The “Right to Cure”: A Small Business Guide to Avoiding Labor Penalties
How New Reforms Allow Employers to Fix Payroll Errors and Prevent Costly PAGA Lawsuits
In California, 2026 marks a turning point for small business owners facing labor lawsuits. Historically, a single technical error on a pay stub could trigger a catastrophic “shakedown” lawsuit under the Private Attorneys General Act (PAGA), potentially bankrupting a small firm.
However, recent reforms have introduced a powerful lifeline: the “Right to Cure.” If you act quickly and follow the right steps, you can correct mistakes and reimburse employees to avoid the most severe penalties.
What is the “Right to Cure”?
The “Right to Cure” is a legal window that allows employers to remedy specific Labor Code violations before a lawsuit reaches court. Instead of paying thousands in civil penalties to the state, you spend that money on making your employees “whole,” paying them what they are actually owed plus interest.
Why this matters now:
Small Business Protection: Businesses with fewer than 100 employees have a special, more streamlined path to cure violations through the Labor and Workforce Development Agency (LWDA).
Penalty Caps: If you fix a violation before receiving a notice, your penalties can be capped at 15%. Even if you wait until after the notice, you can still cap them at 30% by acting within 60 days.
Common Violations You Can “Cure”
Not every mistake is curable, but many of the most common (and expensive) ones are:
Wage Statement Errors: Missing addresses, incorrect legal names of the employer, or missing inclusive dates.
Unpaid Wages: Simple payroll errors where an employee was accidentally underpaid.
Meal and Rest Break Premiums: Failing to pay the extra hour of pay when a break was missed or interrupted.
How to Use the “Cure” Process (A 3-Step Guide)
The “Self-Audit” (Proactive)
Don’t wait for a legal notice. Conduct a “privileged” audit of your payroll records.
Check: Do your pay stubs have all 9 required items?
Action: If you find a mistake, fix it immediately and document the “reasonable steps” you took to comply. This proactive move is what triggers the 15% penalty cap.
The 33-Day Window (Reactive)
If you receive a PAGA notice (the formal letter saying you’re being sued), you have 33 days to submit a “confidential cure proposal” to the LWDA.
Small Business Advantage: As a business with under 100 employees, you can ask the LWDA to review your proposal. If they agree you’ve “cured” the issue, the lawsuit can be blocked.
Make Employees “Whole”
To legally “cure,” you must do more than just fix the software. You must:
Pay back wages owed for the last 3 years.
Add 7% interest to those back wages.
Pay liquidated damages if required by the specific statute.
Provide proof to employees and the state that the funds have been sent.
The 2026 “Stay-or-Pay” Warning
While the Right to Cure helps with past mistakes, a new law (AB 692), effective January 1, 2026, creates a new trap. You can no longer require employees to repay training or relocation costs if they quit (“Stay-or-Pay” clauses), unless you meet very strict exceptions. Violating this can lead to a $5,000 penalty per worker, and these are much harder to “cure” after the fact.
The “Right to Cure” is not a “get out of jail free” card—it’s a “fix it for a discount” card. By auditing your payroll today and responding instantly to any legal notices, you can protect your business’s cash flow from aggressive litigation.
Expert Tip: Documentation is your best defense. Keep records of supervisor training and payroll audits. In the eyes of the law, a business that tries to follow the rules is treated much more leniently than one that ignores them.
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