California Supreme Court Allows Unmanageable PAGA Claims to Survive Challenge

On 18 January 2024, the Supreme Court of California (Court) unanimously held that trial courts lack inherent authority to dismiss with prejudice claims brought under the Labor Code Private Attorneys General Act of 2004 (PAGA) for lack of manageability.¹ The Court’s conclusion rested primarily on differences in the structure and jurisprudential history of PAGA and class action claims. In addition, the Court concluded that PAGA defendants’ due process rights are not violated by virtue of not striking unmanageable PAGA claims before trial. 

Conflicting Rulings of Lower Courts

The Estrada decision settled a split of authority among California Courts of Appeal, which disagreed about whether this form of inherent authority existed.² In Wesson, previously discussed here, a California Court of Appeal held that trial courts have inherent authority to ensure that PAGA claims will be manageable at trial and “if necessary, may preclude the use of this procedural device.” ³ In other words, a trial court has inherent authority to dismiss a PAGA claim with prejudice if it determines that the claim cannot be tried fairly and efficiently.  

In Estrada, however, a different California Court of Appeal reached the opposite conclusion, reasoning that “dismissal of unmanageable PAGA claims would effectively graft a class action requirement onto PAGA claims, undermining a core principle” that distinguishes between PAGA claims and class actions.⁴ In resolving this split of authority, the Supreme Court of California agreed with the Estrada Court of Appeal. 

California Supreme Court’s Reasoning 

The Court began its decision by confirming that trial courts do not have inherent authority to dismiss “any type of claim, irrespective of its nature, to foster judicial economy.”⁵ The Court cited prior case law holding that trial courts’ inherent power to dismiss cases with prejudice is “tightly circumscribed” and is reserved for cases involving a failure to prosecute, frivolous claims, or egregious misconduct.⁶ Further, it concluded that no California statute supports the existence of such inherent authority.

The Court then held that PAGA claims do not present an exception to this general rule.  While the concept of manageability arose in the class action context and may provide grounds to decline to certify or to decertify a class, the Court concluded that “class claims differ significantly from PAGA claims in ways that make it inappropriate to impose a class action-based manageability requirement on PAGA actions.”⁷ The Court held that imposing a manageability requirement would be contrary to the legislative intent behind PAGA that seeks to maximize the enforcement of labor laws. Also, while class actions are creatures of equity whose limits have been defined by common law, PAGA claims are subject to a detailed statutory scheme that does not include a manageability requirement. Thus, the Court determined that the differences between class action jurisprudence and the PAGA statutory scheme do not leave room for manageability considerations in the PAGA context.  

Next, the Court rejected the respondent’s argument that courts have authority to strike PAGA claims based on their inherent authority to strike claims brought under a former version of California’s unfair competition law (UCL). The Court reasoned that the right to bring a pre-2004 UCL representative claim arose out of courts’ inherent powers, so these claims were more akin to class actions than PAGA claims. Thus, trial courts’ ability to strike UCL claims has no bearing on their ability to strike PAGA claims.

Finally, the Court held that due process concerns do not warrant dismissal of unmanageable PAGA claims. The Court concluded that defendants do not have an unfettered right to present individualized evidence in support of affirmative defenses to PAGA claims. The Court noted that its prior decisions suggested that class action defendants do not have such a right, and it failed to see “why these limitations on the right to present an affirmative defense in class actions do not also apply to the defense of representative PAGA claims.”⁸ The Court also reasoned that defendants have other procedural tools at their disposal (such as demurrers, motions for summary judgment, and judgments notwithstanding the verdict) to efficiently adjudicate overbroad and unspecific PAGA claims.

Moving Forward

Default PAGA penalties are US$100 per violation per pay period per employee. For many employers, this means that potential exposure on PAGA claims can be substantial. Estrada does away with one potential ground for dismissing PAGA claims before trial. Accordingly, a key takeaway for employers is to revisit wage and hour practices and policies to maximize compliance and mitigate PAGA exposure.