Avoiding PAGA Penalties: Tips for California Employers in 2025

The Growing Threat of PAGA Lawsuits in 2025

The Private Attorneys General Act (PAGA) has become a formidable challenge for California employers, allowing employees to sue for Labor Code violations on behalf of themselves and others, with penalties that can quickly escalate into millions. In 2025, PAGA remains a significant risk, with nearly 2,600 notices filed in the past year alone, driven by violations like unpaid wages, missed breaks, and inaccurate wage statements. For small and medium-sized businesses, a PAGA lawsuit can be financially devastating, especially given the lack of a class certification requirement, which lowers the barrier for plaintiffs. The stakes are high—penalties, legal fees, and reputational damage can threaten the survival of businesses with limited resources. At Employer Guidance Group PC, we specialize in advising and counseling small and medium-sized businesses on employment matters, with a deep focus on California laws like PAGA compliance, wage and hour regulations, and workplace safety, while also offering nationwide support. With over 20 years of experience, we’ve helped businesses avoid PAGA pitfalls, ensuring compliance and minimizing risks. In this comprehensive guide, we’ll break down how to avoid PAGA penalties in 2025, their impact on small businesses, and actionable steps to stay compliant. Whether you’re a restaurant in San Jose or a retailer in San Diego, understanding PAGA is essential to protecting your business in 2025. Let’s dive into what you need to know to stay ahead.

Legal Background: The Evolution of PAGA in California

PAGA was enacted in 2004 as part of the Labor Code Private Attorneys General Act, empowering employees to act as “private attorneys general” to enforce California’s Labor Code on behalf of themselves, other employees, and the state. The law was a response to underfunding of the Labor and Workforce Development Agency (LWDA), which struggled to enforce labor laws effectively. PAGA allows employees to file lawsuits for violations like unpaid wages, missed breaks, and inaccurate wage statements, recovering civil penalties that would otherwise be assessed by the LWDA. Initially, PAGA faced criticism for its broad scope, leading to amendments in 2009 and 2016 that introduced notice requirements and curing provisions to give employers a chance to fix violations before litigation. A significant update came in 2024, effective for notices filed on or after June 19, allowing smaller employers (under 100 employees) to cure violations early and reduce penalties, reflecting a balance between worker protections and business fairness. In 2025, PAGA remains a powerful tool for employees, with penalties of $100 per employee per pay period for initial violations and $200 for subsequent violations, often “stacking” across multiple violations. The law’s representative nature—no class certification required—makes it easier for plaintiffs to sue, increasing the risk for employers. Understanding the history of PAGA provides context for its current requirements and underscores the importance of compliance in a state known for aggressive enforcement.

Detailed Breakdown: How PAGA Works in 2025

PAGA’s structure and enforcement mechanisms make it a unique and potent law for California employers to navigate. Let’s break down the key components:

• Who Can Sue: Any “aggrieved employee” (an employee who personally experienced a Labor Code violation) can file a PAGA claim on behalf of themselves and other similarly situated employees. This representative action does not require class certification, lowering the barrier for lawsuits.

• Covered Violations: PAGA applies to a wide range of Labor Code violations, including unpaid wages (e.g., overtime, minimum wage), missed meal and rest breaks, inaccurate wage statements, failure to reimburse expenses, and untimely final paychecks. For example, failing to provide a 30-minute meal break for a shift over 5 hours can trigger a PAGA claim.

• Penalties: The default penalty is $100 per employee per pay period for an initial violation and $200 for subsequent violations. For a business with 50 employees and 26 pay periods, a single violation (e.g., missed breaks) could result in $130,000 in penalties ($100 x 50 x 26). Penalties can “stack” across multiple violations, multiplying the financial impact.

• Notice and Cure Process: Employees must submit a notice to the LWDA and the employer, detailing alleged violations. The employer has 33 days to cure certain violations (e.g., wage statement errors), and smaller employers (under 100 employees) can request an early evaluation conference to resolve issues before litigation. If the LWDA does not respond within 65 days, the employee can file a lawsuit.

• Distribution of Penalties: Of the penalties recovered, 75% go to the LWDA, and 25% go to the aggrieved employees. Employees can also recover attorney’s fees, making PAGA lawsuits attractive to plaintiff attorneys.

• Litigation Trends: In 2025, PAGA notices have surged, with common claims involving wage statements, breaks, and overtime. The lack of a certification requirement makes PAGA a preferred vehicle for mass claims, increasing the risk for employers.

Impact on Small and Medium-Sized Businesses

Small and medium-sized businesses face significant challenges in avoiding PAGA penalties, particularly those with limited HR resources and tight budgets. First, the financial impact of PAGA penalties can be devastating—a single violation across multiple employees and pay periods can result in six-figure penalties, which many small businesses cannot absorb. For example, a 30-employee restaurant in San Jose facing a PAGA claim for missed breaks could owe $78,000 in penalties ($100 x 30 x 26 pay periods). Second, the administrative burden of compliance is high—tracking hours, ensuring breaks, and maintaining accurate wage statements require robust systems that small businesses often lack. Third, the risk of litigation is elevated in California, where employees and their attorneys frequently file PAGA claims, often as a precursor to class actions. Small businesses may also miss PAGA notices, which are formatted as letters to the LWDA, not the employer, delaying their response and increasing liability. Finally, the reputational impact of a PAGA lawsuit can deter talent and customers, especially for businesses in tight-knit communities. In 2025, these challenges are heightened by the continued surge in PAGA filings, making proactive compliance essential for avoiding legal and financial risks. Employer Guidance Group PC understands these pressures and provides tailored solutions to help small businesses navigate PAGA without compromising their operations.

