What 2021’s Top PAGA Developments Mean for California Employers

Since the inception of California’s Private Attorneys General Act (PAGA), claims filed pursuant to the statute’s provisions have increased more than 1000 percent, with the state’s Labor and Workforce Development Agency (LWDA) receiving approximately 4,000 PAGA notices each year since 2014. This number is anticipated to grow much higher in 2022.

Fundamental defenses to litigation include that the court lacks jurisdiction because the plaintiff signed an enforceable arbitration agreement, or the plaintiff sued in an improper venue because the venue selected makes it unreasonably expensive and difficult for the employer to defend the action in that county. But in 2021, California’s appellate courts swept away these defenses with respect to PAGA plaintiffs, which will likely facilitate even more PAGA litigation in California courts. However, and perhaps most significantly, one appellate court swam against the current by holding that courts may apply a manageability requirement to PAGA claims before permitting them to proceed through further litigation.

2021’s Top PAGA Rulings

In Crestwood Behavioral Health, Inc. v. Superior Court, a panel of the First Appellate District held that venue was proper in any county where the employer operates facilities, and thus venue is not just limited to the county where the plaintiff works or the company’s principal place of business. The court explained that a PAGA plaintiff sues as a proxy for the state, not as an individual; the court thus concluded that venue is not restricted to the location of the individual plaintiff, but can be proper where any of the alleged violations occurred statewide.

In Rosales v. Uber Technologies, Inc., the plaintiff brought a PAGA action alleging that he should have been classified as an employee instead of an independent contractor. The employer moved to compel the case to arbitration because the plaintiff had signed an arbitration agreement. The trial court denied the motion and a Second Appellate District panel affirmed.

Because PAGA standing first requires a plaintiff to have been employed by a defendant, the employer argued that the “threshold classification issue” was subject to arbitration. The court disagreed, holding that the state owns the PAGA claim and remains the real party in interest, and, since the state was not a party to the arbitration agreement, it did not apply to the PAGA claim.

Bucking this trend to expand and facilitate PAGA litigation, a Second Appellate District panel held in Wesson v. Staples the Office Superstore, LLC, that courts may dismiss PAGA actions if a plaintiff cannot show that the claims are manageable. In Wesson, the plaintiff’s PAGA claim alleged that he had been misclassified as an exempt store manager. The employer moved to strike the PAGA claim as unmanageable, arguing that the misclassification allegations were fact-specific and would require individualized inquiries to evaluate the company’s affirmative defenses. The trial court granted the motion and the appellate court affirmed.

The Wesson court noted that because PAGA claims lack the basic requirements that control class actions, such as a well-defined community of interest and a showing that common questions predominate over individual ones, PAGA claims “may well present more significant manageability concerns than those involved in class actions.” In other words, the court noted, because PAGA actions may include “disparate groups of employees and involve different kinds of violations raising distinct questions,” there is a heightened need for a plaintiff to demonstrate that a manageable trial plan would apply. The Wesson court also noted that in general, “a need for individualized proof pertaining to a very large number of employees will raise manageability concerns.” The Wesson decision is the most significant development in PAGA litigation in 2021, as the decision provides binding authority for state trial courts to exercise their inherent authority to strike PAGA claims when plaintiffs cannot establish their manageability for trial.

Key Takeaways for California Employers

By clearing away several barriers to litigation, these appellate decisions of 2021 will likely facilitate even more of an upward trend in PAGA litigation in 2022. However, the Wesson decision has now authorized courts to better manage and even dismiss PAGA claims that are unmanageable. The Wesson court noted that “uniform policies” and other “common proof” of violations can serve to establish that a PAGA claim is manageable. As such, California employers must remain vigilant to ensure that common policies and practices are compliant and cannot be seized on by plaintiffs to argue that common evidence of Labor Code violations exist.

In Wesson, the court noted that the employer had provided evidence that its stores’ general managers did not have uniform work experiences. The court further noted:

According to Staples’s evidence, Staples stores varied widely in size, sales volume, staffing levels, labor budgets, store hours, customer-traffic levels, products and services offered for sale, and many other variables, all of which affected GMs’ work experience. Staples’s evidence also tended to show that how GMs spent their time depended on their experience, aptitude, and managerial approaches, as well as the size and composition of their management teams.

Additional documentation that may help defeat a claim of PAGA manageability in a misclassification case may include the following:

• a job description detailing the reasonable expectations of the job, especially that the job requires the employee to spend a significant majority of his or her time on exempt duties, which may include managing, coaching, and training direct reports, resolving customer complaints, deciding labor budgets and schedules, and assigning and allocating the work of associates;
• training materials and instructional manuals for exempt employees that clearly reinforce the expectation that they spend the vast majority of their time on exempt duties; and
• performance evaluations for exempt positions that reinforce the company’s consistent expectations that employees spend the majority of their time on exempt duties and that they regularly exercise discretion and independent judgment in performing those duties.

A version of this article was previously published by Law360.