Employers Gain Defense Against Unmanageable PAGA Claims
In a case of first impression, last week, the Second District California Court of Appeal held that judges have inherent authority to limit, and even strike, unmanageable PAGA claims. Wesson v. Staples the Office Superstore, LLC, No. B302988, affirmed the trial court’s decision to strike PAGA claims alleging that Staples misclassified store managers because Staples’ defense could not be fairly litigated through methods common proof. The published portion of Wesson establishes, for the first time, that individual issues in PAGA claims, including employer’s defenses, must be tried fairly and efficiently.
The decision offers a glimmer of hope for employers faced with unwieldy and costly PAGA litigation in the Golden State.
The Rise of Unmanageable PAGA Litigation
Over the last decade, California’s employers have been inundated with lawsuits filed by aggrieved employees under the state’s Private Attorneys General Act of 2004. In a PAGA action, the plaintiff represents state labor agencies and seeks civil penalties based on alleged Labor Code violations for a group of employees without many of the procedural protections of class action litigation.
PAGA litigation rapidly increased after 2009, when the California Supreme Court held PAGA claims need not present common questions of law or fact, or otherwise meet class action certification requirements. (Arias. v. Superior Court.) Years later, in 2017, the Court recognized PAGA plaintiffs’ burden to establish manageability but did not adopt a clear manageability requirement. (Williams v. Superior Court.) Thereafter, state courts continued to allow PAGA plaintiffs to assert and maintain inherently unmanageable claims, some of which were based on alleged violations that the named plaintiffs did not even experience. (e.g., Huff v. Securitas.)
As a result, employers’ due process rights have given way to the ostensible public policy interests in protecting employees. The Wesson opinion is the first legitimate step towards balancing those rights and interests.
Wesson’s Representative Misclassification Claims & Staples’ Motion to Strike Them
Wesson sought over $35 million in civil penalties under PAGA based on claims that Staples misclassified 346 store general managers (GMs) in California. He alleged the GMs spend the majority of their workdays performing non-exempt work. Staples moved to strike the claims as unmanageable based on evidence that each GM’s job performance varied significantly based on store size, sales volume, staffing levels, managerial approaches, and other unique factors, which require individualized determinations.
Wesson argued that the trial court lacked authority to ensure PAGA claims are manageable and, even if the court had such authority, a PAGA claim is manageable so long as the plaintiff’s prima facie case is manageable (i.e., so long as common proof might be sufficient to establish a rebuttal presumption of a violation). Wesson argued that the manageability of the employer's affirmative defense at trial was irrelevant.
Trial Court’s Decision to Strike the PAGA Claim
The trial court invited Wesson to submit a trial plan to demonstrate that trial of the PAGA action would be manageable, but Wesson declined to address how the parties could fairly and efficiently litigate Staples’ affirmative defense. As a result, the trial court found the PAGA claim to be unmanageable and granted Staples’ motion to strike.
Importantly, the trial court’s conclusion was based on the understanding that the PAGA is a procedural vehicle allowing for representative claims. The PAGA does not establish substantive rights and a PAGA claim is not a substantive claim. Thus, it reasoned that barring a claim as unmanageable does not affect substantive rights.
A Manageability Standard for PAGA Litigation
In Wesson, the Court of Appeal affirmed the trial court’s decision to strike the PAGA claim as unmanageable. The court held that “(1) trial courts have inherent authority to ensure the PAGA claims can be fairly and efficiently tried and, if necessary, may strike claims that cannot be rendered manageable; [and] (2) as a matter of due process, defendants are entitled to a fair opportunity to litigate available affirmative defenses, and a court’s manageability assessment should account for them.”
The appellate court recognized that certain manageability requirements must be satisfied for any representative action, whether it be a representative class, UCL, or PAGA action. (See, e.g., Raven’s Cove Townhomes, Inc. v. Knuppe Development Co. and Market Lofts Community etc. v. 9th St. Market Lofts.) Moreover, the court found that “PAGA actions involve comparable or greater manageability concerns than other representative claims.”
The manageability analysis in Wesson largely relies on the state Supreme Court’s decision in Duran v. US Bank. Both Wesson and Duran involved representative claims that the employer improperly classified workers as exempt employees. In Duran, the Supreme Court held “the trial court could not abridge [the employer]’s presentation of an exemption defense simply because that defense was cumbersome to litigate in a class action.” (CDF represented U.S. Bank during the pendency of the Duran case.) In Wesson, the court similarly concluded that individual issues in a PAGA claim “must be tried fairly and efficiently.”
The Second District explained that the manageability assessment in each case will depend on its unique circumstances and did not adopt a “rigid rule” to govern trial court’s assessments of manageability. However, the court noted that “a need for individualized proof pertaining to a large number of employees will raise manageability concerns,” whether the proof goes to a claim or affirmative defense.
As a result, the manageability requirement should strike a balance between the PAGA’s aim to protect workers and the need to preserve a defendant’s right to due process.
Potential Applications and Scope of the PAGA Manageability Requirement
The manageability requirement applies to all PAGA lawsuits, not just those involving misclassification claims. Manageability issues will arise from a plaintiff’s theory of liability and/or the employer’s defenses.
PAGA actions based on alleged meal period violations, for example, may present manageability issues. Recently, the California Supreme Court held that time records showing missing, short, or delayed meal periods give rise to a rebuttable presumption of meal period violations. (Donahue v. AMN Services.) Even if a PAGA claim alleging meal period violations is based on time records showing meal period violations (common proof), an employer’s defense to such claims likely will require individualized assessments if other facts are present to defend against the presumption.
Employers should note that when manageability issues are present in a PAGA action, Wesson does not require the trial court to strike the claim. The court must first seek to render the PAGA claim manageable by adopting a feasible trial plan and/or limiting the scope of the claim. As a result, Wesson will not necessarily eliminate PAGA actions. But it should prevent the use of PAGA claims as a vessel for fishing-expeditions seeking to put employers on the hook for plaintiff’s attorneys’ fees.
Employers confronted with PAGA claims should contact CDF Labor Law to discuss investing in establishing a manageability defense to limit the scope of overbroad PAGA claims and potentially eliminate them altogether.