By Monica Rodriguez

Seyfarth Synopsis: The Board narrowed the circumstances of when a successor employer will be a “perfectly clear” successor.  An employer will no longer be forced to bargain prior to setting the initial terms of employment if the employer engaged in discriminatory hiring practices as to some, but not all, of the predecessor’s former employees.

In Ridgewood Health Care Center, Inc., 367 NLRB 110 (2019), the Board narrowed the scope of when an employer acquiring a unionized company is a perfectly clear successor, such that the successor employer is required to bargain prior to setting the initial terms of employment.  In doing so, the Board overruled precedent established in 1996 in Galloway School Lines, 321 NLRB 1422 (1996).

“Perfectly Clear” Successor Doctrine

The employer acquiring the unionized company is a successor employer that is obligated to recognize and bargain with the union if the operations continue without substantial change and a majority of the new employer’s employees are the predecessor’s employees.

A successor has the right to set initial employment terms before bargaining with the union, unless it is a “perfectly clear” successor.  A “perfectly clear” successor is required to bargain with the union prior to setting initial terms of employment and honor the terms of the CBA negotiated by the predecessor.

A new employer is a “perfectly clear” successor only when the new employer indicates that it will hire all (or substantially all) of the predecessor’s employees.  However, an employer will also be required to bargain with the union prior to setting the initial terms if the employer actively or, by tacit inference, misled employees into believing that they would all be retained without changes to their wages, hours, or conditions of employment.

In Love’s Barbeque, 245 NLRB 62 (1979), the Board held that a new employer is not permitted to set the initial employment terms and conditions without first consulting the union if the new employer engaged in unlawful hiring practices against “all” or “substantially all” of the predecessor’s unit employees.

The Board in Galloway, expanded Love’s Barbeque’s holding so that an employer would be a perfectly clear successor if an employer discriminatorily failed to hire “some” (as opposed to “all” or “substantially all”) predecessor employees in order to avoid bargaining.

Overruling of Galloway

The Board found that Galloway and its progeny “went far beyond the limits of the narrow ‘perfectly clear successor’ exception contemplated by the Court.”  The Board rejected the notion that all employers who discriminate in any degree in the hiring process are “perfectly clear successors.”  The Board noted that this finding “goes too far” and undercuts the fundamental economic rationale for permitting successor employers to set initial employment terms.

The Board noted that many successors take over a distressed business that must undergo fundamental and immediate changes in employment to survive.  So, retroactive imposition of the predecessor’s employment terms on an employer who engages in discriminatory hiring practices runs counter to the principle that initial terms must generally be set by “economic power realities.”

Application To Ridgewood                             

In Ridgewood, the President and Owner of the successor employer announced to the predecessor’s employees that she expected to hire “99.9%” of them and to adhere to the predecessor’s CBA.  This message was contradicted by the successor employer’s counsel.  Even after announcing to the predecessor’s employees that they would be laid off, the President continued to assure the predecessor’s employees that 99.9% of them would be hired.  She later changed her position.

During the hiring process, the successor employer questioned the predecessor’s employee applicants whether they were Union members.  Only 49 former employees were hired out of a total of 101 employees hired.  The successor employer did not hire four of the former bargaining unit member employees who had applied for the position, which the Board found unlawful in light of the antiunion animus.  The predecessor’s employees would have constituted a small majority of the new employer’s workforce had the four former bargaining unit member employees been hired.

Because neither the complaint or the underlying charges alleged a violation based on the President’s comments as a theory, the Board did not analyze the comments and did not reach a finding that the new employer was a perfectly clear successor.  The Board focused solely on the number of former employees who applied to work for the successor, the four employees who the successor denied employment, and the absence of claims that others were discriminatorily denied the opportunity to apply for employment.  Based on this information, the Board found that there was no uncertainty whether the successor would have hired all or substantially all of the predecessor’s employees.  Thus, the successor maintained its rights to set the initial employment terms before bargaining with the union.

