The Class Action Weekly Wire – Episode 48: 2024 Preview: Private Attorneys General Act Litigation Review

Duane Morris Takeaway:
This week’s episode of the Class Action Weekly Wire features Duane Morris partner Jerry Maatman and Shireen Wetmore and associates Nathan Norimoto and Nick Baltaxe with their discussion of 2023 developments and trends in PAGA litigation as detailed in the recently published Duane Morris PAGA Review – 2024.

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Episode Transcript

Jerry Maatman: Welcome listeners. Thank you for being here for our weekly podcast, the Class Action Weekly Wire. I’m Jerry Maatman, partner at Duane Morris, and joining me today are my three most favorite California colleagues, Shireen, Nick, and Nathan. Thank you so much for being on our podcast.

Shireen Wetmore: Thanks, Jerry. Happy to be part of the podcast.

Nathan Norimoto: Thanks, Jerry, glad to be here.

Nick Baltaxe: Thank you, Jerry. It’s always a pleasure.

Jerry: Today on the podcast we’re discussing this year’s edition of the Duane Morris PAGA Review. This is a unique publication offered in the e-book format from our Duane Morris Class Action Defense Blog. Shireen, can you tell our loyal readers a bit about this year’s book?

Shireen: Absolutely, Jerry. So for many years, actions under the California Private Attorneys General Act, or PAGA, were used by plaintiffs or the plaintiffs’ bar as a workaround to arbitration agreements between employers and employees. In 2022, this strategy had its first big step back following a key decision by the United States Supreme Court in Viking River Cruises. Then, just last year another big decision came down in the California Supreme Court in Adolph v. Uber, adding to the mix and swinging a smidge in the other direction. To assist with understanding what this means for employers facing PAGA claims, Duane Morris has released the Duane Morris Private Attorneys General Act Review, and 2024 is the latest edition of this annual publication. It analyzes key PAGA rulings and litigation developments in 2023, and the significant trends that are apt to impact these types of representative actions in 2024. We hope that companies and employers will benefit from this resource, and that will aid them in their compliance with these evolving laws and standards.

Jerry: After practicing law for four decades, I’ve always thought that PAGA representative actions are some of the most vexing and challenging and difficult cases to defend. Nathan, what are some of the key takeaways for employers in terms of developments over the past 12 months?

Nathan: Well, according to data maintained by the California Department of Industrial Relations, the number of PAGA notices filed with the California Labor and Workforce Development Agency, or the LWDA, has increased exponentially over the past two decades. At the same time, the plaintiffs’ bar in California has used PAGA actions to circumvent workplace arbitration agreements that include class action waivers on the grounds that PAGA claims were somehow different than class actions, and therefore not covered by arbitration defenses. But this PAGA workaround has suffered significant setbacks in 2022 and 2023.

Jerry: If one keeps a litigation scorecard, it kind of changes by the inning – it’s an area that’s very much in flux. Nick, what are some of the setbacks that employers experienced over the past year in terms of defense of PAGA representative actions?

Nick: Well, Jerry, in July of 2023, the California Supreme Court issued its ruling in Adolph v. Uber. The court held that the PAGA plaintiff’s individual claims could be compelled to arbitration, but that the class claims or the representative claims could not be. The court also ruled that the plaintiff retains standing to maintain that representative PAGA claim so long as they’re an aggrieved employee. The court said that if the plaintiff loses an arbitration, they are not an aggrieved employee, and therefore lack standing. However, if the plaintiff prevails or settles their individual claims in arbitration, they could then return to court to prosecute their non-individual representative PAGA claims.

Jerry: Our Duane Morris Class Action Review in 2024 examined 1,300 rulings. By my way of thinking, I think that this particular ruling by the California Supreme Court may be the most important of all of those rulings. Shireen and Nick, I’d be interested in your takeaways of what this means for employers going forward.

Shireen: That’s a great question, Jerry, I think, in the wake of Adolph, the stakes for employers in individual PAGA arbitrations are really high. Employers facing PAGA claims should conduct an early assessment of the plaintiff’s individual claims, and if they are not meritorious, aggressively defend the matter, because a win in arbitration will completely extinguish the court case as well. We’re already seeing PAGA plaintiffs attempt to avoid arbitration through increasingly tenuous theories, or attempt to circumvent these agreements altogether through really creative pleading. It remains to be seen if these pleading strategies will be condoned by the California courts, but it’s a big, big issue for employers.

