The Private Attorneys General Act (PAGA) is one of the biggest legal threats to employers in California, especially in Los Angeles County, Inland Empire, and Orange County. While many businesses understand that a PAGA lawsuit can lead to hefty penalties, few recognize the full scope of hidden costs that can impact their bottom line. Beyond financial damages, PAGA claims can cause reputation damage, operational disruptions, employee morale issues, and long-term compliance expenses. Below, we will discuss the hidden costs of PAGA that California employers often overlook—and what you can do to protect your business.
PAGA Lawsuits Can Cause Increased Legal and Compliance Costs for California Employers
Many employers focus on the direct penalties associated with a PAGA lawsuit, but the legal and compliance costs can add up quickly, even before a claim reaches court.
Legal fees can be substantial. Hiring an employment law attorney for a PAGA defense can cost tens of thousands of dollars, depending on the complexity of the case. Even if the case settles out of court, legal fees remain a significant expense.
Employers often need to conduct company-wide audits to assess other potential labor code violations once a PAGA claim is filed. Many businesses must invest in compliance consultants or legal teams to review wage and hour practices, which adds additional costs.
Additionally, businesses may need to revise workplace policies to prevent future claims. This can involve rewriting employee handbooks, training management, and upgrading payroll systems.
Loss of Productivity and Operational Disruptions
A PAGA lawsuit does not just affect legal and HR teams—it impacts the entire organization. Employers may underestimate the productivity loss caused by legal proceedings.
Human resources and management teams must spend valuable time gathering documentation, responding to legal requests, and participating in depositions. This takes time away from daily business operations and growth.
Employees involved in the lawsuit may also need to provide statements, attend hearings, or testify, leading to lost work hours. The uncertainty surrounding a PAGA claim can also result in lower employee morale, which can further impact productivity.
Reputational Damage and Loss of Business
Many California employers fail to recognize the public relations risks of a PAGA lawsuit.
PAGA lawsuits are often public record, meaning competitors, customers, and potential employees can easily find lawsuit information. A lawsuit can damage a company’s reputation and make it harder to attract new customers or business partners.
A lawsuit can also lead to a loss of employee trust. Employees who hear about the claim may lose faith in leadership, making it harder to retain and recruit talent. A negative reputation can increase turnover, forcing employers to spend more on hiring and training new workers.
PAGA Lawsuits Can Cause Higher Insurance Premiums and Settlement Costs
A PAGA lawsuit can lead to increased insurance costs and significant settlement expenses.
Some employers carry Employment Practices Liability Insurance (EPLI) to cover legal costs related to employee lawsuits. A PAGA claim can raise insurance premiums or even result in loss of coverage if insurers view the business as high-risk.
Many employers opt to settle PAGA claims rather than risk an unpredictable court ruling. Settlements can range from hundreds of thousands to millions of dollars, depending on the scope of violations.
Future Business Restrictions and Compliance Monitoring
Even after resolving a PAGA claim, many employers face long-term compliance obligations.
Court-mandated compliance changes often require employers to adopt new policies or undergo monitoring by state agencies. Some companies must submit ongoing reports proving they are following labor laws.
If an employer is found guilty of serious violations, they may lose business licenses or face restrictions when bidding for government contracts.
How Employers Can Reduce Their PAGA Risk
PAGA lawsuits do not just happen to large corporations—any business in Los Angeles County, Inland Empire, or Orange County can be affected. The best defense is proactive compliance.
Conducting regular workplace audits can help identify labor law violations before they lead to lawsuits. Ensuring wage and hour compliance by tracking overtime, meal breaks, and accurate wage statements is essential.
Training managers and HR teams to handle employee concerns properly and document compliance efforts can help prevent violations. Employers should also work with an employment law attorney to develop a strong PAGA defense strategy.
Call Rupal Law for PAGA Defense Assistance
If you are an employer in Los Angeles County, Inland Empire, Orange County, or anywhere in California, PAGA claims can put your business at serious risk. At Rupal Law, we specialize in defending California employers against PAGA lawsuits and helping businesses create strong compliance strategies.
Call (951) 460-0830 today to schedule a consultation and protect your business from the hidden costs of PAGA.