Employer Take Away

This case will make it easier for employers acquiring unionized workforces who are successors that they  have the right to set the initial employment terms without first having to bargain with the union.  While the Board did not analyze the employer’s statements to employees, successor employers should be careful in their communications to the predecessor’s employees.

By: Robert Fisher, Jeffrey Berman, Skelly Harper and John Ayers-Mann 

Seyfarth Synopsis: An important issue for colleges and universities is whether faculty are “managerial” employees under the National Labor Relations Act, and thus precluded from union organizing.  Almost 40 years ago, the Supreme Court held in NLRB v. Yeshiva University that faculty are managerial if they exercise “collegial” authority collectively in academic matters.  Five years ago, the Obama Board in Pacific Lutheran University announced a new two part standard for determining the managerial status of faculty members:  (1) whether faculty have decision-making authority in academic programs, enrollment policies, finances, academic policies, and personnel policies; and (2) whether the faculty exercise “actual control or effective recommendation” over each of those areas. 

On March 11, 2019, the Court of Appeals for the D.C. Circuit denied enforcement of the Board’s application of Pacific Lutheran to non-tenure track full- and part-time faculty at the University of Southern California’s Roski School of Art and Design.  The Court remanded the case back to the Board to reconsider its application of Pacific Lutheran.

The case began when Service Employees International Union, Local 721 filed a petition to represent a bargaining unit of full- and part-time non-tenure track faculty member of the Roski School.  USC argued that non-tenure track faculty members were managerial employees because they sat on committees responsible for making decisions in each of the five areas identified in Pacific Lutheran.  After a hearing, the Regional Director, concluded that USC failed to show that the faculty members exercised the requisite control because they represented a minority on those committees.  SEIU won the subsequent election, and USC refused to bargain with the Union in order to challenge the managerial issue.

On appeal to the D.C. Circuit, USC argued that the Board decision conflicted with the Supreme Court’s Yeshiva decision in two ways.  First, USC argued broadly that Pacific Lutheran’s two-part standard also ran afoul of Yeshiva. The Court disagreed.  While cautioning that the Board must be sensitive to the notion of collegial managerial authority, the D.C. Circuit concluded that the two-part standard for effective control did not necessarily contravene the Supreme Court’s Yeshiva decision.

Second, USC challenged the  requirement that faculty subgroups must hold a majority of seats on a committee in order to have effective control.  The Court agreed with the university that this was inconsistent with Yeshiva. The D.C. Circuit reasoned that this aspect of Pacific Lutheran failed to view faculty as a collective body of decision-makers and ignored the potential for commonality among faculty.  The Court emphasized that Yeshiva did not focus on whether one group outnumbered another, but on whether the subgroup was vested with managerial responsibility.

The Court of Appeals granted in part USC’s petition to review and remanded the matter to the Board to undertake review based on a standard more faithful to the Supreme Court’s Yeshiva decision.  The remand could give the newly-constituted Republican majority of the Board an opportunity to reconsider the Pacific Lutheran standard altogether.  Further, while unions have been targeting non-tenure track faculty for organizing in light of that standard, the D.C. Circuit’s decision strengthens arguments that those faculty may be managerial under Yeshiva, particularly where they have the opportunity to participate in committees and other faculty bodies responsible for academic programs.

By Tiffany Tran

Seyfarth Synopsis: In another employer friendly decision, the NLRB explicitly overruled an Obama administration precedent in emphasizing the importance of entrepreneurial activity and returned to the traditional common law test to evaluate independent contractors under the NLRA.

On January 25, 2019, the NLRB returned to its pre-2014, “traditional” common law test for determining the employment relationship issued in SuperShuttle DFW, Inc., 367 NLRB No. 75 (2019). SuperShuttle DFW franchisee drivers in the Dallas-Fort Worth Dallas area sought to unionize under the National Labor Relations Act (NLRA). However, the company treated its drivers as franchisees and were classified as independent contractors. The franchisee drivers bought the franchise from the company, supplied their own vans, and paid their own business expenses. The franchisee drivers were  free to set their schedules, hours of work, and which rides to accept (although they may be fined for accepting a ride and not completing the pickup). The franchisee drivers kept all revenue made from their rides and could even hire additional drivers.  The company charged certain fees to cover benefits provided by the company, such as the SuperShuttle brand, marketing, and use of dispatch system.

