PAGA Lawsuits: The Employment Risk Catching California Businesses Off Guard

Author, Kevin Howard, Partner, Rancho Mesa Insurance Services, Inc.

As insurance advisors, we have a responsibility to keep our clients (and any business within earshot) informed about emerging risks that could impact their operations. One area that has grown significantly in recent years is Private Attorneys General Act (PAGA) lawsuits. These claims can catch businesses off guard, leading to costly penalties and reputational challenges. By understanding what PAGA is, why it matters, and how to proactively protect against it, we can help steer clients in the right direction and strive for compliance.

Why Should You Care About PAGA

PAGA is a California law that allows employees to step into the shoes of the state and sue their employer for labor code violations. Instead of waiting for state agencies to enforce compliance, employees can file these claims themselves; and, the penalties can add up quickly. While the intent was to improve labor law enforcement, the reality is that PAGA lawsuits have become a major source of litigation for businesses.

The Worst Case PAGA Scenario

The most nightmarish scenario occurs when attorneys get involved in a single employee complaint which becomes the seed for a larger action. Counsel may pursue a representative PAGA claim on behalf of many employees statewide; and, where facts support it, may also file a traditional class action lawsuit under Rule 23 that seeks certification of a class including many current and former employees over several years. Class actions can expand exposure dramatically (for example, unpaid wages, penalties, and attorneys’ fees), while PAGA actions focus on civil penalties per employee per pay period. In practice, plaintiffs’ firms often file both PAGA and class claims together, leveraging overlapping facts and time periods to broaden the case and increase potential recovery.

How Did We Get Here

According to the California Department of Industrial Relations, PAGA was introduced in 2004 to help address the backlog of labor complaints. Since then, filings have exploded to over 9,000 notices in 2025. These figures represent California-only filings, underscoring the growing exposure employers now face.

Recent Changes You Should Know

In July 2024, California passed reforms to make PAGA more fair and less punitive. These changes include:

• Early cure periods: Employers now have a chance to fix issues quickly and reduce penalties by up to 85 percent.

• Stricter standing: Employees must have personally experienced the violations they claim.

• Online filing requirements: Streamlined processes for notices and compliance.
  These updates are good news, but they don’t eliminate the risk, they just give businesses more tools to manage it.

How Can You Protect Your Business

Here are practical steps every employer should take:

• Consider the pros and cons of Employment Practices Liability (EPL) Insurance with a wage & hour defense sub-limit.

• Audit regularly: Review payroll, timekeeping, meal and rest breaks, and expense reimbursements.

• Train your team: Supervisors should understand compliance basics to prevent violations.

• Act fast: If you receive a notice, use the cure period to correct issues and reduce penalties.

• Document everything: Keep detailed records of compliance efforts—this can make all the difference in court.

Insurance Advisor’s Role

Your insurance advisor should explain in detail Employment Practices Liability, laying out annual premium and deductible options with a detailed coverage analysis. We will provide a clear understanding of wage & hour coverage coupled how defense sub-limits work. Very often, choice of counsel is rare with EPL carriers, so businesses need to be comfortable working with attorneys in which they may be unfamiliar.

In partnership with Coastal Payroll, Rancho Mesa is hosting an in-person workshop on PAGA claims which will take place on Friday, February 20th, 2026 at 9:00 am. Reach out to me with specific questions on this topic at khoward@ranchomesa.com or call me directly at (619) 729-5173.

About the Author
Kevin Howard is a Commercial Insurance Broker at Rancho Mesa Insurance Services, Inc., specializing in risk management and insurance solutions for artisan contractors including solar, roofing, and other skilled trades. Based in San Diego, California, Kevin serves contractors throughout the Southern California region, helping them protect their businesses with tailored coverage and proactive support. His clients benefit from access to exclusive tools like the SafetyOne™ Platform, RM365 HRAdvantage™ Portal, and workers’ compensation claims advocacy services, designed to improve safety, streamline HR processes, and support better claims outcomes.