Duane Morris Takeaways: In a case with significant consequences for employers, the California Supreme Court heard oral argument in Estrada v. Royalty Carpet Mills, No. S274340, on November 8, 2023. In Estrada, the Supreme Court will decide whether trial courts have inherent authority to ensure that PAGA claims will be manageable at trial, and to strike or narrow such claims if they cannot be managed appropriately. The Supreme Court signaled during oral argument its concerns with unwieldy PAGA claims that, if tried, would require a series of mini-trials over the course of years. The Supreme Court further expressed concern with ensuring that employers’ due process rights to present affirmative defenses are protected, potentially signaling the issuance of an employer-friendly decision. A decision is expected in the next three months, and has the potential to transform the prosecution and defense of PAGA litigation.
Jorge Estrada filed a putative class action and PAGA action against his former employer asserting meal period violations. After two classes comprised of 157 individuals were certified, the parties tried the claims before a judge in a bench trial. The trial court ultimately decertified the classes, finding there were too many individualized issues to support class treatment. Although the trial court awarded relief to four individual plaintiffs, it dismissed the non-individual PAGA claim, concluding it was not manageable.
On appeal, Estrada argued that PAGA claims have no manageability requirement, and the Court of Appeal agreed in Estrada v. Royalty Carpet Mills, Inc., 76 Cal.App.5th 685 (2022). The Court of Appeal reasoned that class action requirements do not apply in PAGA actions and, therefore, the manageability requirement rooted in class action procedure was inapplicable. Further, the Court of Appeal opined that “[a]llowing courts to dismiss PAGA claims based on manageability would interfere with PAGA’s express design as a law enforcement mechanism.” Id. at 712. The Court of Appeal acknowledged the difficulty that employers and trial courts face with PAGA claims involving thousands of allegedly aggrieved employees, each with unique factual circumstances, but concluded that dismissal for lack of manageability was not an available tool for a trial court to utilize.
Estrada is contrary to the holding in Wesson v. Staples the Office Superstore, LLC, 68 Cal.App.5th 746 (2021), and created a split in authority. In Wesson, the trial court struck a PAGA claim as unmanageable, and the Court of Appeal affirmed. The claims at issue in Wesson involved the alleged misclassification of 345 store managers. The employer’s exemption affirmative defense turned on individualized issues as to each manager’s performance of exempt versus non-exempt tasks, which varied based on a number of factors including store size, sales volume, staffing levels, labor budgets, store hours, customer traffic, all of which varied across the stores. The split in authority prompted the California Supreme Court to grant review in Estrada, but not Wesson.
Oral Argument At The California Supreme Court
During oral argument on November 8, 2023, several Justices, most prominently Justices Liu and Jenkins, expressed skepticism that a trial court’s inherent powers include the ability to outright strike or dismiss an entire PAGA action for lack of manageability. As Justice Liu commented, permitting trial courts such wide ranging power would shortchange the PAGA statute unless there is an overriding constitutional interest.
Several Justices also acknowledged that an employer has a due process right to present evidence to support its affirmative defenses and that, in certain cases, such evidence presentation might require a series of mini-trials over a period of years and wholly consume a trial court’s resources. Justice Kruger asked questions of Estrada’s counsel that suggested the illogical nature of these issues telling trial courts as to what to do in terms of mini-trials, and how unwieldy such PAGA-related problems would evolve under such a set of principles.
Justice Groban also expressed concern about a PAGA case where multiple Labor Code violations are alleged, hundreds or thousands of employees are at issue, and different work sites and different types of employees ranging from janitors to accountants are implicated. Justice Groban asked why, in that case, a trial court could not just limit the case to the accountants only. Other justices raised similar concerns, with Chief Justice Guerrero asking Estrada’s counsel why the answer is that this is all subject to appellate review.
Implications For Employers
The constellation of the comments from the justices seemingly signals that the California Court may hold that trial courts possess inherent authority to ensure an employer’s right to due process is safeguarded, which necessarily encompasses the right to gauge the manageability of PAGA claims and to narrow them as appropriate. As to whether such authority could include outright dismissal of an entire PAGA case, employers will have to wait and see.