California Court of Appeal Creates Rift Regarding Trial Courts’ Power to Strike or Limit PAGA Claims for Unmanageability

On March 23, 2022, the Court of Appeal of the State of California, Fourth Appellate District, issued the latest ruling on the hotly contested issue of whether a trial court is empowered to dismiss or limit representative claims for alleged violations of the California Labor Code under the Private Attorneys General Act (PAGA) based on manageability concerns. Declining to follow a 2021 landmark decision issued by the Second Appellate District, the Fourth Appellate District held in Estrada v. Royalty Carpet Mills, Inc., that “a court cannot strike a PAGA claim based on manageability.”

Under the PAGA statute, an “aggrieved employee” is empowered to seek civil penalties for alleged violations of the California Labor Code on his or her own behalf and on behalf of all other “aggrieved employees.” Estrada involved PAGA representative claims and class claims on behalf of employees at three carpet manufacturing facilities primarily based on purported meal and rest period violations.

In September 2021, the Second Appellate District held that trial courts do possess the authority to ensure that claims under PAGA are manageable before proceeding to trial and that courts may limit the scope of unmanageable PAGA claims or strike them altogether. Federal district courts have been split as to whether PAGA claims may be struck based on manageability. Following the Second Appellate District’s guidance, both state and federal courts have struck PAGA claims based on unmanageability, particularly where proving violations would require individualized proof for each allegedly aggrieved employee rather than widespread evidence of liability.

The Estrada court agreed with the analysis contained in federal rulings from the U.S. District Court for the Central District of California. In a 2015 ruling, the district court found that a manageability requirement was inconsistent with the purpose of PAGA; in a 2017 ruling, the court found that PAGA claims could be stricken based on manageability when individualized assessments were required to prove violations.

The Estrada court did not endorse unwieldly PAGA lawsuits; rather, it said, trial courts could and should exercise their inherent powers to ensure the orderly conduct of their proceedings and control their processes so as to make trial court proceedings conform to justice. Where PAGA claims “involve hundreds or thousands of alleged aggrieved employees, each with unique factual circumstances,” the court stated, it “would be unduly expensive, impractical, and place far too great a burden on … already busy trial courts” to permit plaintiffs to introduce evidence or testimony regarding each employee’s circumstances. For that reason, the court opined, trial courts may reasonably “limit the amount of evidence PAGA plaintiffs may introduce at trial to prove alleged violations to other unrepresented employees.” PAGA plaintiffs who do not effectively manage the scope of the claims proceeding to trial “risk being awarded a paltry sum of penalties, if any,” the court stated. The ruling may create confusion as trial courts work to fashion “appropriate” limits on the amount of evidence required on an individual basis to  establish liability on behalf of an entire group of aggrieved employees.

Key Takeaways

Courts may still limit the amount of evidence PAGA plaintiffs may introduce at trial to prove alleged violations on an individualized basis. If the majority of evidence presented to prove liability under PAGA is based on individual rather than widespread or systemic violations, the availability of PAGA penalties may be significantly diminished. Because the Estrada court provided no guideposts, trial courts may find themselves between a rock and a hard place navigating what evidentiary limits are appropriate to determine liability.

Practically speaking, trial courts may find particularly attractive the suggestion in Estrada to consider narrowing trials to alleged Labor Code violations at individual locations or departments. In many instances, this may significantly reduce the costs and burden of trial, as well as the attendant civil penalty exposure.

The split in authority between intermediate appellate decisions makes the issue of PAGA manageability ripe for escalation to the Supreme Court of California.

A technical Labor Code violation can turn into a devastating PAGA lawsuit for an employer. Accordingly, employers may want to stay apprised of the ever-changing law surrounding PAGA, including the Supreme Court of the United States’ impending decision and recent oral argument in Viking River Cruises, Inc. v. Moriana, addressing whether employers may utilize arbitration agreements to reduce or stop PAGA suits.