Nick: Another significant issue for employers is the recent Estrada decision, which struck a blow to employers facing PAGA claims by removing a defense that we were seeing become a little bit more common – the lack of manageability. The California Supreme Court encouraged PAGA plaintiffs to be prudent on their approach to their PAGA theories. However, usually that prudence is not seen in practice. While the decision did effectively remove the lack of manageability as a ground for dismissal, the decision did leave open an employer’s ability to seek dismissal on other due process grounds.

Jerry: I think the watch words are that in 2024, it’s probably even more difficult for employers to defend PAGA actions than it was last year. Nathan, do you have any inside baseball tips for employers in terms of this most recent California Supreme Court ruling, and what it may mean?

Nathan: Definitely, I agree. I think this is a game changer for employers operating in California. The Estrada court held in a unanimous decision that trial courts lack inherent authority to dismiss plans under PAGA with prejudice, to do the lack of manageability. The court, however, declined to address whether and under what circumstances, a defendant’s right to due process might ever support striking a pocket claim. As such. This decision in Estrada is really important for employers and their decision makers in California to read as we move forward in 2024.

Shireen: I would definitely agree with that. I think we’re seeing more and more pile-on PAGA matters where employers are facing either copycat or serial PAGA claims, and without any real adjudication of the claims that are identified in the PAGA letter, especially in the case of these kitchen sink or boilerplate letters. So query whether employers are actually getting a meaningful opportunity to cure these violations as contemplated by the statute. In no other agency context that I can think of would a government agency separately investigate a single employer for the exact same alleged violation in multiple, competing investigations or audits. These issues raise important due process concerns that the Estrada decision teed up very nicely for employers. And this could have a huge impact on the evolving landscape of PAGA, and it might actually mean that the Estrada decision is, in a funny way, a win for employers. So, very excited to see where the litigation goes from here, and especially in 2024.

Jerry: Well, this is truly an area that on our blog will be tracking on a day by day and week by week basis in terms of new developments under California law and PAGA litigation. Thank you so much. Nick, Nathan, and Shireen for sharing your thought leadership today on our podcast.

Nathan: Thank you, Jerry, love being on the podcast.

Nick: Thanks for having me, Jerry, and thank you listeners as well.

Shireen: Thanks, everybody.

The Duane Morris Private Attorneys General Act Review – 2024

By Gerald L. Maatman, Jr., Jennifer A. Riley, Brandon Spurlock, and Shireen Wetmore

Duane Morris Takeaways: One law making California so different – and so challenging – for employers is the Private Attorneys General Act (“PAGA”), which authorizes employees to assert claims for alleged labor violations. Such a worker acts as “a private attorney general” to pursue civil penalties against an employer as if they were an arm of the State of its agencies. PAGA claims are not class actions per se – instead, they are known as “representative actions – but they pose analogous risks and exposures like class actions brought under the California Labor Code. Plaintiffs bring thousands of PAGA cases every year, and, because PAGA plaintiffs can bring suit on behalf themselves and other employees, the stakes are often significant, with companies exposed to risks similar to those arising from class action litigation. The PAGA, however, has its own specific rules of the road, which differ from the rules elucidated in familiar Rule 23 jurisprudence.  The explosion of PAGA litigation has resulted in a complex body of case law that is often difficult to navigate, particularly in terms of the application of arbitration agreements and representative action waivers.  Given the wide adoption of such arbitration agreements, companies are struggling to grasp how recent decisions regarding the PAGA and arbitration impact their businesses.

To that end, the class action team at Duane Morris is pleased to present this year’s edition of the Private Attorneys General Act Review – 2024. We hope it will demystify some of the complexities of PAGA litigation and keep corporate counsel updated on the ever-evolving nuances of these issues.  We hope this book – manifesting the collective experience and expertise of our class action defense group – will assist our clients by identifying developing trends in the case law and offering practical approaches in dealing with PAGA litigation.

Click here to download a copy Duane Morris Private Attorneys General Act Review – 2024 eBook.

Stay tuned for more PAGA class action analysis coming soon on our weekly podcast, the Class Action Weekly Wire.

