In California, the grizzly bear on the state flag is a reminder of the state’s formidable regulatory environment, nowhere more evident than under the Private Attorneys General Act (PAGA). Since its enactment in 2004, PAGA has become one of the most significant drivers of wage-and-hour employment litigation in the state. Despite legislative reforms enacted in 2024 intended to moderate penalty exposure and expand employers’ ability to cure alleged violations, PAGA claim filings have continued to increase. The average court-approved PAGA settlement now exceeds $1.1 million, underscoring the continued severity of this exposure, although the long-term effects of the legislative reforms remain to be seen.
Employers anticipating meaningful relief from recent reforms continue to confront a statutory framework that generates large settlements, substantial plaintiffs’ attorneys’ fees, elevated defense costs, operational disruption, and strict compliance requirements.3,5
Aggressive enforcement strategies remain prevalent, particularly in labor-intensive industries such as hospitality and retail, as well as among technology-sector employers whose long work hours can give rise to timekeeping or misclassification allegations.4,5 No other state has adopted a comparable statutory scheme empowering employees to pursue representative enforcement actions on behalf of the state.
LEGISLATIVE PURPOSE + ORIGINS OF PAGA
California’s labor and employment framework is governed by an extensive and highly technical body of statutes and regulations.5,8 Given the size of the state’s workforce and the limited enforcement resources of the Labor and Workforce Development Agency (LWDA), regulators were historically unable to fully police compliance across all employers and industries.7,10 Enforcement efforts are necessarily focused on the largest employers, leaving many violations unaddressed.7
PAGA was enacted to address this enforcement gap by authorizing employees to act as private attorneys general enforcing Labor Code violations on behalf of the State of California.5,8,9 Rather than providing for traditional compensatory damages, PAGA authorizes the recovery of civil penalties.6 Employees bring claims in a representative capacity for themselves, other current or former employees, and the state.5,8
Following statutory amendments, 35% of recovered penalties are distributed to aggrieved employees, with the remainder allocated to the state.6,10 In practice, individual employee recoveries are often modest, while plaintiffs’ attorneys’ fees, typically awarded separately, commonly represent 30–35% of total settlements, and employer defense costs usually rival or exceed the penalties ultimately paid.1,5
COMMON PAGA ALLEGATIONS
PAGA claims most often arise from alleged technical violations of California wage-and-hour laws rather than intentional wage theft.3,5 The most frequently alleged violations include:
- Failure to pay overtime
- Failure to provide compliant meal periods
- Failure to authorize or permit rest periods
- Minimum wage violations
- Wage statement pay-stub deficiencies
- Waiting time penalties for late or incomplete final pay
Claims also frequently allege inadequate recordkeeping, which can, in turn, trigger penalties.5 Plaintiffs’ counsel routinely plead multiple violations simultaneously, as PAGA penalties accrue on a per-employee, per-pay-period, and per-violation basis, creating substantial exposure even where individual violations are minor or administrative.5,9
INSURANCE COVERAGE CONSIDERATIONS
Most employers rely on Employment Practices Liability insurance (EPL) to manage employment-related litigation risk. Standard EPL policies typically exclude wage-and-hour claims, with limited coverage available only by endorsement.3,4 Where an employer has purchased a wage-and-hour defense endorsement, and no specific PAGA exclusion applies, insurers may provide defense-only coverage for wage-and-hour claims, including PAGA, subject to a sublimit.3,4
Defense sublimits commonly range from $100,000 to $250,000, depending on carrier appetite, employee count, and claims history.3,4 Coverage is almost universally limited to defense costs; civil penalties, restitution, and unpaid wages are generally excluded as a matter of public policy.3,5
In limited circumstances, certain carriers have offered narrowly tailored endorsements providing capped defense and limited indemnity coverage while expressly excluding civil penalties from covered loss. These structures are typically designed to facilitate early resolution of lower-severity claims rather than provide meaningful indemnity for statutory penalties.4
