The growing divide over unmanageable PAGA claims

California’s Private Attorneys General Act (PAGA) permits an “aggrieved employee” to “bring a civil action personally and on behalf of other current or former employees to recover civil penalties for Labor Code violations.” Arias v. Superior Ct., 209 P.3d 923, 930 (Cal. 2009).

The California Supreme Court, however, has held that, despite their representative nature, PAGA claims are “different from a class action.” Kim v. Reins Int’l Cal., Inc., 459 P.3d 1123, 1130 (Cal. 2020). But the precise extent to which such PAGA claims and class actions differ has been the subject of much debate and division. Among the most significant flashpoints has been a growing split of authority over whether trial courts have the authority to strike unmanageable PAGA claims.

According to the California Supreme Court, representative PAGA claims need not satisfy class action requirements. Arias, 209 P.3d at 926. Class action requirements include manageability. See Duran v. U.S. Bank Nat’l Assn., 325 P.3d 916, 931 (Cal. 2014). Notwithstanding that representative PAGA actions need not satisfy class action requirements, lower courts have disagreed over whether trial courts have the inherent power to strike unmanageable PAGA claims.

The disagreement began among federal district courts, where it has continued to grow. The split of authority has recently spread to the California Courts of Appeal, who have reached conflicting decisions on the issue. Compare Wesson v. Staples the Off. Superstore, LLC, 283 Cal. Rptr. 3d 846 (Ct. App. 2021), with Estrada v. Royalty Carpet Mills, Inc., 292 Cal. Rptr. 3d 1 (Ct. App. 2022).

The California Supreme Court will soon decide whether to weigh in on the issue in Estrada. Any Supreme Court decision in Estrada could have significant ramifications for the future of PAGA litigation in California. In the meantime, state trial courts can apply whichever precedent from the California Court of Appeal that they find most persuasive, creating great uncertainty for litigants. See Auto Equity Sales, Inc. v. Superior Ct. of Santa Clara Cnty., 369 P.2d 937, 940 (Cal. 1962).

Wesson Embraces a Manageability Rule

For years, federal district courts “have split over whether courts possess inherent authority to strike PAGA claims as unmanageable.” Wesson, 283 Cal. Rptr. 3d at 857 n.10. In the recent Wesson opinion, a California Court of Appeal – the Second District, Division Four – sided with those federal courts who concluded trial courts possess this power, holding: “trial courts have inherent authority to ensure that PAGA claims will be manageable at trial, and to strike such claims if they cannot be managed.” Id. at 851.

In Wesson, a plaintiff alleged that the defendant misclassified its general managers as exempt employees. The lawsuit included both class claims and a representative PAGA claim.

After the trial court denied class certification, the defendant moved to strike the PAGA claim on the ground it would be unmanageable at trial because the defendant’s intended affirmative defense –that it properly classified general managers as exempt – would require individual assessments of each general manager’s classification.

The plaintiff opposed the motion, contending the trial court lacked authority to ensure that PAGA actions are manageable. The trial court ruled that it had inherent power to strike an unmanageable PAGA claim and invited the plaintiff to submit a trial plan showing his claim was manageable. After the plaintiff submitted his trial plan, the trial court struck the PAGA claim, finding the claim unmanageable.

In doing so, the court concluded that the plaintiff’s trial plan did not address how the parties might litigate the affirmative defense and found no evidence that the defense could be litigated through common proof. The court determined that, even if it were to cut the parties’ estimates of the time they would need to litigate the exemption defense in half, the trial of the claim would take several years.

The Court of Appeal affirmed, citing trial courts’ “inherent authority to fashion procedures and remedies as necessary to protect litigants’ rights and the fairness of trial, including by terminating the litigation.” Id. at 858.

In doing so, the appellate court pointed to decisions in class action cases, as well as a representative Unfair Competition Law (UCL) case that dismissed unmanageable claims notwithstanding that the UCL does not include a statutory manageability requirement. The court emphasized that “barring a claim as unmanageable” in such cases “does not affect the parties’ substantive rights” because it merely “precludes the plaintiffs’ particular use of an aggregation procedure, leaving in place any substantive claim by an absent class member or UCL claimant.” Id. at 859.

