In a recent pivotal decision, the California Supreme Court has removed a potentially important tool for employers defending Private Attorney General Act (PAGA) claims. The ruling in Estrada v. Royalty Carpet Mills, Inc. has not only eliminated a crucial defense strategy, but has also sparked discussions on effective approaches to counter large, unmanageable PAGA claims. This article addresses the origins of PAGA, the prior disparities among lower courts, the California Supreme Court's stance, and the available defense strategies for California lawyers.
Background of PAGA and Its Impact
PAGA claims have been a source of concern for California employers since their inception in 2004. The California Labor Code's Private Attorneys General Act of 2004 empowers aggrieved employees to bring representative claims – think group claims closely akin to class actions - against their employers for alleged Labor Code violations on behalf of themselves, others and the State of California. Unlike class actions, PAGA claims don't require the same procedural safeguards like class certification, making it extremely easy for plaintiffs to seek substantial monetary recoveries. There is little to no pre-filing vetting or oversight by the State. Once in court, the same holds true, and there are very few meaningful tools for Court oversight or employer defenses. The sheer volume of these filings has overwhelmed employers as well as the court system, particularly affecting employers who have hourly, non-exempt employees on a large scale.
A Divided Landscape: The Previous Split Among Lower Courts
Before the California Supreme Court's decision in Estrada, lower courts in California were at odds over whether they had the authority to limit, strike, or dismiss large, unmanageable PAGA claims. The Wesson v. Staples, 68 Cal.App.5th 746, 766-767 (2021), case acknowledged the trial courts' inherent authority to manage litigation, allowing them to strike unmanageable PAGA claims. However, the conflicting stance in Estrada v. Royalty Carpet Mills, Inc. argued against striking such claims, asserting that it would undermine the purpose of PAGA as a purported law enforcement mechanism for the State of California.
Background of the Estrada v. Royalty Case
Plaintiff Estrada initiated legal proceedings against Royalty Carpet Mills, alleging multiple violations of the California Labor Code, including the failure to provide required meal breaks. Additionally, Estrada sought derivative civil penalties under PAGA. This legal action involved not only Estrada but also twelve other plaintiffs, who collectively sued in two capacities. They pursued claims, first, under California's class action procedural rules, referred to as "class action claims", and they also acted as representatives of the State of California under PAGA.
During the trial, several witnesses provided testimony, including the named plaintiffs, managers and human resources staff from Royalty, as well as former employees. Ultimately, the trial court dismissed the PAGA claim on the grounds that it was unmanageable. However, on appeal the court reversed this decision and ruled that allowing courts to dismiss PAGA claims because, it its view, unmanageability "would interfere with PAGA's express design as a law enforcement mechanism." The case was then taken up by the California Supreme Court.
Reshaping the Playing Field: California Supreme Court's Resolution
The California Supreme Court, on January 18, 2024, issued a decision in the case. On appeal, the employer asked the Supreme Court to consider two main points:
- The inherent authority of trial courts to strike any unmanageable PAGA claim in order to preserve judicial economy.
- In the alternative, a trial court may strike any representative claim that is unmanageable.
In its decision, the Supreme Court focused on a trial court's inherent authority and found that its source is grounded in the power of courts "to carry out their duties" as institutions delivering decisions in legal disputes. However, this power is limited in that courts may not "adopt procedures or policies that conflict with statutory law."
The court also spent time discussing when it is appropriate for a court to strike a claim. Precedent dictates that a court may strike a claim when:
- A plaintiff has failed to prosecute diligently, or
- The complaint has been shown to be fictitious or a sham such that plaintiff has no valid cause of action." Lyons v. Wickhorst (1986) 42 Cal.3d 911, 915.
Ultimately, the court ruled that trial courts lack inherent authority to dismiss or strike PAGA claims for lack of manageability. However, the court emphasized that defendants still retain the right to due process. The court encouraged defendants to employ specific strategies in PAGA actions such as presenting affirmative defenses, challenging the plaintiff's prima facie showing, and introducing evidence to reduce damages. The court also highlighted various "tools" that can be employed to manage complex PAGA cases, such as limiting witness testimony, managing discovery, and controlling the use of representative testimony, surveys and statistical analysis.
Defense Strategies: Safeguarding Employers' Due Process Rights
While the Supreme Court's decision may not be the most favorable outcome for California employers, there are still viable defense strategies to navigate unmanageable PAGA claims. Employers should concentrate on presenting affirmative defenses, challenging the plaintiff's underlying case itself, attacking Plaintiff's standing and pre-suit notice, as well as introducing evidence to mitigate damages. The Estrada court also noted that trial courts can limit the type and scope of a plaintiff's evidence in support of its PAGA claim, despite its holding such claims could not be stricken entirely. Trial plans should be required of PAGA plaintiffs. Also, aggressively attacking statistical testimony and samplings of any plaintiff's experts should still be done. Additionally, they can leverage the court's guidance on limiting witness testimony, managing discovery, and otherwise controlling the use of certain evidentiary tools. It is crucial for employers to collaborate closely with their legal counsel to develop effective defense strategies tailored to their specific PAGA claims. The prevailing sentiment is that a robust defense remains the most potent offense in tackling the challenges posed by unmanageable PAGA claims.
The employment practice team at WSHB are specialists in combatting PAGA claims as well as advising businesses on the implementation of proactive measures to avoid litigation entirely. Please do not hesitate to reach out to the authors of this article, or any member of our team with questions or concerns. We stand ready to help employers navigate the rocky waters of PAGA.