The California Supreme Court recently issued a long-awaited opinion resolving a split in the Court of Appeal over whether trial courts may dismiss unmanageable PAGA actions. In Estrada v. Royalty Carpet Mills, Inc., filed January 18, 2024, the California Supreme Court considered whether trial courts possess inherent authority to strike/dismiss Labor Code section 2698 Private Attorneys General Act (“PAGA”) claims on manageability grounds. California appellate courts have reached conflicting results on the issue (see Estrada v. Royalty Carpet Mills, Inc. (2022) 76 Cal.App.5th 685, 697 (finding no inherent authority) Wesson v. Staples the Office Superstore, LLC (2021) 68 Cal.App.5th 746, 766–767 (recognizing such authority) ; Woodworth v. Loma Linda University Medical Center (2023) 93 Cal.App.5th 1038, 1047, review granted Nov. 1, 2023, S281717 (Woodworth) (agreeing with Estrada that trial courts lack authority to dismiss PAGA claim for lack of manageability) ). In Hamilton v. Wal- Mart Stores, Inc. (9th Cir. 2022) 39 F.4th 575, 587, the Ninth Circuit resolved a similar split among federal district courts applying California law by rejecting the imposition of a manageability requirement.

Plaintiffs in Estrada, former employees, brought several class claims and a PAGA claim seeking penalties for Labor Code violations. The court certified a class and three subclasses and held a bench trial. It subsequently decertified two meal period subclasses on the ground there were too many individualized issues, and dismissed the PAGA claim seeking penalties for meal break violations for persons other than the named plaintiffs on the basis it was unmanageable. The Court of Appeal reversed the order and ordered a new trial. Royalty petitioned for review. The Supreme Court rejected Royalty’s argument that trial courts have broad inherent authority to strike any claim for the sake of judicial economy, noting the court’s inherent authority is tightly circumscribed and confined to situations where the plaintiff has failed to prosecute diligently or where the complaint is fictitious or sham, neither of which suggest the use of authority to serve judicial economy. The Court specifically found that CCP sections 128, 187, 583.150, 581, and standard 3.10(a) of the Standards of Judicial Administration do not support a finding of inherent power to strike a claim due to manageability concerns.

The Court also found it was inappropriate to impose a specific class action-based manageability requirement on PAGA actions because such manageability bears on questions of superiority and the predominance of common issues, requirements unique to the class action. In contrast, a PAGA action need not satisfy class requirements but is based instead on the Legislature’s intent to maximize the enforcement of and compliance with labor laws. A holding that could lead to the dismissal of PAGA cases would frustrate legitimate legislative policy. The Court added that class action requirements, including manageability, developed from California courts’ assertion of inherent equitable powers informed by federal law, whereas a PAGA claim is a pure statutory claim existing under California law. The differing doctrinal foundation of these actions further supports the conclusion that trial courts lack inherent authority to mandate a manageability requirement in PAGA actions.

With PAGA filings continuing their upward trend, California employers find themselves at increased risk for liability, but the future of PAGA is yet to be written. In November, the proposed California Fair Pay and Employer Accountability Act may replace PAGA by returning labor claims to the independent regulator, thereby eliminating employee lawsuits for monetary penalties and helping many small businesses that have been subject to shakedown PAGA lawsuits. We will monitor and provide updates on this issue as developments continue.