PAGA-SPECIFIC EXCLUSIONS + POLICY AMBIGUITIES
EPL policies may exclude PAGA claims through several mechanisms, including:
- Explicit PAGA exclusions
- Narrow wage-and-hour definitions excluding representative actions
- Reduced PAGA-specific sublimits
- Broad wage-and-hour exclusions
Because wage-and-hour endorsements are not standardized, careful policy review is essential.3,4 Historically, some insureds sought defense coverage through allocation provisions where covered and uncovered claims were pled together. In response, insurers have increasingly tightened allocation language, limiting defense recovery for PAGA and wage-and-hour matters.4
CURRENT MARKET CONDITIONS + RISK ENVIRONMENT
Despite legislative reforms, PAGA claim frequency and severity remain elevated.1,4 Defense costs continue to represent a significant portion of overall exposure, particularly for small and mid-sized employers.5 With PAGA penalty caps now in place, questions remain whether traditional wage-and-hour claims will increase as an alternative enforcement mechanism.2,6 Insurers writing wage-and-hour coverage are closely monitoring loss trends and may respond with premium increases, lower defense sublimits, or expanded exclusions if adverse experience continues.4
From a risk management perspective, statutory reform alone has not materially reduced exposure. Employers with California operations must continue to prioritize compliance, internal audits, and consultation with experienced California labor counsel.5 Brokers with specialized EPL experience play a critical role in evaluating coverage limitations and helping clients understand policy language before a claim arises.3,4
BOTTOM LINE
PAGA remains one of the most significant and complex employment-related exposures for employers operating in California, with claim frequency, settlement severity, and defense costs continuing to rise despite recent legislative reforms. While insurance solutions remain limited, particularly with respect to penalties, defense costs, coverage structure, and policy language, these factors can materially impact outcomes.
Navigating this environment requires early risk identification, disciplined compliance, and informed insurance placement. CRC Specialty brokers serve as a trusted wholesale partner for California risks, bringing deep market access, EPL-specific expertise, and a nuanced understanding of PAGA-driven exposures to help retail agents and insureds structure programs, evaluate coverage limitations, and respond effectively in an increasingly challenging regulatory landscape. Reach out to your CRC Specialty producer today.
CONTRIBUTORS
+ Grant Brakke is a Broker with CRC’s Scottsdale office, where he specializes in Professional Lines coverages.
END NOTES
1. Why PAGA Claims Remain the #1 Risk for California Employers, Koegle Law Group, January 20, 2026. https://www.koeglelaw.com/2026/01/20/why-paga-claims-remain-the-1-risk-for-california-employers/
2. New Report Shows PAGA Reforms Already Delivering Promising Results for California Employers, Advocacy News, November 19, 2025. https://advocacy.calchamber.com/2025/11/19/new-report-shows-paga-reforms-already-delivering-promising-results-for-california-employers/
3. PAGA Defense Lawyer: Defend Against PAGA Claims Litigation, Nakase Law, November 7, 2024. https://california-business-lawyer-corporate-lawyer.com/private-attorney-general-act-paga-defense-lawyer/
4. The Evolving PAGA Landscape, Dorsey & Whitney, October 10, 2025. https://www.dorsey.com/newsresources/publications/articles/2025/10/evolving-paga-landscape
5. The High Stakes and Risks of California’s Private Attorneys General Act (PAGA), Zaller Law Group, P.C., May 26, 2023. https://www.californiaemploymentlawreport.com/2023/05/the-high-stakes-and-risks-of-californias-private-attorneys-general-act-paga/
6. California Overhauls Private Attorney General Act, Jackson Lewis P.C., July 2, 2024. https://www.jacksonlewis.com/insights/california-overhauls-private-attorney-general-act
7. 2023-104 The California Labor Commissioner’s Office, California State Auditor, May 29, 2024. https://www.auditor.ca.gov/reports/2023-104/
8. Private Attorneys General Act (PAGA), State of California. https://www.dir.ca.gov/Private-Attorneys-General-Act/Private-Attorneys-General-Act.html
9. PAGA: A Decade of Victories, Advocate Magazine, September 2014. https://www.advocatemagazine.com/article/2024-september-2/paga-a-decade-of-victories
10. Labor & Workforce Development Agency. https://www.labor.ca.gov/resources/paga/