Many construction companies in California already know the PAGA acronym all too well: The Private Attorneys General Act (“PAGA”) has been making life complicated for well-meaning employers since 2004. If you’re reading this and you’ve yet to find yourself ensnared in PAGA litigation, count yourself lucky – for now.
What is a PAGA Action and Why Should I Be Concerned?
In a nutshell, PAGA empowers plaintiffs to seek penalties for violations of the California Labor Code, on behalf of the state, acting as a deputized “Private Attorney General.” Looking back one year, the penalties can be substantial. They accrue on a per-violation basis and can easily run into the hundreds of thousands of dollars. Additionally, lawyers who succeed in a PAGA action are entitled to recover their legal fees – which are often multiples of the defense attorneys fees – from the employer. When a California employer is sued in a PAGA action, the named plaintiff is typically a current or former employee. But the true plaintiff in a PAGA action is the state of California. And because PAGA actions arise out of alleged wage and hour violations, PAGA actions are primarily driven by employee pay records and related company policies (payroll records, pay stubs, time sheets, etc.).
PAGA actions are daunting, and expensive to defend. But, with a little bit of preparation, you can position yourself to defend against PAGA actions, while also reducing your exposure to such actions in the first place. Both are worthwhile endeavors.
Unfortunately, the construction industry has a reputation – perhaps undeserved – of being slow to adapt to keeping up with California labor law, or implementing advances in payroll technology. Focusing more on projects at hand, and now facing labor shortage challenges, construction companies seem to back-burner reviews of their employment policies and payroll systems. But, when it comes to PAGA actions, the devil is in those very details. And the employment plaintiffs’ bar focuses there. So when a PAGA action is filed, construction employers are especially burdened – they must actively and aggressively defend themselves against the lawsuit, and they must commence the process of changing their policies moving forward, to the extent the PAGA action identifies technical errors on the company’s part. The mechanical part of responding to a PAGA claim is also a substantial challenge. For construction industry employers who do everything “on paper,” depending on that employer’s document management systems, it is not uncommon for employers (or their lawyers) to spend hundreds, or even thousands of hours compiling, redacting, and otherwise producing documents responsive to the plaintiff’s claims. Without even examining the merits of a PAGA action, the toll of preparing to defend the action is a costly and time-consuming affair for those construction industry employers who still rely on paper-based systems.
What Can Construction Employers Do?
Keep An Up-to-Date Handbook, With Examples
A prophylactic pre-litigation PAGA audit can make sure your company is best positioned to respond to a PAGA action, but this is only half the battle. Maintaining and adhering to strong and compliant wage and hour policies will make sure you’re not betting the company when it comes to liability risks presented by a PAGA action. At the root of every PAGA lawsuit is a current or former employee who believes he has been wronged. Even if that particular employee was accidentally underpaid, for example, strong handbooks and policies will go a long way towards demonstrating that your company, as a whole, tends to be compliant. Consult with your employment counsel to ensure your handbooks are up-to-date.
Digitize Your Records
Do you do your business “on paper?” Is there some warehouse out there with a hundred boxes full of old pay stubs? If a court ordered your company to produce payroll records for every employee you’ve ever had for the last several years, how would you do so? How quickly could you comply? Could you comply at all?
If your company still uses paper in its wage-payment related operations, now is the time to go digital. Your employment attorney can recommend a modern payroll consultant who can (in a cost-effective fashion) streamline your operations and reduce risks of PAGA action. But what about those old records? The prudent approach is to start scanning them. Take those old paper records and have them digitized so that if a PAGA action comes, you’re sending your lawyer a single .PDF file instead of dropping off dozens of banker’s boxes at their office doors.
Track The Data That Matters
PAGA is a complex and nuanced area of California employment law, and it is constantly evolving. However, certain questions always arise: How many employees did you employ during the “relevant period” of the claim? How many “work weeks” did those employees work? Do you pay employees who take a late lunch or work through lunch? Do you pay overtime? Is it calculated correctly? And, even if you can easily answer any of the above, can you prove it?
