California courts may not strike Private Attorneys General Act claims on the grounds that they cannot be tried manageably, the California Supreme Court ruled on Jan. 18.

The Private Attorneys General Act, or PAGA, allows “aggrieved employees” to represent other workers in litigation and sue an employer on behalf of the state for labor code violations. Civil penalties recovered under PAGA are split, with the state receiving 75% of the penalties and the aggrieved employees receiving 25%.

The ruling decided a key issue in Estrada v. Royalty Carpet Mills Inc., regarding whether a trial court has discretion to limit PAGA cases that are unmanageable. The court’s opinion focused heavily on the distinction between class actions and PAGA actions, explaining that “class claims differ significantly from PAGA claims” and have “differing doctrinal bas[es],” according to law firm Gibson Dunn. However, the court emphasized that its holding “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.”

The court also did not “foreclose the possibility that a defendant could demonstrate that a trial court’s use of case management techniques so abridged [its] right to present a defense that its right to due process was violated.” The court further explained that if a plaintiff’s case were “overbroad or unspecific,” such that she could not “prove liability as to all or most employees,” the PAGA claims could be narrowed through “substantive rulings,” including demurrers or motions for summary judgment.

“We acknowledge the challenges presented by complex cases, including representative PAGA actions, and we leave undisturbed various case management tools designed to ensure that these cases are efficiently, fairly and effectively tried,” Chief Justice C. J. Guerrero wrote in the Opinion of the Court. “Nonetheless, there are limits to a trial court’s discretion when determining how to balance the interests of the parties before it. We hold that the Court of Appeal properly concluded that a trial court “cannot dismiss a PAGA claim based on manageability.”

Options Remain for Employers

While some have read the decision as a resounding victory for the plaintiffs’ bar that will force every PAGA case to settle for large amounts, the decision does no such thing, Michael S. Kun of law firm Epstein Becker & Green PC wrote in The National Law Review.

“It may challenge employers and their lawyers to be more creative, but it does not mean that every PAGA action now warrants an outsized settlement or that the courts must try every PAGA action, no matter how large the case is or — to use a word that should rarely appear again in any PAGA brief — how ‘unmanageable,’” Kun wrote in his post.

Among the other case management tools available to employers and courts in PAGA actions, Kun cited:

Demurring to the complaint on the grounds that it is overbroad or insufficiently specific. Challenging plaintiffs’ PAGA allegations at the outset of the case will likely be done more often than before. Courts may be less likely to accept boilerplate PAGA complaints vaguely alleging violations of the law and more likely to narrow the claims or the definition of the PAGA group at the outset.

Moving to bifurcate and litigate or try the named plaintiff’s claims first. If the employer prevails on the named plaintiff’s claims, whether through a summary judgment motion or trial, the named plaintiff is no longer an “aggrieved employee” and no longer has standing to proceed with the PAGA representative action. Judges may be very willing to bifurcate claims if it could avoid tying up their courtrooms for months to try a PAGA action.

Moving to narrow the definition of the PAGA group or to strike a portion of the PAGA group. There is nothing in that would prohibit a court from redefining or striking a portion of the proposed PAGA group, particularly if needed to preserve due process rights.

Moving for summary judgment or partial summary judgment. There is nothing preventing an employer from moving for summary judgment, or partial summary judgment, as to the plaintiff, the entire PAGA group or a portion of the PAGA group.

Ballot Measure Pending

New class action and California PAGA filings have grown exponentially in recent years and reached record numbers in 2023, according to data tracking new class and PAGA notice filings compiled by law firm Ogletree Deakins. According to the data, through the end of 2023, there have been more than 5,000 employment class action filings, marking a 20% increase from the total number of filings in 2022 and more than doubling of the number of filings in 2017. The year 2023 also set a new high-water mark in class action employment filings in California.

This trend is raising concerns for California employers as the state courts have expanded liability risks for more claims and further restricted the applicability of arbitration agreements to PAGA claims.

However, Golden State employers may find relief with the California Fair Pay and Employer Accountability Act, a measure on the November 2024 ballot that would repeal PAGA and replace it with increased enforcement tools for the California Labor and Workforce Development Agency.

If passed by the voters, FPEAA will “put workers’ labor claims back in the hands of the independent regulator” by empowering the labor commissioner to enforce labor laws and impose penalties, according to the Californians for Fair Pay and Accountability website. “Workers under this system would be able to get their claims handled without having to hire a private attorney to engage in a lengthy and costly lawsuit.”

The proposed law would eliminate the Labor Commissioner’s authority to contract with private organizations or attorneys to assist with enforcement, require the Legislature to provide funding for labor commissioner enforcement, require the labor commissioner to provide pre-enforcement advice, allow employers to correct identified labor-law violations without penalties, award all penalties to the “aggrieved” employee, and authorize increased penalties for willful violations, according to a post by California employment law firm Proskauer.

“Proponents of the FPEAA claim this act that eliminates employees’ ability to file lawsuits for monetary penalties for state labor-law violations will both protect businesses from shakedown lawsuits that line the pockets of plaintiffs’ lawyers and protect workers’ rights,” the post states.