In analyzing whether the SuperShuttle franchisee drivers were independent contractors, or employees afforded protection under the NLRA (such as the right to unionize), the NLRB focused on their “entrepreneurial opportunity” for economic gain or loss.  In so doing, the Board explicitly overturned the Obama administration’s 2014 decision in FedEx Home Delivery, which severely limited the significance of a worker’s entrepreneurial opportunity for economic gain in determining the employment relationship under the NLRA. The NLRB emphasized in this decision that entrepreneurial opportunity has “always been at the core of the common-law test.”

Applying these principles, the NLRB found that franchisee drivers had significant opportunity for economic gain due to their autonomy in setting their work schedules, their discretion to own or lease vans, and other decisions that drove the amount of revenue they take in.  The NLRB also noted that the company did not supervise the work of the franchisee drivers and that the parties themselves understood that the franchisees were independent contractors. As such, the Board affirmed the Acting Regional Director’s 2010 determination that the SuperShuttle drivers were independent contractors and had no right to unionize under the NLRA.

This ruling has implications for a wide range of businesses, especially those in the gig economy who use independent contractors to perform work.  However, this ruling is limited to protections under the NLRA and may not have much impact on state worker classification for wage and hour purposes. For instance, California employers must still grapple with the California Supreme Court’s decision in Dynamex Operations v. Superior Court regarding worker classification for Wage Order claims (see Seyfarth’s discussion about the Dynamex case here). Please contact your favorite Seyfarth attorney to discuss how this ruling may impact your business.

By John Ayers-Mann

Seyfarth Synopsis: The NLRB has overturned a previous decision defining any employee’s protest in a group setting as protected concerted activity. In Alstate Maintenance, the Board has sought to adhere to the principles defining protected concerted activity set forth in the Meyers decisions.

The Board majority has shown no signs of slowing in 2019 as it continues to drive national labor policy.  The Board’s recent decision in Alstate Maintenance and Trevor Greenidge, Case 29–CA–117101 (Jan. 11, 2019) (https://www.nlrb.gov/case/29-CA-117101) illustrates the Board’s continuing trend of limiting expansive precedents.

In Alstate Maintenance, the Region issued a complaint alleging that Respondent Alstate Maintenance violated the Section 8(a)(1) of the NLRA when it discharged its employee, Trevor Greenidge.  Greenidge was employed as a skycap at an international airport, and part of his responsibilities included assisting arriving passengers with their luggage.  On July 17, 2013, Greenidge’s supervisor assigned him to assist with a soccer team’s equipment.  Greenidge complained that, “we did a similar job a year prior and we didn’t receive a tip for it.”  When the van containing the team’s equipment arrived, the skycaps refused to assist with moving baggage.  The skycaps were subsequently discharged.

In its complaint, the Region contended that Greenidge’s comment to his supervisor constituted protected concerted activity under the NLRA.  Particularly, the Region argued that Greenidge’s use of the pronoun “we” in a group setting compelled a finding that his activity was concerted.  The Administrative Law Judge reviewing the case disagreed and dismissed the Region’s complaint.  The General Counsel appealed.

On appeal, the Board focused its review on whether Greenidge’s activities were concerted.  In its analysis, the Board reiterated the standards announced in the Meyers decisions.  The Board explained that for activity to be concerted, it must assert a truly group complaint and appear to be intended to induce group action.  The Board noted that the decisions following the Meyers cases evaluated the totality of the circumstances to determine whether the activity was concerted.  Some circumstances that counseled in favor of a finding of concerted activity included whether the comment was made in a group setting, whether the concerns are personal or on behalf of a group, and whether the meeting presented the first opportunity to address the employer’s policy.  General Counsel relied on a Board decision in Worldmark by Wyndham (“Worldmark”), where the Board found that an employee’s protest in the context of a group meeting rendered the complaint per se concerted activity.

