California Legislature and Governor Approves New PAGA Carve-Out
On September 27, 2021, California Governor Gavin Newsom signed Senate Bill 646 (“SB 646”), which creates a limited exception from the Private Attorneys General Act of 2004 (“PAGA”) for certain janitorial employees performing work under a collective bargaining agreement (“CBA”). SB 646 will go into effect on January 1, 2022.
The Private Attorneys General Act of 2004
PAGA deputizes an “aggrieved employee” as private attorneys general to sue employers for alleged violations of the California Labor Code on behalf of themselves and other “aggrieved employees.” SB 646 excepts covered janitorial employees under a CBA satisfying the bill’s requirements, from filing a lawsuit against his or her employer under PAGA. This carve-out is significant because PAGA claims are typically very costly for employers to defend. Default civil penalties under PAGA are $100 for each aggrieved employee per pay period for the initial violation, and $200 per aggrieved employer, per pay period, per each subsequent violation. Violations which arguably do not economically harm an employee, such as failing to include an employee’s identification number on a wage statement, can create potential costly exposure for an employer of millions of dollars in penalties. Other costly features of PAGA include one-sided attorney fees provisions whereby victorious employers in a PAGA suit may not recover attorney’s fees, even if the suit is completely meritless.
Furthermore, the California Supreme Court has held that an aggrieved employee who brings a representative action under PAGA may recover civil penalties without satisfying class action certification requirements. Finally, as it stands now, PAGA claims cannot be compelled to arbitration because the California Supreme Court ruled that arbitration agreements that waive the right to bring a PAGA action in any forum was unenforceable. Based on the foregoing, PAGA plaintiff employees and the counsel representing them, have been more aggressive in bringing these claims. As of January 2021, PAGA notices have increased more than 1,000% since the inception of the law in 2004, and it is estimated that this number will continue to increase significantly.
The passage of SB 646 is only the second time in PAGA’s history in which an exemption was created for a certain industry. In 2019, AB 1654 was passed, which exempted construction employees in the construction industry. SB 646, in a similar fashion, specifically excepts janitorial employees represented by a labor organization that has represented janitors before January 1, 2021, and also employed by a janitorial contractor who registered as a property service employer in 2020. The rationale for its passage was to “level the playing field for responsible contractors and their workers…”
For the exception to apply, the janitorial employees must be covered under a CBA in effect before July 1, 2028, that expressly provides for the wages, hours of work, and working conditions of employees, and provides premium wage rates for all overtime hours worked. The CBA must also include the following:
Requires the employer to pay all non-probationary workers working in certain worksites total hourly compensation, inclusive of wages, health insurance, pension, training, vacation, holiday, and fringe benefit funds, amounting to no less than 30 percent of the state minimum wage rate.
Prohibits Labor Code violations redressable by PAGA; provides for a grievance and binding arbitration procedure to redress those violations, and allows the union to pursue a grievance on behalf of all affected employees.
Expressly waives the requirements of PAGA in clear and unambiguous terms.
Authorizes the arbitrator to award any and all remedies otherwise available under the Labor Code.
SB 646 defines “janitorial employees” as an employee whose primary duties are to clean and keep in an orderly condition commercial working areas and washrooms, or the premises of an office, multiunit residential facility, industrial facility, health care facility, amusement park, convention center, stadium, racetrack, arena, or retail establishment.
However, the following “janitorial employees” are not covered by the bill:
Workers who specialize in window washing
Housekeeping staff who make beds and change linens as a primary responsibility
Workers working at airport facilities or cabin cleaning
Workers at hotels, card clubs, restaurants, or other food service operations
Grocery store employees and drug retail employees
A janitorial contractor that has entered into a CBA that meets the requirements of SB 646 must, within 60 days of entering into the agreement, submit certain information to the Labor Workforce Development Agency (e.g., name of janitorial contractor, name of labor organization, number of employees covered by CBA, and duration of agreement).
Some notable caveats are that SB 646 does not apply to any PAGA lawsuits brought by covered “janitorial employees” before the end of 2021. The exception under SB 646 also expires on either the expiration of the CBA or until July 1, 2028, whichever is earlier. Covered employers should take note of these deadlines when negotiating their CBAs.
Although SB 646 only covers the property services industries and janitorial employees, the passage of the bill along with AB 1654 raise potential for other industries and employers to pursue similar exemptions from PAGA. With the potential passage of more exemptions similar to SB 646 and AB 1654, the validity of the California Supreme Court’s ruling that PAGA claims cannot be waived by private arbitration agreements may be called into question and are subject to legal challenge.
Covered employers under SB 646 should evaluate their current CBAs and seek to take advantage of the exemption, including the negotiation of any new agreements.