Applying this logic to PAGA claims that may “present more significant manageability concerns,” the Court of Appeal concluded that trial courts may “exercise their inherent authority to ensure the manageability of PAGA claims” and strike unmanageable PAGA claims. Id. at 859–60.

The plaintiff filed a petition for review with the California Supreme Court, but the Supreme Court denied review.

Estrada Disagrees with Wesson

Several months later, a different California Court of Appeal – the Fourth District, Division Three – disagreed with Wesson, holding that a trial court cannot strike a PAGA claim based on manageability concerns. Estrada, 292 Cal. Rptr. 3d at 10.

In Estrada, the plaintiffs brought class action wage-and-hour claims and sought PAGA penalties against their employer. The trial court certified two classes prior to trial, but decertified the first class after trial. The court also dismissed the first class’s representative PAGA claims because they were unmanageable, but found that the plaintiffs had established individual PAGA violations and awarded the individual plaintiffs penalties.

Both plaintiffs and the defendant appealed, and the Court of Appeal reversed as to the dismissal of the representative PAGA claims. In reversing, the court acknowledged Wesson’s holding that courts may strike PAGA claims as unmanageable. But the court rejected Wesson’s view that trial courts had the authority to strike unmanageable PAGA claims.

The appellate court noted that, under California Supreme Court precedent, “representative action[s] under PAGA [are] not . . . class action[s]” and “need not meet class action certification requirements when pursuing PAGA penalties.” Id. at 21. The court emphasized that manageability “is a key requirement for class certification.” Ibid.

Since California courts view PAGA actions as “administrative enforcement actions” where the “plaintiff acts ‘as the proxy or agent of the state’s labor law enforcement agencies,’” the Court of Appeal held that “allowing courts to dismiss PAGA claims based on manageability would interfere with PAGA’s express design as a law enforcement mechanism,” because those state agencies are “not subject to a manageability requirement” when investigating Labor Code violations and assessing fines internally. Id. at 21–22.

The court recognized the concern that some PAGA claims involve vast numbers of employees, each with unique factual circumstances. But the Court of Appeal held that, instead of striking those claims as unmanageable, trial courts “may, where appropriate and within reason, limit witness testimony and other forms of evidence when determining the number of violations that occurred and the amount of penalties to assess.” Id. at 22. The court reasoned that “PAGA plaintiffs may have difficulty proving purported violations suffered by other employees,” but “the fact that proving [a] claim may be difficult or even somewhat burdensome . . . does not mean that [a plaintiff] cannot bring it at all.” Id.

The manageability debate heads to the California Supreme Court

The defendant in Estrada filed a petition for review in the California Supreme Court on May 2, 2022. The Supreme Court had previously declined to take up the manageability issue in Wesson. But the Supreme Court did so before Estrada disagreed with Wesson.

Given the open conflict between Wesson and Estrada, the likelihood of the Supreme Court granting review to resolve this new split of authority has increased substantially. A high court decision authorizing trial courts to strike unmanageable PAGA claims could have significant ramifications.

From its initial enactment to the present day, “PAGA lawsuits have grown at an exponential rate.” Ivan Muñoz, Has PAGA Met Its Final Match? Continued Expansion of California’s Private Attorneys General Act Leads to Trade Group’s Constitutional Challenge, 60 Santa Clara L. Rev. 397, 399 (2020). The growing flood of PAGA litigation constitutes a major risk for the many companies who are sued. The plaintiffs asserting those representative claims typically seek millions – or even billions – of dollars in penalties.

Moreover, parties and courts may need to invest an unusually large amount of their time and resources to litigating representative PAGA claims, particularly where they are unmanageable. Such PAGA claims “may cover a vast number of employees, each of whom have markedly different experiences relevant to the alleged violations.” Wesson, 283 Cal. Rptr. 3d at 859. Thus, “determining whether the employer committed Labor Code violations with respect to each employee” may raise enormous practical difficulties. Ibid.

Given the profound stakes implicated by PAGA claims, it will be interesting to see whether the California Supreme Court will grant review in Estrada and vest trial courts with the discretion to strike the type of sprawling and unwieldy representative PAGA claims that are most likely to be deemed unmanageable.

Felix Shafir and Jeremy Rosen are partners and Selene Houlis is a fellow at Horvitz & Levy LLP. The firm has extensive experience handling appeals in class and representative actions, including many wage-and-hour lawsuits asserting PAGA claims.