After reviewing a line of decisions where the Board applied the Meyers standards, the Board found Worldmark’s precedent problematic.  The Board reasoned that because Worldmark equated protest in a group setting with per se concerted activity, the decision ran afoul of Meyers because it failed to require consideration of the totality of the circumstances.  Accordingly, the Board overruled Worldmark.

Applying Meyers to the instant case, the Board first found the record devoid of any evidence of a group complaint, and that Greenidge’s use of the word “we” was insufficient to find an intent to bring a complaint on behalf of a group.  Second, the Board explained that the statement did not demonstrate that Greenidge was seeking to induce group activity, and that Greenidge admitted he was not attempting to change Respondent’s policy.  Thus, because Greenidge’s complaint was not concerted, it was not protected under the NLRA.

The Board’s decision provides further clarification for employers approaching employee complaints in a group setting.  The decision indicates that the Board will take a more flexible approach of considering the totality of the circumstances, rather than taking the narrow approach urged by Worldmark of finding any complaints in a group setting to constitute per se concerted activity.

By:  Paul Galligan and Samuel Sverdlov

Seyfarth Synopsis: The NLRB’s Office of General Counsel has issued an Advice Memorandum stating that an employer lawfully refused a union’s information request regarding its tax cut savings during bargaining.

During collective bargaining, employers often deal with an uncomfortable dilemma — comply with invasive and overbroad information requests from unions or withhold information, and risk Board litigation.  However, in a recent Advice Memorandum, the NLRB’s Office of the General Counsel channeled its inner Mick Jagger, and told the union, no, you can’t always get what you want … you get what you need.  Specifically, the GC’s office concluded that an employer did not violate Section 8(a)(5) of the NLRA by refusing to provide the union with information concerning the its tax cut savings because the information was neither relevant nor necessary to the union’s performance of its statutory functions.

Background

On December 22, 2017, President Trump signed into law the Tax Cuts and Jobs Act of 2017 (TCJA).  Among other features, the law cut corporate tax rates from 35% to 21%.  In response to the new law, Nexstar Media Group, Inc. sent a memo to its employees announcing that the that the company wants to extend its benefits from the TCJA to its employees via a one-time bonus, and increase to the employees’ 401k plan company match.  This benefit, however, was not extended to Nexstar’s unionized employees whose collective bargaining agreements were open for negotiation.

While the parties were bargaining for successor contracts, the union sent Nexstar a broad information request regarding the company’s financial gains from the TCJA.  The union prefaced its request by stating that Congress intended the TCJA’s corporate tax cut to trickle down to workers’ paychecks and return jobs to the USA, and invited Nexstar to “join it” in implementing Congress’ goals through bargaining.  The union then proceeded to request a deluge of information regarding Nexstar’s financial information, employment of foreign employees, political contributions, etc.  Nexstar refused to provide the information, and the union responded by filing a charge under Section 8(a)(5) of the NLRA.  (The Regional Director then sent the issue to the Division of Advice for a recommendation.)

Advice Memorandum

The GC’s office was unpersuaded by the union’s argument that the information was necessary to: (1) ensure, through bargaining, that Nexstar’s benefits from the TCJA went to workers’ paychecks and returning jobs to the United States; and (2) to aid the union in bargaining about bonus payments and increased 401(k) contributions. The GC’s office rejected the union’s first argument because the goals of the TCJA are not sufficiently related to the union’s collective bargaining relationship with Nexstar — the union could not identify any provision of the TCJA either requiring Nexstar to spend its tax savings towards the union’s preferred objectives or giving the union a right to enforce the statute.  Next, the GC’s office rejected the union’s second argument because the requested information is not necessary to either frame the union’s proposals, evaluate and respond to the Nexstar’s proposals, or verify any of Nexstar’s factual assertions in support of its bargaining positions.  The GC’s office reasoned that Nexstar’s memorandum to its employees did not contend that Nexstar’s ability to grant benefits to union employees was impacted by its tax savings in any way.  Accordingly, the GC’s office concluded that Nexstar did not commit a violation of Section 8(a)(5).

