California Court of Appeal Clarifies Construction Industry Exemption From PAGA Claims

On September 2, 2022, the California Court of Appeal, Second District, delivered a rare victory for California construction employers in Jerome Oswald v. Murray Plumbing and Heating Corporation (2022) __ Cal.Rptr.3d __, Dkt. No. B312736.  At its core, this case shows how qualifying employers can—and should—take advantage of California’s construction industry exemption from the Private Attorneys General Act of 2004 (“PAGA”).

Compliance with California’s notoriously comprehensive wage and hour laws has long proven a challenge, even for the Golden State’s most sophisticated employers. The recent explosion in PAGA litigation has compounded these challenges. Enacted in 2004, PAGA allows any employee to sue their employer for civil penalties on behalf of all current and former employees for any and all alleged Labor Code violations committed by the employer. PAGA lawsuits routinely come with multi-million dollar price tags and burdensome litigation costs, and most employers choose to settle rather than risk uncertain liability.

Labor Code section 2699.6 exempts construction industry employers from these PAGA lawsuits if they have a qualifying collective bargaining agreement (“CBA”). To qualify under section 2699.6, a CBA must:

  1. Address wages, hours of work, working conditions, and overtime pay
  2. Guarantee employees at least 30% more than the state minimum wage
  3. Clearly and unambiguously waive the requirements of PAGA
  4. Prohibit all Labor Code violations that would be subject to redress by PAGA
  5. Provide a grievance and binding arbitration procedure for those Labor Code claims
  6. Authorize the arbitrator to award all remedies otherwise available under the Labor Code, except any penalty payable to the Labor & Workforce Development Agency (“LWDA”).

Since the inception of section 2699.6 on January 1, 2019, it has not been fully clear how some of these requirements work in practice. And it was not certain if a company had any options when their preexisting CBA fell short of the mark.

Murray puts the principles of section 2699.6 into practice and sheds some insight. In Murray, a construction industry employer was signed to a CBA covering all pipefitters, among other trades. In 2020, a journeyman pipefitter, Jerome Oswald, formerly employed by Murray sued for civil penalties under PAGA based on claims related to wages, meal and rest breaks, wage statements, and expense reimbursement. The existing CBA required private arbitration as the sole and exclusive remedy for all disputes, including disputes arising under PAGA.

After litigation commenced, Murray negotiated a Memorandum of Understanding (“MOU”) with the union to take better advantage of section 2699.6. The MOU amended the preexisting CBA with new language carefully mirroring the language of section 2699.6. The MOU also expressly stated that it applied retroactively to the entire preexisting term of the CBA—starting four years prior.

The court first ruled that the MOU applied retroactively and covered all the claims in the lawsuit, even though the MOU was executed after Oswald left the company and filed the lawsuit. The court noted that Oswald reaped the benefits of the union’s bargaining power and therefore shouldered the burdens of the union’s collective bargaining choices.

After the court ruled that the MOU retroactively applied to the claims, the court ruled that the MOU qualified for the exemption. The MOU expressly prohibited all violations of the California Labor Code, allowed those violations to be resolved through a grievance-arbitration procedure and not in court, authorized all penalties in arbitration except penalties payable to the LWDA, and contained an express declaration that the parties wished to waive the provisions of PAGA. The court noted that the MOU carefully tracked the language of section 2699.6.

In the end, the court directed the parties to proceed with the claims in arbitration.

The opinion serves as a reminder that construction industry employers can take advantage of a valuable exemption from PAGA through a carefully crafted, qualifying CBA. If there is any doubt whether an existing CBA qualifies, employers can and should immediately negotiate a retroactive memorandum of understanding to shore up their section 2699.6 qualifying language. Employers should also note that section 2699.6 expires on January 1, 2028 but only applies to CBAs in effect before January 1, 2025.

Employers with questions regarding pending PAGA litigation, collective bargaining agreements, or how to take advantage of PAGA exemptions should contact the authors of this article or their trusted employment el at AALRR for assistance.

This AALRR post is intended for informational purposes only and should not be relied upon in reaching a conclusion in a particular area of law. Applicability of the legal principles discussed may differ substantially in individual situations. Receipt of this or any other AALRR publication does not create an attorney-client relationship. The Firm is not responsible for inadvertent errors that may occur in the publishing process. 

  © 2022 Atkinson, Andelson, Loya, Ruud & Romo

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