If you found yourself at one of the many SCCA events this year, you may have overheard some talk about the legislature’s recent PAGA reform.

Now, don’t be confused here. Unless your profession has you engaged in public policy or labor law, the word “paga” is certainly not what you might expect. Yes, it’s a conjugated verb of the Spanish word “pagar.” Which, coincidently, means “to pay” in Spanish. But that’s not exactly what we’re talking about here. So, if you heard something like “The legislature’s PAGA reform bill might make it,” you could be a bit confused. It’s not a reference to being paid on time for work completed in Central or South America or Spain or some other place where the native language is Spanish. It’s something much more sinister for California businesses.

PAGA stands for the California Private Attorney General Act (PAGA) and it allows private attorneys, with the consent of the Labor Commissioner, to pursue Labor Code violations against California employers on behalf of aggrieved employees. The act entitles the prevailing plaintiff to have their attorney fees paid by the employer and authorizes 25 percent of all the penalties found against the employer to also be sent to the plaintiff. The remaining 75 percent is sent to the state.

Hence, PAGA creates a perverse and personal incentive to file claims against employers. You don’t have to look hard to find California employers’ opinions on PAGA.

Assemblyman Tony Thurmond (D-Oakland) (back row, far left) presides over the Assembly Labor and Employment Committee hours before the legislature adjourned for the year. The committee had just passed AB 1654 (Rubio). Also shown (back row, far right) is Assemblyman Heath Flora (R-Modesto). Assemblyman Ash Kalra (D-San Jose) is facing away from the camera. AB 1654 passed out of the committee unanimously with a 7-0 vote.

Recently, Tom Manzo, the President of Timely Prefinished Steel Door Frames and the current Chairman of the California Business and Industrial Alliance, wrote an article for the daily California political blog, Fox and Hounds, about a PAGA claim filed against his company. Here’s what Manzo said about PAGA:

“This is a shakedown and the business owner knows it and so does the trial attorney suing them. The only winners in these lawsuits are the trial lawyers … such laws are hurting small business owners.”

But PAGA doesn’t just impact employers in the manufacturing business. Contractors with master labor agreements (MLAs) have also been subjected to them. Several SCCA members spent considerable money defending themselves against PAGA claims. A legislative analysis on AB 1654, a 2018 attempt to reform PAGA, clearly outlines a contractor’s struggle.

“…involved a PAGA claim that was filed in 2012 against a signatory contractor and which was litigated over several years. After a bench trial, the superior court judge returned a nominal $50 PAGA award for the plaintiff. The judge also denied his request for attorneys’ fees because the relief he obtained was so small that he did not qualify as a prevailing party under PAGA. In the meantime, the contractor spent inordinate amounts on attorneys’ fees in defending against this $50 case and will spend more in defending against an appeal the plaintiff has filed.”

There is no question PAGA lawsuits absorb a lot of resources for contractors. But that’s not even the bad part of the story. Just think about the public policy behind PAGA liabilities for union contractors.

By virtue of their signatory status, SCCA contractors already have a process to address labor code violations alleged by their employees. It’s described in detail in every master labor agreement signed with the unions. Those arbitration agreements are collectively bargained by the association and the union, and, by extension, by the individual contractor and worker.

So, it’s especially disconcerting to see PAGA claims against union contractors. Not only are they a financial drain on the contractor, they undermine the private agreements embodied in the MLAs. And that is especially troubling. The state simply should not assert itself here.

It’s for this reason that the legislature considered, and ultimately passed, legislation to provide relief to union contractors in the 2018 legislative session. Assemblymember Blanca Rubio (D-Baldwin Park) amended AB 1654 late in the session and was able to masterfully maneuver it to the governor by the end of August. SCCA worked closely with the Assemblymember and with the sponsors of the bill, the Carpenters Union, to assist in its passage. There is no doubt the bill would not have made it out of the legislature without the unwavering support and commitment of the Carpenters Union.

The funny thing is the bill almost didn’t pass. All legislation must be passed by 11:59 pm on August 31. If bills fail to meet that deadline, they become subject to legal challenges that could ultimately invalidate the new law. AB 1654 passed out of the Assembly literally minutes before the midnight deadline.

Governor Jerry Brown signed AB 1654 into law on September 19, 2018. It takes effect on January 1, 2019, at which time, union contractors will no longer be exposed to the potential for Private Attorney General Act claims.

Todd Bloomstine is a California registered lobbyist. He is the owner of Bloomstine & Bloomstine and has represented SCCA in Sacramento since 2001.

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