What is PAGA?

California’s labor law enforcement agencies, including the Labor and Workforce Development Agency (“LWDA”) also known as the “Labor Board” has the authority to investigate whether employers violate the California Labor Code, and assess and collect civil penalties for any such violations.  However, due to purported budget cuts and cited lack of state resources to prosecute such actions, in 2004, the Legislature enacted the Private Attorneys General Act of 2004 (PAGA), Lab. Code, § 2698 et seq., to authorize an employee to bring an action for civil penalties on behalf of the state against his or her employer for Labor Code violations committed against the employee and fellow employees, with 75% of the proceeds of that litigation going to the state, and 25% to the employees.  A PAGA plaintiff therefore steps into the shoes of an attorney general to prosecute alleged Labor Code violations for civil penalties, on behalf of the state.  PAGA penalties can be astronomical.  Pursuant to PAGA, default civil penalties are $100 “for each aggrieved employee per pay period for the initial violation,” and $200 per aggrieved employer, per pay period, per “each subsequent violation.”

PAGA claims are popular among Plaintiffs for several reasons.  First, PAGA provides for attorneys’ fees for successful PAGA plaintiffs to incentivize such actions.  Second, because a PAGA action is not technically a class action, PAGA claims are not subject to class action waivers.  So, a plaintiff who has agreed to a binding and enforceable class action waiver can still bring a PAGA claim on behalf of themselves and all similarly aggrieved employees in state court.  Third, a PAGA plaintiff is not required to meet the minimum standards required to certify a class action in California: numerosity of the class, whether common questions of law or facts as to class members predominate; whether the plaintiff’s claims are typical of those of the class; whether the plaintiff and their attorneys are adequate representatives of the class; and whether the class action device is a superior method to individual resolution of each member’s claims.  Until Wesson, escaping PAGA claims seemed next to impossible for even the most near-perfect employers.

The Wesson Case

On September 9, 2021, in Wesson v. Staples the Office Superstore, LLC (2021) 68 Cal. App. 5th 746, the California Court of Appeal held that trial courts have inherent authority to ensure that a PAGA claim can be fairly and efficiently tried, which includes the authority to limit, and even strike, unmanageable PAGA claims.  The court further held that due process requires that an employer is entitled to a fair opportunity to litigate available affirmative defenses, which a manageability assessment must take into account.

Plaintiff-Appellant Fred Wesson worked for Defendant-Respondent Staples the Office Superstore (Staples) as a store manager (GM).  He brought a PAGA action against Staples on behalf of himself and 345 other current and former Staples GMs in California, alleging $36 million of PAGA penalties for overtime, rest and meal period violations, premised on the theory that Staples misclassified all of its GMs as exempt executives.  Staples moved to strike Wesson’s PAGA claim, arguing it was unmanageable because it would require individualized proof as to each GM’s classification, and thus could not be efficiently litigated (Staples had made the same arguments in its successful opposition to Wesson’s motion for class certification).  In response, Wesson asserted the court lacked authority to decide.  The court instructed Wesson to provide it with a trial plan to manage trying individualized issues (such as how much of their worktime GMs spent doing exempt, managerial tasks), but Wesson did not provide the court such a trial plan.  And, in a supplemental brief, Wesson agreed that to litigate its exemption defense “Staples [would] need to proffer ‘a GM-by-GM, week-by-week analysis’ throughout the entire relevant time period[.]”  At a subsequent hearing on Staples’s motion, the parties estimated that they would need a total of six trial days per GM to litigate GMs’ classifications on an individual basis, i.e., a trial lasting 8 years.  The trial court determined to strike the PAGA claims as unmanageable.

The Court of Appeal affirmed the trial court’s decision to strike the PAGA claims, holding (1) the trial court had authority to strike PAGA claims as unmanageable; (2) due process requires a fair opportunity for an employer to litigate its affirmative defenses, which a manageability assessment had to take into account; and (3) because the employee’s lack of cooperation with the trial court’s request for a manageability plan, striking the PAGA claims was not error.  The court explained, “[t]he evidence and argument before the trial court revealed no apparent way to litigate Staples’s affirmative defense in a fair and expeditious manner, as the defense turned in large part on GMs’ actual work experience, yet there was extensive variability in the group of Staples’s GMs.”

Why This Matters

Prior to Wesson, there was no clear answer on whether trial courts could strike PAGA claims for being unmanageable.  Now that the Court of Appeal has clarified that this is permissible, employers facing the possibility of similarly astronomical PAGA penalties may attempt to strike such claims as unmanageable where individual issues predominate, and potentially obviate entire PAGA actions, saving millions.  Certainly, employers should consider this approach in all misclassification cases, which the Wesson court itself acknowledged are “highly fact dependent” in nature.   However, in any instance in which the group of aggrieved employees have many differences or the facts, for whatever reason, are individualized, employers should similarly move to strike PAGA claims as unmanageable.

The lawyers in the Weintraub Tobin Labor & Employment group have tremendous experience litigating PAGA representative actions and class actions and are up-to-date on the current status of the law to provide superior representation to their clients.  If your company has recently been hit with a PAGA or class action lawsuit, we can assist you in identifying creative strategies to thwart or diminish potential negative outcomes.  Contact us today to discuss how Wesson could affect your pending case.