California Governor Signs Bill Exempting Certain Construction Employers from PAGA Penalties
California’s Assembly Bill 1654 (“AB 1654”) provides a PAGA carve-out for unionized construction workers covered by an applicable collective bargaining agreement (“CBA”). For Now, AB 1654 is limited to the unionized construction industry, which makes up a small section of California’ workforce. However, its purpose in providing relief from PAGA may serve as a prequel to further relief from PAGA’s oppressive scope.
What Exactly is PAGA and Why Should Employers Care?
In 2004, California enacted the Private Attorneys General Act (“PAGA”) which imposes substantial monetary penalties on employers for even relatively trivial Labor Code violations. This law empowers lawyers to step into the shoes of current and/or former employees to seek crippling monetary penalties for minor violations, such as a delayed lunch break, even where the employee suffered no actual harm. PAGA vests substantial power to disgruntled employees to penalize employers merely attempting to navigate California’s maze of labor laws. Attorneys can easily abuse PAGA‘s power by turning insignificant violations into representative or class action cases, tying up employers in expensive litigation under threat of substantial penalties and attorneys’ fees.
What Does AB 1654 Provide for Certain Employers?
Employers have been complaining about the abusive and frivolous nature of PAGA for years, but to no avail. In recent years, only minor changes to PAGA have taken effect due to substantial opposition to change by labor unions and plaintiffs’ attorneys, such as the Consumer Attorneys of California, who opposed AB 1654. But alas, AB 1654 offers a possible glimmer of hope even if its reach does not extend very far – only to unionized employers in the construction industry.
AB 1654, which goes into effect on January 1, 2019, carves out “employees in the construction industry” from PAGA if the employees’ CBA meet certain requirements. To qualify for this PAGA exemption, a CBA must:
- Expressly provide for the wages, hours of work, working conditions, premium wage rates for all overtime hours worked, and for the employee to receive a regular hourly pay rate of not less than 30 percent more than the state minimum wage rate;
- Expressly waive the requirements of PAGA in clear and unambiguous terms;
- Prohibit Labor Code violations typically redressed by PAGA while simultaneously containing a grievance and binding arbitration procedure to redress Labor Code violations remedied by PAGA; and
- Authorize an arbitrator to award any and all remedies otherwise available under the Labor Code (other than those that would be payable to the state).
The carve-out under AB 1654 expires on the date a CBA expires, or on January 1, 2028, whichever is earlier.
The California Conference of Carpenters sponsored AB 1654. It argued, “[the bill] is needed to protect construction industry employers from frivolous lawsuits brought under PAGA.” This is the same argument employers have been making since PAGA was enacted in 2004.
While limited to the construction industry, AB 1654 raises an important issue: should other industries be afforded the same exemption, and if so, should PAGA be eliminated altogether? This natural train of thought was not lost on AB 1654’s opponents and the committee itself. The committee’s own analysis of AB 1654 states, “[t]he immediate impact of this bill is limited to the construction industry. Its longer-term policy implications may not be. The justification provided for the PAGA exemption proposed by this bill is that some construction industry employers have been recently targeted by frivolous PAGA lawsuits. It is not hard to imagine employers in many other sectors making the same argument.” The Committee went on to admit the hypocrisy of the bill, stating, “it may be difficult, from a policy point of view, to rationalize denying future requests for PAGA exemptions under similar circumstances” for employers outside of union-based construction.
Numerous other employers argued against the bill not because of the bills carve-out, but because the bill does not go far enough. The committee even acknowledged the best solution may not be “carving out an exemption to PAGA,” but to “engage in further efforts to reform PAGA itself.”
What can Employers Take Away from AB 1654?
On September 19, 2018, over considerable opposition, Governor Brown passed and signed AB 1654 into law. There is no identifiable reason to single out the construction industry for special protection from PAGA lawsuits. Employers of unionized construction workers are encouraged to ensure all collective bargaining agreements comply with AB 1654 to avoid the pitfalls of PAGA. For the majority of employers not utilizing unionized construction workers or not in the construction industry, the legislative intent behind AB 1654 will surely be a key tool in challenging PAGA moving forward. AB 1654 is the first step towards major reform of PAGA and hopefully not the last.