California Supreme Court Limits Manageability Defense to PAGA Claims

On January 18, 2024, the California Supreme Court issued a highly anticipated decision in Estrada v. Royalty Carpet Mills, Inc., determining whether trial courts can dismiss Private Attorneys General Act (PAGA) claims as unmanageable. The Court ultimately concluded that dismissing PAGA claims solely on manageability grounds — even if those claims are complex or time-intensive — is not among the tools that trial courts possess but left various other means for limiting or dismissing PAGA claims undisturbed.

PAGA Claims – A Reminder

As many California employers are aware, PAGA allows employees to bring claims on behalf of the state to recover civil penalties for violations of the California Labor Code. In a successful PAGA action, the California Labor and Workforce Development Agency is entitled to 75% of the recovered penalties, and the remaining 25% goes to the “aggrieved employees.”

The Split in the California Courts of Appeal

The California Supreme Court’s decision resolved a split between the Courts of Appeal in the Second District and the Fourth District over the question of whether courts have the inherent authority to dismiss PAGA claims with prejudice on manageability grounds.[1]

Procedural History of Estrada

Royal Carpet Mills, a California carpet manufacturer, employed Jorge Luis Estrada at one of its two Orange County facilities. Estrada initially filed a complaint against Royalty alleging various class action claims based on alleged violations of the California Labor Code, as well as a PAGA representative claim seeking penalties for various alleged Labor Code violations. Subsequently, twelve additional employees joined Estrada as named plaintiffs.

The trial court certified a subclass of employees to determine the meal period claims, and a bench trial was held where the plaintiffs presented live testimony from twelve of the thirteen named Plaintiffs, deposition testimony from Royalty’s managers, officers, and human resources employees, and testimony from an expert witness. At trial, Royalty presented testimony from two former employees and an expert witness.

Following the bench trial, the trial court decertified the meal period subclass, reasoning there were “too many individualized issues to support class treatment.” Relatedly, the trial court dismissed the PAGA claim for meal period violations with prejudice, stating it was “unmanageable” for similar reasons.

The plaintiffs appealed the decision to the Fourth Appellate District, which reversed the trial court and held that manageability is not a valid basis for dismissing PAGA claims, despite the Second District’s 2021 decision in Wesson v. Staples the Office Superstore, LLC, which held that PAGA claims are subject to manageability requirements and could be dismissed on that basis.

The California Supreme Court Ruling

The California Supreme Court affirmed the Fourth District Court of Appeal decision in Estrada, holding that “trial courts lack inherent authority to strike PAGA claims on manageability grounds.” The Court highlighted the various differences between class action claims and representative PAGA claims and rejected the trial court’s reasoning that a lack of “predominance” for class claims meant that PAGA claims were unmanageable for the same reasons and should be dismissed.

The Limited Impact of Estrada

While the Supreme Court’s decision in Estrada dealt yet another blow to California employers, it did not necessarily amount to the sweeping destruction of PAGA defenses that many among the plaintiff’s bar had hoped or predicted. Indeed, the Court “le[ft] undisturbed various case management tools” short of dismissing claims outright, such as narrowing the scope of PAGA claims and limiting evidence presented at trial. Moreover, the Court reiterated the use of “[r]epresentative testimony, surveys, and statistical analysis, along with other types of evidence” to ensure that “PAGA claims are effectively tried.” The Court also left the door open for lower courts to dismiss PAGA claims on due process grounds, though it stopped short of elaborating on the nature of circumstances where such dismissals could be proper. Additionally, the Court emphasized that its decision does not impact various other existing means to dismiss PAGA claims, such as showing the individual employee is not aggrieved, an argument that can be asserted at the summary judgement stage to obtain a dismissal of PAGA claims.

[1] Compare Wesson v. Staples the Office Superstore, LLC (2021) 68 Cal. App. 5th 746 [concluding that trial courts possess inherent authority to dismiss PAGA claims on manageability grounds] with Estrada v. Royalty Carpet Mills, Inc. (2022) 76 Cal. App. 5th 685 [concluding that trail courts lack such inherent authority].)

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