Employer Takeaways

This Advice Memorandum is encouraging for unionized employers.  If the GC’s office had found Nexstar’s conduct to be unlawful, it could have opened a floodgate of invasive requests from union’s regarding employers’ tax cut savings information during collective bargaining.  However, employers should take this decision with a grain of salt and continue to evaluate each union information request carefully.  Employers are reminded to consult experienced labor counsel during collective bargaining.

On December 28, a panel of the United States Court of Appeals for the District of Columbia Circuit (D.C. Circuit), in a 2-1 decision (Browning-Ferris Indus. of Cal. v. NLRB, No. 16-1028), invalidated the National Labor Relations Board’s (NLRB or Board) controversial joint employer test adopted in Browning-Ferris, 362 NLRB No. 186 (2015) (Browning-Ferris). The Court remanded the case back to the Board for further proceedings consistent with its opinion.

Joint employer status potentially can exist under the National Labor Relations Act (NLRA) — and other employment laws — in a variety of circumstances including labor user-supplier, parent-subsidiary, contractor-subcontractor, franchisor-franchisee, predecessor-successor, creditor-debtor, and contractor-consumer relationships.

The Board’s joint employer doctrine is significant because a unionized joint employer has or shares an obligation to collectively bargain over those employment terms it controls or jointly controls. Similarly, a union or non-union joint employer may be found to have committed unfair labor practices within the scope of its control over the workplace. Additionally, under the NLRA, a union can engage in certain forms of picketing, secondary boycotts, or other economic protest activity against an entity determined to be a joint employer instead of a neutral third party.

In Browning-Ferris, the Board majority (3-2) held that even when two entities never have exercised joint control over essential employment terms, and even when any such joint control is not “direct and immediate,” they still will be joint employers based on the existence of unexercised “reserved” joint control or “indirect” control, including control that is “limited and routine.”

In reviewing Browning-Ferris, the D.C. Circuit majority (i.e., Judges Patricia Millett and Robert Wilkins) held that the NLRB “can” consider indirect control and unexercised reserved control as joint employer factors; and, if so, has flexibility in determining what weight to give those factors. As a result, a future Democratic NLRB will have the ability to recognize at least some concepts of indirect and/or reserved control as relevant to joint employer analysis. However, in invalidating the Browning-Ferris formulation, the Court found that the Board’s current test failed to adequately distinguish between indirect control over employment terms and influence or control over “routine” matters related to the formation and maintenance of contractor arrangements. The D.C. Circuit identified cost-plus billing, cost containment measures, providing an “advance description of tasks,” setting basic parameters of performance, and developing contractor “objectives” and “expectations” as examples of actions which — although they may indirectly control or influence a putative contractor’s employees — are not pertinent to a joint employer assessment. The Court sent the case back to the Board to “erect some legal scaffolding that keeps the inquiry within traditional common law bounds.”

The D.C. Circuit also concluded that a remand to the Board was required because the Browning-Ferris decision did not delineate what constitutes “meaningful” collective bargaining — either in general, or with respect to Browning-Ferris’ particular circumstances. In other words, the Court found that the NLRB had not sufficiently explained what employment terms Browning-Ferris co-controlled which made “meaningful” bargaining possible. The Court also appeared to be indicating that the Board needed to address the parameters of any bargaining related to the contours of a joint employer relationship itself, e.g., allocation or reallocation of bargaining obligations between the joint employers.

Although the Court rejected the argument that substantial direct control is the most important factor in any joint employer analysis, the Court found that Browning-Ferris did not present facts as to whether reserved (or indirect) control apart from any actual control alone could result in a joint employer finding. As a result, that question seemingly remains open and unresolved.

In dissent, Judge A. Raymond Randolph criticized the majority for issuing its decision given that the NLRB is presently undertaking joint employer rulemaking. Judge Randolph also considered the majority to have misconstrued the governing common law control concepts.

