On March 23, 2022, in Estrada v. Royalty Carpet Mills, Inc., the California Court of Appeal for the Fourth District created a split in authority when they held that wage-and-hour lawsuits brought under California’s Private Attorneys General Act cannot be dismissed on manageability grounds.  This decision directly contradicted the holding in Wesson v. Staples the Office Superstore, LLC[1], which felt like a breath of fresh air for employers, if not for a brief moment.

Primer on Manageability in California

On September 9, 2021, the California Court of Appeal for the Second District analyzed the Private Attorney Generals (“PAGA”), a popular tool used by employees when bringing lawsuits alleging wage and hour violations.  The court addressed the requirements plaintiffs need to satisfy in order to successfully bring a PAGA action on behalf of all aggrieved employees. Under PAGA, an “aggrieved employee” is permitted to bring a representative action on behalf of all other “aggrieved employees” to recover civil penalties for alleged California Labor Code violations.  In Wesson, the PAGA claim involved over 300 store managers who argued Staples had improperly classified them as exempt from overtime requirements under the executive exemption.  Staples moved to strike the PAGA claim on the grounds that adjudicating the claims of these 300 store managers would necessarily involve individual “mini-trials,” and that each aggrieved employees’ individualized situation would vary too greatly, which effectively rendered the PAGA claim unmanageable.

In upholding the trial court’s granting of Staples’ motion, the court recognized that judges have “inherent authority to fashion procedures and remedies as necessary to protect litigants’ rights and the fairness of trial.”  Moreover, the court went on to explain that “PAGA claims may well present more significant manageability concerns than those involved in class actions,” because PAGA claims do not have to meet the same criteria that class actions require, but the sheer size of some PAGA actions can prove to be too difficult and time-consuming for courts to handle.

The Wesson court was not the first to address the unruliness that PAGA cases present.  In Williams v. Superior Court[2], the California Supreme Court while addressing the scope of discovery for PAGA cases opined that the “trial of the [PAGA] action must be ‘manageable.’”

Estrada Holding and Reasoning

While things were finally shaping up well for employers in California, the Estrada Court brought things back to reality.  The Estrada case directly addressed the issue of whether courts have the inherent authority to strike PAGA claims and answered with a resounding “no.”  In reaching this conclusion, the Estrada Court emphasized that PAGA claims are distinct from class actions, and that “[a]llowing dismissal of unmanageable PAGA claims would effectively graft a class action requirement onto PAGA claims, undermining a core principle of these authorities.”

The Court further noted that PAGA claims are “effectively administrative enforcement actions,” in that they allow private individuals to prosecute claims on behalf of the State of California’s Labor Workforce and Development Agency (“LWDA”).  The Court found that permitting courts to dismiss PAGA claims on manageability grounds “would interfere with PAGA’s express design as a law enforcement mechanism,” and noted that “the LWDA is not subject to a manageability requirement when it investigates Labor Code violations and assesses fines internally.”

However, the Court shared in some of the concerns expressed by the Wesson court regarding the difficulties that PAGA representative actions pose.  The Estrada Court asserted that their ruling was not intended to force courts to examine each individual aggrieved employee at trial, which the Estrada Court admitted would be “unduly expensive, impractical, and place far too great a burden on our already busy trial courts.”  Rather, the Court emphasized that courts have other tools at their disposal to make these cases more manageable, such as “[limiting] witness testimony and other forms of evidence when determining the number of violations that occurred and the amount of penalties to assess.”

The Court also took solace in that PAGA plaintiffs will have difficulty in proving widespread violations where cases with vast numbers of employees would require too many individualized assessments, which the Court believes will encourage plaintiffs’ counsel to be more prudent in litigating these claims.  It also encouraged parties to work with the trial courts and create a trial plan that would define a workable group of aggrieved employees that may recover for violations actually having occurred.

Key Takeaways

The holding in Estrada created a clash between districts that will eventually need to be decided by the California Supreme Court.  Although employer-interest groups have attempted to put forth legislation to address the inherent issues in the PAGA statute, it has been mostly the courts that have shaped how the statute operates in California.

Nevertheless, employers should minimize their potential exposure to claims brought under PAGA by consulting with their legal counsel and taking the following measures:

• Reviewing their employee handbook to ensure their meal and rest break policies comply with California law;
• Conducting regular trainings for supervisors and managers on proper practices for ensuring employees take compliant meal and rest breaks; and
• Consider implementing an attestation process whereby employees certify on a regular basis that they have been provided with adequate meal and rest breaks for each respective attestation period.

[1] 68 Cal. App. 5th 746 (2021)

[2] 3 Cal. 5th 531 (2017)