California Supreme Court Limits Trial Courts’ Authority to Dismiss PAGA Claims Based on Manageability

By Swerdlow Florence Sanchez Swerdlow & Wimmer

February 7, 2024

In January, the California Supreme Court delivered a crucial decision in Estrada v. Royalty Carpet Mills, Inc. (“Estrada”), eliminating a trial court’s inherent authority to strike a Private Attorneys General Act (“PAGA”) claim based on manageability grounds.  The unanimous ruling resolves a split in the Court of Appeal, and holds that trial courts do not possess inherent authority to dismiss PAGA claims based on concerns about judicial manageability.  The ruling has significant implications for employers defending PAGA actions, clarifying the extent of trial courts’ discretion in managing such claims.

Background

Estrada involved a combined wage-and-hour class action and PAGA complaint against Royalty Carpet Mills, alleging various violations of the California Labor Code including a failure to provide lawful meal and rest periods.  The employees sought to pursue class claims as well as a representative PAGA action for civil penalties.  The trial court certified the meal period subclasses, but later decertified them due to individualized issues.  The trial court also dismissed the representative PAGA claim for meal period-related penalties, citing manageability concerns.  The Court of Appeal reversed the trial court’s decision to dismiss the PAGA claim, leading to the California Supreme Court’s review to settle the split in authority on a trial court’s authority to dismiss a PAGA action as being unmanageable.

Key Findings

In finding that manageability requirements are inappropriate for PAGA claims, the California Supreme Court emphasized three significant distinctions between PAGA and class claims.  First, unlike class actions, PAGA claims do not require manageability to move forward.  Second, PAGA claims to function as administrative enforcement actions, and imposing manageability requirements would hinder their effectiveness.  Third, the statutory provisions governing PAGA do not include a manageability limitation on the Labor and Workforce Development Agency’s authority to assess civil penalties.

The Court held, therefore, that trial courts lack inherent authority to dismiss PAGA claims based solely on manageability grounds.  While trial courts possess tools to efficiently manage PAGA claims, outright dismissal due to their complexity or time-intensive nature is not among those tools.

Impact on Employers

This ruling has a profound impact on companies defending PAGA actions, eliminating the manageability defense that employers have frequently asserted.  While trial courts now lack inherent authority to strike PAGA claims based on manageability concerns, manageability remains a basis to potentially reduce the scope of claims.  Defendants also may now choose to focus on due-process concerns, including whether an employer’s right to present defenses for each alleged aggrieved employee could justify dismissing a PAGA claim.  In addition, the Court outlined alternative tools available to trial courts in managing complex cases, including PAGA actions.  These tools include representative testimony, surveys, statistical evidence, limiting evidence types, and procedural tools like demurrers and motions for summary judgment.

Key Takeaways for Employers

The Estrada decision increases the likelihood of plaintiffs bringing PAGA claims separately from class claims, making such cases more challenging to defend.  Employers should focus on due-process constitutional arguments when faced with manageability concerns, as arguing inherent authority to strike unmanageable PAGA claims is no longer viable.  Additionally, employers should update their arbitration agreements to include individual PAGA claims as being an arbitrable claim, aligning with recent decisions supporting the arbitration of such claims.

Conclusion

The California Supreme Court just made defending a PAGA claim much more difficult.  When facing a PAGA action, employers should focus on effective case management tools while formulating potential due-process arguments.  As PAGA actions continue to shape the landscape of labor law enforcement in California, staying informed about legal developments becomes increasingly crucial for all employers.

Contact your SFSSW attorney if you have any questions about how to best protect your company against PAGA claims and to update your arbitration agreements to include PAGA individual claims.

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