The D.C, Circuit’s decision will be far from the last word in the joint employer controversy. Apart from the NLRB having been ordered to reformulate the Browning-Ferris test for application to, at least, Browning-Ferris, the Board is engaged in comprehensive joint employer rulemaking which could supersede any test to be developed through case adjudication.

If you would like further information, please contact Seyfarth Shaw at seyfarthshaw@seyfarth.com.

By: Monica Rodriguez, Esq.

Seyfarth Synopsis: In September 2018, the NLRB released its new proposed rule regarding the joint employer standard. The NLRB extended the comment period twice since the release of the new proposed rule. Comments are now due on or before January 14, 2019.

Individuals waiting on pins and needles in anticipation of the outcome of the new proposed joint employer rule will have to wait a bit longer.

On September 14, 2018, the NLRB published its new proposed rule, which Seyfarth discussed here and here. The new proposed rule attempts reverse the joint employer rule created by the Obama Board in 2015. Under the proposed rule, for another employer to be a joint employer, the other employer must possess and exercise substantial, direct and immediate control over the essential terms and conditions of employment in a manner that is more than merely “limited and routine.” Indirect influence of the terms and conditions, contractual reservations of authority never invoked, and mere “limited and routine” authority are insufficient.

Since publishing the rule for comment, the NLRB has twice extended the deadline to submit comments. The new deadline to submit comments is January 14, 2019. The deadline to reply to comments submitted is January 22, 2019. The number of comments submitted is 25,543 and counting.

If you would like to submit a comment or have a comment drafted and submitted on your behalf, please contact your Seyfarth attorney.

 By: Monica Rodriguez, Esq.

Seyfarth Synopsis: The NLRB suspends its request for briefing regarding potential changes to the construction industry bargaining relationship in light of Charging Party Union’s withdrawal of the underlying charge.

The review of whether to make changes to construction industry bargaining relationship has been put on hold. As Seyfarth reported, the NLRB had issued a request for amicus briefs on what the standard should be to determine the majority status of construction unions that have entered into pre-hire agreements, which are permitted under the Act.

Because the Charging Party Union requested a withdrawal of the underlying charge, the NLRB suspended the request for additional briefs on October 15, 2018, pending the Board’s decision on the request for withdrawal. So, employers and unions alike will have to wait and see before we receive additional clarity regarding pre-hire agreements.

  By: Ashley Laken, Esq.

Seyfarth Synopsis: Millennials are an ever-growing portion of the workforce, and they generally have favorable views toward labor unions.  Employers would be well-advised to be attuned to this reality and they may want to consider developing and implementing strategies aimed at heading off union organizing before it starts.

According to a Pew Research Center analysis earlier this year, Millennials now make up more than 35% of the U.S. labor force, making them the largest generation currently in the workforce.  Their numbers are continuing to grow, and it’s estimated that they will make up 75% of the labor force by 2025.

At the same time, according to an analysis by the Economic Policy Institute, the number of union members in the U.S. grew by 262,000 in 2017, and 76% of that increase was comprised of workers under age 35.  Many believe that one reason younger workers are joining labor unions is because they are concerned about workforce trends that are increasing work insecurity, including the rise of automation and companies’ increased use of independent contractors.

Millennials are also generally known to have favorable views toward labor unions.  A 2017 report published by the Pew Research Center showed that adults younger than age 30 view unions more favorably than corporations.  According to that report, 75% of adults aged 18 to 29 said they have a favorable opinion of unions, while only 55% said they have a favorable view toward corporations.  And in late summer of this year, the National Opinion Research Center at the University of Chicago found that 48% of all nonunionized workers would join a union if given the opportunity to do so.

Millennials have also demonstrated an interest in social activism.  Many younger workers perceive unionization as potentially combating those aspects of jobs that they view as suboptimal, including perceived racial and gender discrimination and a lack of advancement opportunities.  Union organizers are increasingly recognizing that younger workers place a lot of importance on equitable treatment, upward mobility, fair wages, and work/life balance.  Unions are also using new and often informal methods to recruit employees, including social media and text messaging, effectively “speaking the language” of Millennials.