Again, there is no way to be certain to avoid a PAGA action. But construction employers in particular can defend themselves more efficiently by being ready to answer easily anticipated questions. The above are just examples – consult with your employment attorney to determine what you need to be tracking and documenting if you aren’t already.
Empower Your Employees
PAGA actions focus on wage-related violations. And construction industry employers deploy workers all over the state, at jobsites far away from the home office and the payroll staff. For such reasons, construction industry business owners often cry foul as it relates to the practical difficulties of compliance with California law and managing various job site operations, including
payroll-related obligations. As an example: How can a foreman adequately ensure all on-site workers are timely taking lunch breaks when the site itself includes dozens (or more) workers, and physically spans multiple city blocks? But with regular training and reinforcement, and by making employees understand their own responsibility for accurately tracking and reporting their meal periods, employers can reduce to some degree the risks of a PAGA actions for meal or rest break violations. And there are similar strategies for most other PAGA claims.
Consult Your Insurance Broker
You may have heard someone say that PAGA claims aren’t covered by employment practices liability (“EPL”) insurance. While often true, that isn’t always the case. So, communicate with your insurance broker. Discuss PAGA. Discuss wage-and-hour claims. Discuss your operations and related employment-claim risks. Ask specific questions about sublimits for defense of such claims. Certain policies can include a defense for PAGA and other wage-and-hour claims. Such a provision in your EPL insurance can be of great usefulness, especially in evaluating risks and modeling total exposure when sued under PAGA.
Consider Implementing or Updating Employee Arbitration Agreements
At the time of this writing, PAGA actions cannot be compelled to arbitration. However, where a valid arbitration agreement is in place, and a PAGA plaintiff brings individual claims (as is often the case), arbitration of individual claims can be an effective strategy for resolving all claims including under PAGA.
Speak with your employment attorney about whether arbitration agreements are right for your business, and how to implement an agreement that will continue to pass muster in 2022 and onward.
What Being Prepared Will Do for You
When a prepared employer gets hit with a PAGA action, however meritorious or meritless, there’s usually much less panic than the employer who did nothing to prepare. A recent client comes to mind. The LWDA Notice Letter and PAGA Complaint hit the usual high notes – meal and rest period violations, underpaid wages, unpaid minimum wages, wage statement violations, and the like. What plaintiff’s attorneys anticipate, early on, is a lot of scrambling for time and unsupported assurances that the employer is “clean.” But our client had already digitized its records. Its employee handbooks (both current and during the relevant period) were up-to-date, with practical examples so there was no room for misinterpretation. It had a system in-place to monitor late or missed meal periods, and this system automatically issued premium pay. When plaintiff’s counsel hit this client with early discovery requests (again, intended to cause panic), this client merely produced the documents. The PAGA action of course still needed to be litigated. But being prepared reduced the defense costs, reduced the exposure, and reduced the attendant stress for the employer. And that case settled quickly and cheaply as a result. Avoiding a panic-induced scramble to collect documents was critical in keeping all those numbers low, including the settlement figure.
Conclusion
There is no surefire way to prevent a PAGA action. Unless you are ready, in advance, dealing with a PAGA action can present a substantial – perhaps an existential – risk to your business. Construction industry employers would do well to consult with their employment counsel to determine how they can best prepare to defend themselves against PAGA actions.
John E. Solis is an attorney with Dunn DeSantis Walt & Kendrick. John’s practice is focused on employment law and employment disputes. In addition to counseling employers, John defends businesses in all manner of employment disputes, including single-plaintiff FEHA claims, complex wage-and-hour class actions, and PAGA representative actions. He can be reached at jsolis@ddwklaw.com.
David D. Cardone is a founding partner of Dunn DeSantis Walt & Kendrick. David represents businesses and business owners involved in litigation, including class actions and employment matters. In addition, he regularly represents and counsels businesses on strategic, non-litigation and risk management matters. He can be reached at dcardone@ddwklaw.com.
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.