Case Study: A Small Business’s PAGA Nightmare

Imagine a hypothetical scenario involving a small restaurant in San Jose with 30 employees. In early 2025, the restaurant fails to provide meal breaks for shifts over 5 hours, assuming employees can eat during downtime. Additionally, its wage statements omit required information like total hours worked. An employee files a PAGA notice, alleging both violations, and the restaurant misses the notice in the mail, failing to cure within 33 days. The employee files a lawsuit, and the court awards $78,000 in penalties for the break violations ($100 x 30 x 26 pay periods) and $78,000 for the wage statement violations, plus $20,000 in attorney’s fees. The total cost exceeds $176,000, forcing the restaurant to close a location and lay off staff. This situation could have been avoided if the restaurant had consulted Employer Guidance Group PC to audit its break and wage statement practices, respond to the PAGA notice, and implement compliance measures. By understanding their obligations under California law, the restaurant could have avoided litigation and focused on growth instead. This case highlights the importance of PAGA compliance for small businesses, especially in a litigious state like California.

Actionable Steps for Compliance

To avoid PAGA penalties in California in 2025, small and medium-sized businesses should take the following steps:

• Step 1: Conduct a Wage and Hour Audit
  Review your payroll, timekeeping, and break records to identify potential Labor Code violations. Focus on common PAGA triggers like unpaid overtime, missed breaks, and wage statement errors. Use software like Gusto to ensure accurate tracking and documentation.

• Step 2: Update Break Policies
  Create a written policy ensuring employees receive a 30-minute meal break for shifts over 5 hours and a 10-minute rest break every 4 hours. Schedule breaks proactively and require employees to clock out for meal breaks to document compliance.

• Step 3: Ensure Accurate Wage Statements
  Verify that wage statements include all required information under Labor Code Section 226, such as total hours worked, pay rates, and deductions. Work with your payroll provider to correct any errors and retain statements for at least three years.

• Step 4: Train Managers and Staff
  Conduct training sessions for managers and employees on Labor Code requirements, focusing on breaks, overtime, and wage statements. Use real-world scenarios to illustrate compliance, such as ensuring a cashier takes a meal break during a busy shift. Provide a reference guide for ongoing use.

• Step 5: Respond to PAGA Notices Promptly
  Train staff to identify PAGA notices in the mail, which are addressed to the LWDA but sent to the employer via certified mail. Respond within 33 days by curing violations (e.g., paying back wages, correcting wage statements) or requesting an early evaluation conference if eligible.

• Step 6: Conduct Regular Compliance Reviews
  Schedule annual reviews of your wage and hour practices to ensure ongoing compliance. Update policies to reflect any legal changes, such as new curing provisions, and address any discrepancies immediately to minimize liability.
  By following these steps, small businesses can reduce the risk of PAGA lawsuits and maintain a compliant workforce.

How Employer Guidance Group PC Can Help

With over 20 years of experience, Employer Guidance Group PC is your trusted partner in navigating California’s complex PAGA laws. We offer a range of services tailored for small and medium-sized businesses:

• Compliance Audits: We’ll audit your wage and hour practices, identifying and correcting potential PAGA violations. For example, we recently helped a 40-employee restaurant in San Jose avoid a PAGA claim by correcting break violations.

• Policy Development: Our team will update your employee handbook and wage statement processes to ensure compliance with Labor Code requirements.

• Training Programs: We offer customized training on PAGA compliance, helping your team understand Labor Code obligations and avoid common pitfalls.

• Litigation Support: If you face a PAGA lawsuit, our attorneys provide robust defense, minimizing financial and reputational damage. We’ve successfully defended small businesses against PAGA claims, securing favorable outcomes.
  Contact us today to schedule a consultation or join our webinar on July 5, 2025, where we’ll discuss PAGA compliance strategies in depth.

Conclusion: Stay Compliant in 2025

California’s PAGA laws remain a significant threat to small and medium-sized businesses in 2025, with penalties that can quickly escalate into devastating financial burdens. Non-compliance can lead to costly lawsuits, penalties, and reputational harm, but proactive compliance can protect your business while supporting your employees. By auditing wage practices, updating policies, and training your team, you can navigate PAGA with confidence. Employer Guidance Group PC, with over 20 years of experience, is here to help, offering expert guidance on California employment laws and nationwide support. Don’t let a PAGA lawsuit derail your business—partner with us to ensure compliance and focus on growth in 2025 and beyond. Reach out today to learn how we can support you.

Keywords: PAGA penalties, California employment law, small business compliance, Employer Guidance Group PC, nationwide support.