Supreme Court Hears Arguments on Case Impacting Private Attorneys General Act (PAGA)

Supreme Court Hears Arguments on Case Impacting Private Attorneys General Act (PAGA)

Earlier this month, the California Supreme Court heard oral argument in Estrada v. Royalty Carpet Mills, a case that could have a significant impact on the future of cases involving the Private Attorneys General Act (PAGA) litigation.

The Supreme Court granted review to determine if courts have the authority to strike or limit PAGA claims that would prove to be unmanageable at trial.

The Private Attorneys General Act (PAGA) authorizes aggrieved employees to file lawsuits to recover civil penalties on behalf of themselves, other employees, and the State of California for Labor Code violations.

A Conflict in the Appellate Courts

In a 2021 decision, Wesson v. Staples the Office Superstore, the Court of Appeals held that trial courts do in fact have the inherent authority to strike or limit PAGA claims that could not otherwise be made manageable. However, a few months later, the Court of Appeals in Estrada disagreed, holding that while a court could limit the presentation of evidence to ensure a manageable trial (which could make it difficult for the plaintiff to prove widespread violations), courts did not have the authority to strike or limit PAGA claims before trial.

The Court of Appeals wrote:

While we understand the concerns expressed in Wesson, we reach the opposite conclusion. Based on our reading of pertinent Supreme Court authority, chiefly Arias v. Superior Court and Kim v. Reins International California, Inc., we find a court cannot strike a PAGA claim based on manageability. These cases have made clear that PAGA claims are unlike conventional civil suits and, in particular, are not class actions. Allowing dismissal of unmanageable PAGA claims would effectively graft a class action requirement onto PAGA claims, undermining a core principle of these authorities. It would also interfere with PAGA's purpose as a law enforcement mechanism by placing an extra hurdle on PAGA plaintiffs that is not placed on the state. That said, courts are not powerless when facing unwieldy PAGA claims. Courts may still, where appropriate and within reason, limit the amount of evidence PAGA plaintiffs may introduce at trial to prove alleged violations to other unrepresented employees. If plaintiffs are unable to show widespread violations in an efficient and reasonable manner, that will just reduce the amount of penalties awarded rather than lead to dismissal.

Justices Show Skepticism in Questions

Observers may have believed that when the California Supreme Court granted review in Estrada victory for the plaintiffs was all but assured. That’s because for more than 10 years, the Supreme Court cases that have largely defined PAGA jurisprudence—Adolph, Kim, Williams, Iskanian, and Arias—have nearly all been decided in the plaintiffs’ favor. And while the Supreme Court looks to be ready to rule that trial courts lack the authority to strike PAGA claims based on manageability concerns, a number of justices’ questions showed some skepticism concerning the purported source of this authority. Moreover, they suggested that less drastic measures could protect defendants’ due process rights and ensure the proper functioning of courts. In fact, defense counsel conceded that striking a claim may be a remedy reserved for “rare” cases, such as where the plaintiff refuses to engage in the process of determining a manageable trial plan.

Several justices appeared to have reservations about denying trial courts the ability to limit PAGA claims to ensure manageability. For example, Justice Groban noted, “Some of us are concerned” about a situation where (in his example) multiple Labor Code violations are alleged, hundreds or thousands of employees are at issue, and different work sites and different types of employees are at issue (everyone from janitors to accountants). The justice asked why, in that case, the court could not say, “We can’t have the janitors and accountants in one trial. I’m going to limit it to the accountants.”

Other justices raised similar concerns. Even Justice Liu—who authored the Iskanian and Adolph decisions and has been perhaps the Court’s most ardent critic of employers’ positions in PAGA cases—seemed to acknowledge that in extreme cases, courts may need recourse if manageability concerns threaten to overwhelm the proper functioning of the judiciary.

Estrada may not be the end of the story, as a decision that trial courts may restrict—but not strike—PAGA claims will likely just add questions to be considered in the lower courts. One question may be when in the proceedings trial courts may decide a case is unmanageable as pled, and what demands trial courts should make on PAGA plaintiffs to demonstrate manageability (such as presenting a written trial plan).

The Court must issue its decision within 90 days, but could choose to rule sooner.

Bottom Line

California employers should keep an eye on the Supreme Court for its decision in this case.

The oral argument should provide employers some optimism that they’ve at least fought plaintiffs to a tie on the issue of PAGA manageability.

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