California Supreme Court: Trial courts lack inherent authority to strike PAGA claims on manageability grounds
In a long-awaited decision, the California Supreme Court has ruled that trial courts do not have the inherent authority to strike (ie, dismiss with prejudice) claims for civil penalties under the Private Attorneys General Act (PAGA) on manageability grounds.
In the January 18, 2024 ruling, the Court struck down one of the more potentially effective defenses employers have in PAGA actions, which lack the procedural guardrails built into class-action litigation. Further, the Court specifically stated that it is inappropriate for trial courts to strike PAGA claims by employing manageability requirements that apply in class actions.
While the ruling in Estrada strips trial courts of the ability to dismiss PAGA claims for lack of manageability, the ruling did provide a non-exhaustive list of potential tools trial courts could use to manage complicated PAGA cases. Moreover, the Court specifically left open the possibility that a PAGA claim could be dismissed where a defendant’s due process rights are violated – however, the Court did not provide guidance regarding the circumstances under which such relief might be appropriate.
As is commonly the case in wage and hour litigation, the plaintiffs in Estrada filed a class-action case against Royalty Carpet Mills, alleging a variety of wage and hour violations and a claim for civil penalties under PAGA for the alleged violations.
Prior to trial, the trial court certified a class of non-exempt workers that worked at either of the defendant’s two locations. The trial court also certified three subclasses, including a meal period subclass.
Following a bench trial, the trial court decertified the previously certified meal period subclass on the grounds that individualized issues predominated. The trial court also dismissed as unmanageable the PAGA meal period claim as to employees other than the named plaintiffs.
Plaintiffs appealed the judgment, and the Court of Appeal reversed, finding, relevant here, that the trial court erred in dismissing the PAGA claim on manageability grounds because trial courts lack the inherent authority to do so.
On this issue, the Court of Appeal decision in Estrada, however, reached a conclusion that was different from a prior Court of Appeal decision in Wesson v. Staples the Office Superstore, LLC. The Wesson court held that trial courts do, in fact, possess the inherent authority to dismiss unmanageable PAGA claims. Because of this split in authority, the California Supreme Court granted review to consider the issue.
California Supreme Court denies trial courts the inherent authority to dismiss PAGA claims on manageability grounds
In its unanimous decision, written by Chief Justice Patricia Guerrero, the California Supreme Court ruled against Royalty, finding that trial courts lack the inherent authority to strike PAGA claims on manageability grounds and emphasizing that trial courts do not generally possess a broad inherent authority to dismiss claims. The Court expressly disapproved the Wesson court’s conclusion that “trial courts . . . if necessary, may preclude the use of this procedural device [i.e., a PAGA claim].”
While the Court acknowledged that trial courts have inherent authority to “(1) address gaps in the law by applying procedures contained in related statutory provisions . . .; and (2) to adopt procedures necessary to perform essential judicial functions”; trial courts “do not have the authority to adopt procedures or polices that conflict with statutory law[.]”
According to the Court, trial courts’ inherent authority to dismiss claims is narrow and based on limited circumstances that were not present in Estrada, including when a plaintiff fails to diligently prosecute an action or in the case of “sham” lawsuits. Moreover, the Court ruled that none of the civil procedure statutes cited by Royalty or those arguing on its behalf give a trial court the authority to dismiss a PAGA claim on manageability grounds.
Thereafter, the Court stressed that the procedural manageability requirements of class actions cannot be grafted onto PAGA claims as a matter of law, primarily because, unlike with class actions involving questions of superiority and predominance of common issues, there is nothing in the PAGA statute that supports a manageability requirement. Moreover, the Court expressed concern that applying a manageability requirement in the PAGA context could lead to the dismissal of many PAGA cases “in contravention of the Legislature’s intent to have the statute maximize the enforcement of labor laws.” In addition, the Court found that, because PAGA claims are effectively administrative enforcement actions, imposing a manageability requirement would impede the effectiveness of PAGA actions.
The Court leaves open the possibility of dismissal of PAGA claims on due process grounds
Though the Court agreed with Royalty’s argument that employers have a due process right to present affirmative defenses, it found that Royalty did not demonstrate that the trial court violated Royalty’s due process rights in this case. The Court, however, left open the possibility that PAGA claims could be dismissed on due process grounds in certain circumstances, but the Court explicitly declined to describe the circumstances under which dismissal would be appropriate.
The Court highlights that trial courts have means available to manage complicated PAGA actions
Perhaps seeking to assuage employer concerns about trial courts’ actual ability to manage complex PAGA actions, the Court provided an “illustrative rather than exhaustive” list of the types of tools available to a trial court. For example, the Court cited to Brinker in noting that “‘Representative testimony, surveys, and statistical analysis,’ along with other types of evidence, ‘are available as tools to render manageable determinations of the extent of liability.’”
The Court also noted that its ruling does not preclude trial courts “from limiting the types of evidence a plaintiff may present or using other tools to assure that a PAGA claim can be effectively tried;” or from issuing substantive rulings on dispositive motions that are provided for in the Code of Civil Procedure (eg, demurrer, motions for summary judgment) where appropriate.
Despite employers losing an important tool in the PAGA-defense toolbox, all is not lost. As noted by the Court, defendants in PAGA actions retain a variety of tools at their disposal in defending against PAGA actions, including, potentially, dismissal of PAGA claims under circumstances where due process rights are violated. In addition, despite the California Supreme Court’s Viking River decision, arbitration agreements with PAGA waivers remain useful, as they can, at least, stay PAGA representative actions while a plaintiff’s individual PAGA claims are arbitrated. Moreover, if a plaintiff is found not to be aggrieved in arbitration, there is a possibility that the plaintiff’s representative PAGA claims would be dismissed in court. Thus, employers with arbitration agreements in place should review them to ensure they are enforceable, and employers that do not have arbitration agreements should consider implementing them.
Rulings like that in Estrada serve to remind California employers that continued vigilance over and regular audits of wage and hour practices is crucial and that avoiding lawsuits altogether remains the best defense in California.
We will continue to monitor legislative and judicial developments in the wake of the California Supreme Court’s decision. Please reach out to your DLA Piper contact or the authors if you have questions about the decision and how it may impact your business or ongoing litigation.