The recent surge in Private Attorneys General Act (PAGA) lawsuits and the amounts of damages sought in these cases in California has become a significant cause for concern among the business community. This legislation, initially designed to empower employees to file lawsuits for labor code violations on behalf of themselves and other workers, has seen a dramatic increase in its application. This uptick has not only heightened the legal and financial pressures on companies across various industries but also raised questions about the broader implications for the state’s business environment. The California Supreme Court recently heard oral arguments in Estrada v. Royalty Carpet Mills, Inc., regarding whether a trial court has discretion to limit PAGA cases that are unmanageable. This article reviews the split in California Appellate courts on this issue, and how the case could impact the potential future of PAGA litigation in California.
1. Background of PAGA
PAGA was enacted in 2004 to authorize aggrieved employees to file lawsuits against employers on behalf of themselves, other employees, and on behalf of the State of California for Labor Code violations. PAGA allows aggrieved employees to act as a “Private Attorneys General” to seek remedies against their employer not only for the violations committed against them, but also to recover any violations committed by their employer against other employees. The statute was intended “to punish and deter employer practices that violate the rights of numerous employees under the Labor Code.” Iskanian v. CLS Transportation Los Angeles, LLC (2014). The plaintiff’s ability to bring claims on behalf of other employees is referred to as “non-individual claims.” PAGA is “simply a procedural statute allowing an aggrieved employee to recover civil penalties … that otherwise would be sought by state labor law enforcement agencies.” Amalgamated Transit Union, Local 1756, AFL-CIO v. Superior Court (2009).
2. Supreme Court issue being reviewed in Estrada v. Royalty Carpet Mills, Inc.
Do trial courts have inherent authority to ensure that claims under the Private Attorneys General Act (Lab. Code, § 2698 et seq.) will be manageable at trial, and to strike or narrow such claims if they cannot be managed?
The parties had oral argument before the California Supreme Court on November 8, 2023. Therefore, a decision should be expected at any time. This decision will resolve a split in authority between two cases: Wesson v. Staples of the Offices Superstore, LLC and Estrada v. Royalty Carpet Mills, Inc.
3. Wesson v. Staples of the Offices Superstore, LLC – Holding that trial courts have authority to deem PAGA cases are unmanageable.
In Wesson v. Staples of the Offices Superstore, LLC (September 2021) the Second Appellate District, Division Four, of the Court of Appeal of California held, “We conclude that courts have inherent authority to ensure that a PAGA claim will be manageable at trial—including the power to strike the claim, if necessary—and that this authority is not inconsistent with PAGA’s procedures and objectives, or with applicable precedent.” In so holding, the Wesson court found that the trial court did not abuse its discretion in striking Wesson’s PAGA claim as unmanageable.
The Wesson court explained that, “California courts have exercised their inherent powers to preclude representative claims where a trial of those claims would be unmanageable. In the class action context, the courts have required class action proponents to demonstrate that ‘litigation of individual issues, including those arising from affirmative defenses, can be managed fairly and efficiently.’”
In Wesson, the plaintiff brought a PAGA claim for over 346 Staples General Managers for over $36 million in civil penalties. Wesson’s claims were based on the theory that the GMs were misclassified as exempt employees, and should have been paid overtime, and provided meal and rest breaks. The Appellate court noted that the record “raised significant manageability concerns.” Staples presented evidence that the GM position was not standardized, and there were critical variations on how GMs performed their jobs and the extent to which they performed nonexempt tasks. Staples produced evidence that showed the duties for each of the GMs varied based on each store’s “size, sales volume, staffing levels, labor budgets, and other variables.” Staples also presented evidence that showed GMs’ management duties varied based on each of their “experience, aptitude, and managerial approaches, among other factors.” Based on this, Staples argued that Wesson’s PAGA allegations “would require individualized assessments of each GM’s classification and would lead to ‘an unmanageable mess’ that ‘would waste the time and resources of the Court and the parties … .’”
Therefore, the Wesson court held, “We do not believe a court is powerless to address the challenges presented by large and complex PAGA actions and is bound to hold dozens, hundreds, or thousands of minitrials involving diverse questions, depending on the breadth of the plaintiff’s claims.”
4. Estrada v. Royalty Carpet Mills, Inc. – Holding that trial courts do not have authority to deem PAGA cases unmanageable.
In March 2022, the Fourth Appellate District, Division Three of the California Court of Appeal issued a decision in Estrada v. Royalty Capet Mills, Inc. disagreeing with the holding in Wesson. The court in Estrada stated, “After reviewing both perspectives, we respectfully disagree with Wesson and agree with the reasoning of the district courts that have refused to dismiss PAGA claims based on manageability.” The court in Estrada held that manageability is a requirement that plaintiffs must prove in a class action, but that “‘a representative action under PAGA is not a class action.’” The court explained that a class action is “a procedural device for aggregating claims ‘when the parties are numerous, and it is impracticable to bring them all before the court.’” However, PAGA claims “are administrative law enforcement actions that ‘are different from conventional civil suits. The Legislature’s sole purpose in enacting PAGA was ‘to augment the limited enforcement capability of the [Labor Workforce Development Agency (LWDA)] by empowering employees to enforce the Labor Code as representatives of the Agency.’”
Due to the differences between class actions and PAGA representative actions, the California Supreme Court has held that PAGA plaintiffs need not meet class action certification requirements when pursuing PAGA penalties in Arias v. Superior Court, and Kim v. Reins International California, Inc.
The court in Estrada held, “Accordingly, requiring that PAGA claims be manageable would graft a crucial element of class certification onto PAGA claims, undercutting our Supreme Court’s prior holdings.”
However, the Estrada court conceded that there are issues that trial courts must manage in PAGA cases, as “[s]ome PAGA claims involve hundreds or thousands of alleged aggrieved employees, each with unique factual circumstances. We do not intend our ruling to mean that in such scenarios, a court must allow for each of these alleged aggrieved employees to be examined at trial. Such a scenario would be unduly expensive, impractical, and place far too great a burden on our already busy trial courts. Rather, 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.” Ultimately the Estrada court did not set forth a standard for trial courts to manage PAGA claims, just that, “[w]e encourage counsel to work with the trial courts during trial planning to define a workable group or groups of aggrieved employees for which violations can more easily be shown….If 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.”
5. 2024 Balot Initiative to reform PAGA
Anytime now, the California Supreme Court will issue a decision in the Estrada case, which may empower trial courts to more effectively manage Private Attorneys General Act (PAGA) claims. This could include the authority to restrict the use of this procedural device in cases where it is deemed inappropriate. On another front, PAGA faces a challenge directly from the voters of California. The California Fair Pay and Employer Accountability Act aims to replace PAGA. This initiative has garnered enough signatures to secure a spot on the November 2024 ballot. If approved, it would allow employees to receive 100% of the penalties collected, a significant increase from the current 25% allocation. Additionally, it proposes to prohibit the awarding of attorneys’ fees in such cases and to double the penalties for employers who knowingly violate the law. More details about the initiative are available on the Californians for Fair Pay and Accountability website.