timing and the specific violation type, as outlined in Labor Code Section 2699.3(b). After receiving a PAGA notice, employers have 33 days to cure the alleged violations. If violations are cured within this 33-day period and the employer provides written notice of the cure to the employee and LWDA, no PAGA penalties can be recovered for those cured violations.

However, this cure opportunity only applies to certain types of violations that can be cured prospectively. Labor Code Section 2699.3(b) specifies that violations involving minimum wage, overtime compensation, or sick leave cannot be cured - employees can still recover PAGA penalties for these violations even if the employer corrects future practices. The rationale is that these violations involve actual wage underpayments that have already harmed employees, and merely stopping future violations does not remedy past harm.

For curable violations like wage statement errors, failure to provide proper seating, or certain record-keeping violations, timely cure within the 33-day window eliminates PAGA penalty exposure. Employers must provide proof of cure and cannot partially cure violations. The cure must completely eliminate the violative practice for all affected employees. Even where cure eliminates PAGA penalties, employees may still pursue compensatory damages for harm suffered before the cure.

Calculating the number of pay periods subject to PAGA penalties requires careful analysis of the applicable statute of limitations, pay frequency, and violation duration. Under the one-year statute of limitations for PAGA claims (Code of Civil Procedure Section 340(a)), penalties can only be recovered for violations occurring within one year before the PAGA notice was filed with the LWDA (with tolling during the administrative exhaustion period).

Courts calculate pay periods by determining the employer's pay frequency (weekly, bi-weekly, semi-monthly, or monthly) and counting the number of pay periods during the liability period. For example, an employer paying semi-monthly has 24 pay periods per year; over a one-year PAGA liability period, there would be 24 potential pay periods per employee.

For continuing violations (such as recurring wage statement errors), each pay period may constitute a separate violation subject to separate penalties. For discrete violations (such as a one-time failure to pay overtime for a specific workweek), only the pay period in which the violation occurred is subject to penalties. Courts must determine whether each violation was an initial violation (first instance) subject to the lower penalty, or a subsequent violation (repeat instance) subject to the enhanced penalty. This often requires detailed analysis of payroll records and can become complex when violation patterns vary across different employees or time periods.

When an employer files for bankruptcy, PAGA penalties may be treated differently than other employment claims, and the analysis depends on whether the penalties are characterized as governmental claims or employee claims. The 75% portion of PAGA penalties payable to the Labor and Workforce Development Agency is generally treated as a governmental penalty claim. Under bankruptcy law, certain governmental penalties may be non-dischargeable or given priority treatment. The 25% portion allocated to employees may be treated as an unsecured claim.

However, bankruptcy courts have grappled with the proper characterization of PAGA claims. Some courts have held that the entire PAGA recovery, including the employee portion, should be treated as a governmental penalty because the claim is fundamentally brought on behalf of the state's enforcement interests. In bankruptcy proceedings, PAGA claimants must file proofs of claim within the applicable deadlines. The automatic stay generally halts PAGA litigation, though plaintiffs may seek relief from the stay or permission to continue litigation to liquidate claims.

Settlement of PAGA claims in the bankruptcy context requires both bankruptcy court approval and compliance with Labor Code Section 2699(l)(2) requirements for PAGA settlement approval. PAGA penalties may be afforded priority as wage claims under 11 U.S.C. Section 507(a)(4) in some circumstances, though courts are divided on this issue. The intersection of PAGA and bankruptcy law remains an evolving area requiring specialized legal analysis.