Indeed, the last few years have seen union organizing in industries that traditionally haven’t been unionized, including digital media, nonprofits, and coffee shops.  It almost goes without saying that employees in these industries are often predominantly comprised of Millennials.

And the recent walkout by thousands of non-unionized Google employees at offices around the world was the first protest of its kind by well-compensated tech employees, many of whom are Millennials.  The stated demands of the brief walkout, which were posted on an Instagram page, included an end to forced arbitration in cases of harassment and discrimination, a commitment to “end pay and opportunity inequity,” to “promote the chief diversity officer to answer directly to the CEO,” and to have a “clear, uniform, globally inclusive process for reporting sexual misconduct safely and anonymously.”

Although demands such as these fall outside the scope of what the National Labor Relations Board considers to be mandatory subjects of bargaining between employers and labor unions, they shed light on some of the concerns held by the modern workforce.  On this point, in a recent national survey conducted by MIT, a majority of workers said they don’t have as much of a voice as they believe they should on issues ranging from compensation and benefits to protection against harassment.  These sorts of sentiments can provide fertile feeding ground for union organizers.

Even though many employers recognize some of the negative aspects that can come along with union representation, many employees (including managers and supervisors) might not.  For example, union representation can and often does result in a loss of flexibility in addressing employee issues, and it also results in the insertion of an outside third party between management and employees, which can create a counterproductive “us versus them” attitude.

Employers would therefore be well-advised to train their managers and supervisors on these topics, and also to be on the lookout for union organizing activity among their employees.  Employers should also consider providing positive employee relations training for their managers and supervisors, which could head off union organizing activity before it starts.

 

By 

Seyfarth Synopsis: AB 1654 provides a PAGA exemption for certain employees covered by a collective bargaining agreement. While AB 1654 is limited to the construction industry, its underlying rationale applies much more broadly, and may augur further thoughtful restrictions on PAGA’s broad scope.

California’s Private Attorneys General Act, imposing draconian penalties for even relatively trivial Labor Code violations, remains the bane of California employers. Efforts to restrict PAGA’s scope thus arise from time to time in the California Legislature, which occasionally enacts some reform. Lost in the attention received by recent high-profile employment legislation was a bill of enormous import for the construction industry specifically but also (potentially) for the future of PAGA enforcement more broadly.

AB 1654, effective on January 1, 2019, exempts “employees in the construction industry” from PAGA if employees’ collective bargaining agreements meet certain requirements. To qualify for a PAGA exemption, a CBA must

  • apply to working conditions, wages, and hours of work of employees in the construction industry,
  • ensure employees receive a regular hourly wage not less than 30% more than the minimum wage,
  • prohibit Labor Code violations redressable by PAGA,
  • contain a grievance and binding arbitration procedure to redress Labor Code violations remedied by PAGA,
  • expressly waive the requirements of PAGA in clear and unambiguous terms, and
  • authorize an arbitrator to award all remedies available under PAGA, except for penalties payable to the LWDA.

While limited to the construction industry, AB 1654 suggests the question: why are not all industries afforded this exemption option? This thought was not lost on AB 1654’s opponents, who wondered if the bill was a “camel’s nose under the PAGA tent”:

The 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.

. . .

With that in mind, a key policy question presented by this bill is whether there is sound basis for distinguishing the construction industry from other sectors of the economy in relation to the application of PAGA. If not, it may be difficult, from a policy point of view, to rationalize denying future requests for PAGA exemptions under similar circumstances.

This is indeed the key policy question, and to which there is an easy answer: there is no sound basis to single out the construction industry for special protection from PAGA lawsuits. AB 1654 undermines the PAGA defenders’ argument, adopted by the California Supreme Court in Iskanian, that a PAGA plaintiff stands in for the state and cannot waive the state’s power by private arbitration agreement. In the bill, the Legislature says otherwise. PAGA claims can be waived—in this case through a valid CBA—provided employees have redress for Labor Code violations through a grievance and arbitration procedure in the CBA. While AB 1654 applies only to the construction industry, its reasoning supports an argument employers should use to argue against the logic of Iskanian in other contexts.