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What Is a Carve-Out Agreement?

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On December 6th, 2017, the California Division of Workers’ Compensation (DWC) announced the approval of a carve-out agreement between the Los Angeles Police Protective League (LAPPL) and the City of Los Angeles. The approval of this agreement affects about 10,000 union members and gives employers more flexibility in terms of workers’ compensation benefits and policies. Learn exactly what a carve-out agreement is and how the latest development in California could affect you.

About Carve-Out Programs

In business, a “carve-out” refers to a partial sale, or spinoff, of a company. If a parent company sells another party a minority share of a child company but keeps the rest, it’s called a carve-out. In these situations, the child company will then operate with its own board of directors, but it will still receive support and resources from the parent company. In most carve-out agreements, the parent company will eventually sell all the shares of the child company.

A carve-out means something slightly different in the context of labor laws, but it helps to first understand its business meaning. The goal is basically the same for both types of carve-outs – to establish a separate unit that was previously part of the larger unit. In labor laws, a carve-out agreement is when one employer establishes a separate bargaining unit with its employees, instead of continuing to operate under just one, already-established larger unit and management.

In general, the law does not allow carve-out agreements to take place when a productive relationship between the larger unit and its management already exists. Two parties can only form this type of agreement if the administrative director of the DWC approves the program. This has been the case in the recent carve-out agreement in Los Angeles. The recent suggestion fulfilled the carve-out agreement provisions the California Labor Code established, and the DWC approved the program.

What Does the LA Carve-Out Agreement Mean for Workers?

The DWC approval of a carve-out agreement for the LA Police Protective League and the City of LA means employers and unionized workforces within the scope of the agreement can now create alternatives to typical workers’ compensation benefit delivery and dispute resolution. The parties the DWC approves to join the collective bargaining agreement can enjoy the freedom to come up with their own solutions for worker-related systems state laws previously controlled. It is one of 57 currently active labor-related carve-out agreements in California.

Approval of the agreement means that alternatives to the traditional workers’ compensation system in LA may now come to fruition. The point of the agreement is to avoid the costly and time-consuming administrative processes that currently make the workers’ comp claims process inefficient. It is for the employers and the unions to negotiate the terms of the carve-out agreement between themselves. Parties can come up with alternative systems as long as they still provide employees the benefits that the statutory workers’ compensation system offer.

Carve-outs are labor management solutions that can fix issues like high insurance premiums and unnecessary delays in injured employees returning to work. Carve-outs are the most common in the construction industry in California, since this industry has a history of serious injuries and worker fatalities. The latest carve-out agreement affects the LAPPL, the labor union for the LA Police Department, and it may come with changes to workers’ compensation systems for police officers and other professionals in the union. Talk to a lawyer for the latest information.