By Lauren Koger

 

What is PAGA?

Since its inception in 2004, California’s Private Attorneys General Act (“PAGA”) has made waves in California’s construction industry. PAGA allows employees to file lawsuits on behalf of other employees against their employers for California Labor Code violations.

Because PAGA lawsuits include claims on behalf of multiple employees and allow for recovery of attorney’s fees, they can lead to large recoveries against employers. This makes PAGA a powerful tool for employees. Since its introduction, there has been a significant increase in PAGA claims, exposing more employers to costly lawsuits each year.

How Can Employers Protect Themselves?

One option is to hire unionized contractors. On the outset, this seems counterintuitive. Unionized contractors are more expensive and have less flexibility regarding scheduling. However, unlike their non-union counterparts, the law carves out a PAGA exemption for unionized construction employees. This exemption prohibits unionized contractors from filing PAGA lawsuits against their employer if certain requirements are met in a collective bargaining agreement.

What is a Collective Bargaining Agreement?

            A collective bargaining agreement (“CBA”) is a written agreement between an employer and a union representing workers. This legally binding agreement lays out the terms of employment. These terms could include wages, employee benefits, limitations on strikes, working hours and conditions, grievance and arbitration procedures, and union and management rights and responsibilities. Importantly, as noted above, it provides employers the ability to waive PAGA claims.

Exemption Requirements:

To satisfy this exemption, specific language must be included in a collective bargaining agreement. An agreement must expressly provide for wages, hours of work, working conditions of employees, premium wage rates for overtime hours worked, and a regular hourly pay rate of at least 30% more than the state minimum wage rate. A collective bargaining agreement must also:

• Prohibit all violations that would apply under PAGA and provide a grievance and binding arbitration procedure to address and resolve violations.
• Expressly waive PAGA requirements in clear terms.
• Authorize an arbitrator to award any and all remedies otherwise available under PAGA.

If the above requirements are satisfied in a CBA, an employer is immune from PAGA claims.

Retroactive Application:

Another benefit to the PAGA exemption is that it can be applied retroactively, long after a CBA has been signed. This can be accomplished via an updated memorandum of understanding (“MOU”). An MOU is an agreement between a union and an employer, signed after a CBA, agreeing to an additional set of terms. Those terms can include a waiver of PAGA claims.

The waiver of PAGA claims is not limited to events occurring after an MOU is signed. The waiver can be retroactively applied to the signing date of a CBA. For instance, if a union and an employer enter into a CBA in 2020, but a waiver of PAGA claims via a MOU was not agreed upon until 2026, all PAGA claims would be barred from 2020, the date the CBA was signed.

Takeaways:

As PAGA claims become more prevalent, it is important as an employer, to know how to protect your company from PAGA lawsuits. One option may be to hire unionized contractors. This exemption creates a path to avoid expensive PAGA lawsuits and resolve disputes discreetly and efficiently. Next time you hire workers, consider hiring unionized contractors and implementing PAGA exemption requirements in a CBA to protect your company from future litigation.

 

Lauren Koger is a law clerk with Dunn DeSantis Walt & Kendrick. Lauren is a J.D. Candidate at California Western School of Law. She graduated from Boise State University, double majoring in Criminal Justice and Psychology. Upon graduating law school and passing the bar, Lauren plans to practice business and corporate law.

Dunn DeSantis Walt & Kendrick provides a broad spectrum of legal services to businesses of all sizes, from small, local start-ups and non-profits to large, national companies. DDWK’s real estate development and construction practice includes representing all segments of the development and construction industries on both private and public projects. 

You can find additional information and resources related to helping business owners and their businesses on the DDWK website.