California Supreme Court Rules That Lack Of Manageability Is An Improper Basis Upon Which To Strike A PAGA Claim, But Leaves Open Due Process Challenges

By Eden E. Anderson, Gerald L. Maatman, Jr., and Jennifer A. Riley

Duane Morris Takeaways: On January 18, 2024, the California Supreme Court issued its opinion in Estrada v. Royalty Carpet Mills, No. S274340 (Cal. Jan. 18, 2024). It is a game changer for employers operating in California.  The Supreme Court held, in a unanimous decision, that trial courts lack inherent authority to dismiss claims under the Private Attorneys General Act of 2004 – the “PAGA”- with prejudice due to lack of manageability.  The Supreme Court declined to address whether, and under what circumstances, a defendant’s right to due process might ever support striking a PAGA claim. As such, the decision in Estrada is a required read for employers and their decision-makers.

Case Background

Jorge Estrada filed a putative class and PAGA action against his former employer asserting, as relevant here, meal period violations.  After two classes comprised of 157 individuals were certified, the case was tried to the bench.  The trial court ultimately decertified the classes, finding there were too many individualized issues to support class-wide treatment.  Although the trial court awarded relief to four individual plaintiffs, it dismissed the non-individual PAGA claim on the grounds that 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 reasoned 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.

The Court of Appeal in Estrada recognized its holding was 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.

The California Supreme Court’s Decision

At the outset, the California Supreme Court noted that the issue before it was whether trial courts possess inherent authority to “strike” PAGA claims for lack of manageability, defining the word “strike” to mean a dismissal with prejudice. Jan. 18 Opinion at 7. The Supreme Court then addressed, and rejected, the employer’s argument that trial courts possess inherent authority to, for judicial economy purposes, strike any claim a plaintiff asserts. The Supreme Court explained that the power to dismiss a claim with prejudice is limited to cases involving a failure to prosecute, frivolous claims, or egregious misconduct, and that judicial economy does not warrant the dismissal of any claim.

The Supreme Court rejected the employer’s argument that the manageability requirement for class actions should be imported into PAGA actions. It reasoned that there are three structural differences between class actions and PAGA representative actions that warrant treating these claims differently, as well as differences in jurisprudential history. The three structural differences cited by the Supreme Court were: (1) that plaintiffs in PAGA actions are not required to establish superiority or predominance of common issues; (2) PAGA’s purpose is to maximize enforcement of labor laws; and (3) that the California Labor and Workforce Development Agency (LWDA) can impose civil penalties for Labor Code violations without considering manageability.

As to jurisprudential history differences, the Supreme Court noted that, unlike class actions which were an “invention of equity,” PAGA actions are not “creatures of equity.” Id. at 30. Thus, while class action jurisprudence developed to create various common law requirements for class actions that are not set forth in California’s class action statute, the PAGA statute provides detailed statutory requirements for maintaining a PAGA claim, thereby constraining trial courts from using “extra-statutory inherent authority to strike PAGA claims that the Legislature has authorized.” Id. at 31. Because PAGA’s express wording permits a plaintiff who has suffered one labor code violation to seek civil penalties on behalf of other employees for “violations that vary widely in nature,” imposing a manageability requirement would “defeat the purpose of statute.” Id. at 32.

The Supreme Court declined to address whether, and under what circumstances, a defendant’s right to due process might ever support striking a PAGA claim other than to note that any such authority would be “narrow authority of last resort.” Id. at 41. Although the employer argued its due process rights would be violated if the PAGA claims against it were re-tried, the Supreme Court noted that the employer had only offered the testimony of two employees in the original trial and, thus, the due process issue was “hypothetical.” Id. at 40. The Supreme Court, however, agreed that employers have a due process right to present an affirmative defense, but emphasized that an employer has no due process right to present the testimony of an “unlimited number of individual employees” or “each allegedly aggrieved employee.” Id. at 40.

The Supreme Court concluded by noting that trial courts have “numerous tools” to manage complex cases, and suggested that the “extent of liability” in a PAGA case can be determined by surveys or statistical methods that estimate the number of aggrieved employees. Id. at 41. The Supreme Court emphasized that the burden of proof in a PAGA case remains with plaintiffs who should endeavor to be “prudent in their approach to PAGA claims” and that, if “a plaintiff alleges widespread violations of the Labor Code . . . but cannot prove them in an efficient manner, it does not seem unreasonable for the punishment assessed to be minimal.” Id. at 44.

Implications For Employers

The Estrada opinion strikes a blow to employers facing PAGA claims by removing lack of manageability as a ground for dismissal.  While the California Supreme Court encouraged PAGA plaintiffs to be prudent to their approach to their PAGA theories, in practice, such prudence is uncommon.  On the bright side, the decision leaves open an employer’s ability to seek dismissal on due process grounds.

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The opinions expressed on this blog are those of the author and are not to be construed as legal advice.

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