In Estrada v. Royalty Carpet Mills Inc., a unanimous decision by the California Supreme Court resolves a split between California courts of appeal by ruling that a trial court does not have inherent authority to strike PAGA claims on manageability grounds—even if those claims are complex or time-intensive.

The court emphasized that trial courts may use “numerous tools” to manage complex cases—including PAGA cases—such as representative testimony, surveys, and statistical evidence, as well as limiting witness testimony and other types of evidence. A court may also issue substantive rulings “to fairly and efficiently adjudicate an action in cases in which a plaintiff pleads the claim in such an overbroad or unspecific manner that the plaintiff is unable to prove liability as to all or most employees.”

FACTUAL AND PROCEDURAL BACKGROUND

The plaintiffs in Estrada alleged class action wage and hour claims. Additionally, they brought a claim under the California Labor Code Private Attorneys General Act (PAGA). The trial court certified several subclasses, including some pertaining to meal period claims, and then held a bench trial.

After the parties presented witness and expert testimony, the trial court entered an order decertifying the meal period subclasses on the grounds that there were too many individualized issues. The trial court also dismissed the class representative’s PAGA claims seeking penalties for meal break-related violations as unmanageable.

The court of appeal reversed the trial court’s decertification and dismissal order as an abuse of discretion, and ordered a new trial on the class and PAGA claims. The California Supreme Court granted review of this decision.

CALIFORNIA SUPREME COURT’S OPINION

Trial Courts Lack Inherent Authority to Strike a PAGA Claim on Manageability Grounds

Consistent with this holding, the court ruled that trial courts lack inherent authority to strike a PAGA claim on manageability grounds based on judicial economy. To the contrary, “trial courts possess only a narrow inherent authority to dismiss claims based on limited circumstances undisputedly not present in this case (e.g., cases involving a failure to prosecute, frivolous claims, or egregious misconduct).” As such, the court reasoned that “contrary to Royalty's contention that this case is about ‘tak[ing] away’ a power that trial courts generally possess, Royalty would have this court sanction a broad new power that we have never before recognized.”

Class Action Manageability Requirements Cannot Be Grafted On to PAGA Claims

The court rejected the employer’s argument that trial courts have the power to dismiss PAGA claims on manageability grounds like they can with class claims. For several reasons, the court concluded that “class claims differ significantly from PAGA claims in ways that make it inappropriate to impose a class action-based manageability requirement on PAGA actions.”

First, the court reaffirmed that a PAGA action does not need to satisfy class action requirements, including a manageability requirement. The court noted that “while a trial court may deny certification or decertify a class if it would not be feasible to manage the individual issues in a class action trial, denial of certification or decertification is not an option for a trial court when adjudicating a PAGA claim.” The court added that while “trial courts shall endeavor to efficiently manage PAGA cases, just as they must manage any complex cases,” they cannot “impose a class action manageability requirement on PAGA claims.”

Second, the court reasoned that “unlike class claims, PAGA claims are effectively administrative enforcement actions, and imposing a manageability requirement would impede the effectiveness of such actions.” The court stressed that PAGA’s purpose is to “maximize the enforcement of labor laws.” The court added that PAGA links a court’s authority to assess civil penalties to the Labor and Workforce Development Agency’s (LWDA’s) authority, and to the court’s knowledge, there is “no authority that imposes a manageability limitation on the LWDA’s authority to assess a civil penalty.”

Further, the court noted that “a PAGA plaintiff may seek to recover civil penalties from an employer based on violations committed against the plaintiff and other employees without demonstrating that the violations stem from a uniform policy.” Under PAGA’s standing rules as interpreted by the court, a representative plaintiff can “seek penalties on behalf of individuals who have allegedly suffered violations that vary widely in nature. To permit the striking of such claims merely because they require individual determination would deprive the State of the very remedy the Legislature has authorized and would thereby defeat the purpose of the statute.”

The Court Acknowledged an Employer’s Due Process Rights but Declined to Decide Hypothetical Due Process Challenges

The court agreed that employers in class and PAGA actions “have a due process right to present an affirmative defense.” However, the court rejected the employer’s contentions that certain PAGA affirmative defenses “require the testimony of nearly all alleged aggrieved employees” and that limiting the presentation of testimony by individual employees “necessarily amounts to an abridgment of the meaningful right to present an affirmative defense and a violation of an employer’s right to due process.” The court noted that “plaintiffs also do not have an unfettered right to present an unlimited number of witnesses.”

The court acknowledged that “certain characteristics of some PAGA claims, occasioned by the statute's broad standing rules and the lack of need for common proof or class certification, may present trial courts with challenges in ensuring that a defendant's due process rights are preserved,“ but “we express no opinion as to the hypothetical questions whether, and under what circumstances, a defendant’s right to due process might ever support striking a PAGA claim.”

Trial Courts Have Many Tools for Managing PAGA Actions

In a section that is most likely to be cited by parties involved in PAGA litigation, the court emphasized that trial courts have “numerous tools” they can use to manage complex litigation, including PAGA cases. In specific reference to meal break claims, the court identified representative testimony, surveys, and statistical analysis as available tools.

Additionally, the court emphasized that trial courts may, where appropriate, limit the types of evidence a plaintiff can present. The courts may also use other tools to ensure that a PAGA claim is effectively tried, including 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 endorsed the court of appeal’s view that “[i]f a plaintiff alleges widespread violations of the Labor Code by an employer in a PAGA action but cannot prove them in an efficient manner, it does not seem unreasonable for the punishment assessed to be minimal.”

Finally, the court agreed that a trial court can issue substantive rulings, including on pleading challenges and substantive motions, “to fairly and efficiently adjudicate an action in cases in which a plaintiff pleads the claim in such an overbroad or unspecific manner that the plaintiff is unable to prove liability as to all or most employees.”

IMPLICATIONS FOR EMPLOYERS

The opinion in Estrada will likely not discourage the plaintiffs’ bar from continuing to file PAGA actions on behalf of a broadly defined group of aggrieved employees that allege a litany of Labor Code violations.

While employers can no longer seek to strike PAGA claims on manageability grounds, Estrada does allow for other employer challenges to PAGA actions, including asking a court to limit witness testimony and other evidence, and arguing for no or minimal penalties where a plaintiff cannot prove violations efficiently.

Employers can continue to bring pleading challenges and dispositive motions where appropriate. Also, the court did not close the door on due process challenges to PAGA claims where an employer’s right to present defenses is violated. Of course, the best defense to a PAGA action, like other wage and hour litigation, is having wage and hour policies and practices that fully comply with California’s often complex and evolving laws.

Further, because PAGA will continue to be a law that incentivizes plaintiffs’ lawyers to bring wide-ranging PAGA claims primarily to recover fees rather than obtain recovery for employees, employers may look to the general election in November 2024 for possible relief. California voters will consider a proposition called the California Fair Pay and Employer Accountability Act, which would repeal PAGA and thereby end the ability of private organizations or attorneys to assist with Labor Code enforcement actions. Instead, it would authorize the state to provide additional enforcement funding to the California Labor Commissioner’s Office.

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