California Court of Appeal Upholds Dismissal of ‘Unmanageable’ PAGA Claim

On September 9, 2021, the Second District of the California Courts of Appeal ruled in Fred Wesson v. Staples the Office Superstore, LLC that trial courts have “inherent authority” to strike claims under the California Private Attorneys General Act (PAGA) if they will not be manageable at trial. As the first precedential decision on this issue from a California court, this case provides employers with a welcome potential defense to some PAGA claims.

Facts and Background

Under PAGA, employees in California are empowered to bring claims on behalf of other employees (and the state of California) for violations of the California Labor Code. Critically, plaintiffs need not meet class action requirements or go through class action procedures to bring claims under PAGA on behalf of other employees. As a result, unlike class actions, employers have had relatively limited recourse to challenge wide-reaching PAGA claims, sometimes brought on behalf of hundreds or thousands of employees.

Facing such a procedural quagmire, some employers have argued that courts should strike PAGA claims if they would be unmanageable at trial. Some trial courts have agreed with that argument, but others have not. However, until the Wesson decision, no California Court of Appeal had issued any published authority on the issue.

The Wesson decision arose from a PAGA claim brought by Wesson on behalf of himself and 345 other employees, alleging that he and the other employees were misclassified as exempt from overtime. The defendant moved to strike the PAGA claim on the grounds that the claim would be “unmanageable” and would violate its due-process rights given the number of employees the plaintiff sought to represent and the nature of his allegations. The defendant argued that to show the employees were properly classified would require individualized proof and could therefore “not be fairly and efficiently litigated.” The plaintiff, on the other hand, argued that the trial court did not have the authority to strike his PAGA claim on manageability grounds and that, in any event, his claim was manageable. The trial court agreed with the defendant and its motion to strike the PAGA claim.

Court of Appeal’s Ruling

Drawing upon courts’ inherent authority to manage litigation, the appellate court held that courts do have the “inherent authority to ensure that PAGA claims can be fairly and efficiently tried and, if necessary,” courts may strike unmanageable claims. It also held that, “as a matter of due process,” employers are entitled to litigate available affirmative defenses, which courts should take into account when assessing the manageability of PAGA claims. In terms of Wesson’s PAGA claim specifically, the appellate court held that the trial court did not abuse its discretion in striking his claim as unmanageable.

In addition to the general proposition that courts have the inherent authority to control and manage litigation before them, the Second District Court of Appeal pointed out that California courts have specifically exercised that power to preclude unmanageable representative actions. The appellate court noted, in particular, that courts have required class action plaintiffs to show that any litigation of individual issues is manageable, despite the fact that that this requirement is not found in the statute authorizing class actions. The court also highlighted a case barring a pre-2004 claim under California’s Unfair Competition Law (UCL) as unmanageable (starting in 2004, UCL claims have had to comply with class action requirements, but before 2004 they did not).

The Second District Court of Appeal further noted that PAGA claims can “cover a vast number of employees” with different experiences, which may make the claims unmanageable. Indeed, the fact that PAGA claims do not have to meet class action requirements means that PAGA claims may present more manageability concerns than class actions do.

The Second District Court of Appeal did note, however, that a finding that a PAGA claim is unmanageable will not always result in the court striking the claim. Rather, courts should attempt to solve manageability problems by altering trial plans or limiting PAGA claims’ scope before they resort to striking PAGA claims in their entirety. In addition, the appellate court did not decide the issue of which party has the burden to prove that a PAGA claim is or is not manageable because, in this case, the evidence before the trial court supported the ruling even if the defendant had the burden of proof.

Takeaways

The Second District Court of Appeal’s holding that trial courts may properly strike PAGA claims if they are unmanageable is a welcome relief to employers. Some employers have, in the past, already attempted to strike unmanageable PAGA claims, with varying results. With a published California Court of Appeal decision endorsing that position, employers facing PAGA claims should examine the facts and allegations in their cases and determine if a challenge on manageability grounds is appropriate.