For twenty years, California's Private Attorneys General Act had a simple structure: a violation existed or it didn't, and the penalties stacked per employee, per pay period, with compliance effort counting for little. The 2024 reform changed the economics. Under the current text of Labor Code section 2699, an employer's demonstrated compliance program now caps the penalty exposure itself — and the statute says, in its own words, what that program looks like.
Every quotation below is from the current text of section 2699 (edition updated January 1, 2026).
The two caps
15 percent. Where, before receiving a PAGA notice or a records request, the employer "has taken all reasonable steps to be in compliance with all provisions identified in the notice, the civil penalty that may be recovered in a civil action pursuant to this part shall not be more than 15 percent of the penalty sought."
30 percent. A second path applies to employers who take those steps after the notice arrives: within 60 days after receiving the notice, an employer who has taken all reasonable steps caps recovery at "not be more than 30 percent of the penalty sought."
Read that difference as a price on timing. The same compliance work costs you 85 percent of your exposure if it's in place before a notice, and 70 percent if you scramble after one. The gap between the two caps is the return on doing it now.
What "all reasonable steps" means — the statute's own list
This is the part every employer should read verbatim. The statute says reasonable steps "may include, but are not limited to," the following — and it is quoting, not paraphrasing, to say the employer:
"conducted periodic payroll audits and took action in response to the results of the audit, disseminated lawful written policies, trained supervisors on applicable Labor Code and wage order compliance, or took appropriate corrective action with regard to supervisors."
Four items. Each one is evidentiary — meaning the question in litigation will be whether you can prove it:
- Periodic payroll audits, with action taken. Not one audit ever; periodic, and the fix matters as much as the finding. Keep the audit, the findings, and the remediation on the same paper trail.
- Lawful written policies, disseminated. Two separate requirements hiding in three words. The policies must be lawful — a handbook that misstates meal-period timing or restates the federal tip rule instead of California's is worse than silence, because it's distributed evidence of the violation. And they must be disseminated — a correct policy nobody received proves nothing. Signed acknowledgments, dated.
- Supervisors trained on the Labor Code and wage orders. Note the subject matter: not harassment training (that's a separate mandate), but wage-and-hour training — meal and rest timing, off-the-clock work, overtime approval. And note who: supervisors, because supervisors are where written policy meets actual practice.
- Corrective action regarding supervisors. When a supervisor shaves time or pressures skipped breaks, the record of what you did about it is itself a reasonable step.
There is a connected recordkeeping change worth knowing: Labor Code section 1198.5 now requires that employer-maintained training records include the provider, the date and duration, and the core competencies covered — which is, conveniently, exactly the evidence the training step requires. We cover it in our January 1, 2026 post.
How compliance gets judged
The statute anticipates the obvious objection — that "reasonable" is vague — by naming the standard: whether the employer's conduct was reasonable is "evaluated by the totality of the circumstances and take into consideration the size and resources available to the employer, and the nature, severity, and duration of the alleged violations."
Two things follow. A 15-employee restaurant is not held to a Fortune 500 compliance program. And the existence of a violation does not defeat the cap — the statute expressly contemplates that an employer who took all reasonable steps may still have violations; that is the whole point of a cap rather than a defense.
The practical program
For a California employer or a PEO advising one, the reasonable-steps list converts directly into a file you should be able to produce on demand:
- A current, lawful California handbook — audited against the statutes, not just reformatted
- Dated acknowledgments for every employee
- A payroll audit on a recurring calendar, with findings and fixes documented
- Supervisor wage-and-hour training with records meeting the section 1198.5 fields
- A disciplinary file showing supervisor-level corrective action when it happened
The first item is where most programs quietly fail: the policies exist and were distributed, but a clause in them states the law wrong, and "disseminated lawful written policies" becomes "disseminated unlawful written policies." That is exactly what a statute-by-statute handbook audit catches. Run a free one on yours.
This article describes the statute's penalty-cap structure; whether particular steps qualify in a particular case is a legal question for counsel. Quotes are from the current text of Labor Code § 2699.