Hunton Employment & Labor Perspectives

In a huge win for California employers, the California Court of Appeals recently confirmed that courts have discretion to strike claims for penalties under the Private Attorneys General Act of 2004 (“PAGA”) if the claims will be unmanageable at trial.  This decision will help employers defeat—or significantly pare down—the broad and unwieldy claims for PAGA penalties that have become popular with the plaintiffs’ bar.

A.  The Case: Fred Wesson v. Staples The Office Superstore, LLC

Plaintiff Fred Wesson was a former store general manager (“GM”) of Staples retail stores around Los Angeles.  In his lawsuit, he claimed that his employer failed to pay him overtime and denied him meal breaks and rest breaks. Wesson sought PAGA penalties on behalf of himself and 345 other GMs in California.

Staples asserted as an affirmative defense that Wesson and the other GMs he sought to represent were classified as exempt pursuant to the executive exemption, which meant that Wesson and the other GMs were not entitled to overtime, meal breaks, or rest breaks.  Importantly, in order to prove that defense, Staples would need to show, among other things, that Wesson and the other GMs spent the majority of their working hours performing exempt job duties.

The retailer filed a motion to strike Wesson’s claims, arguing that the claims would be unmanageable at trial and would violate the company’s due process rights, because Staples could not prove its affirmative defense using common proof, but instead would need to establish the exemption as to each GM individually.  Staples argued this would require 346 mini trials, one for each GM.

In response to the motion to strike, the trial court invited Wesson to submit a trial plan explaining how the case could be tried fairly and efficiently.  Wesson submitted a plan for how he would prove that Wesson and other GMs were not paid overtime or provided meal or rest breaks, but Wesson argued that he was not required to suggest a plan for how his employer could present its affirmative defense.

B.  Three Key Takeaways

 The trial court granted the employer’s motion to strike Wesson’s claims on the ground that they were unmanageable, and the Court of Appeal affirmed that ruling.  Below are the three main takeaways from the Wesson Court’s decision:

1.  Courts have inherent authority to strike PAGA claims that cannot be tried fairly and efficiently.

A court’s inherent authority comes from article VI, section I of the California Constitution.  Pursuant to this inherent authority, courts have the power to manage complex litigation in order to prevent it from monopolizing court resources to the exclusion of other litigants, and the power to fashion procedures and remedies as necessary to protect litigants’ rights.  The Wesson Court confirmed that this power allows a trial court to intervene to ensure that representative PAGA actions can be managed fairly and efficiently at trial.  Thus, defendants should consider asking courts to exercise their inherent authority and strike PAGA claims where PAGA plaintiffs cannot demonstrate an acceptable trial plan.

2.  A PAGA trial plan should account for the defendant’s affirmative defenses.

 A defendant must be allowed a fair opportunity to present its defenses, which means that the trial plan must account for the defendant’s affirmative defenses.  Wesson presented a straightforward trial plan setting forth how he intended to establish wage and hour violations using common proof, but his trial plan did not address how the Court would try his employer’s affirmative defense that Wesson and his fellow GMs were exempt under the executive exemption.  At oral argument, counsel for the parties estimated that it would take six trial days per GM to litigate the GMs’ classifications individually, which brought the estimated trial length to roughly eight years.  The trial court concluded that such a long trial would “not meet any definition of manageability,” and the Court of Appeals agreed.   Following Wesson, defendants should confirm that any PAGA trial plan submitted by PAGA plaintiffs adequately accounts for affirmative defenses, such as exemption.

3.  Not all PAGA claims will raise manageability concerns.

 Wesson’s employer persuasively argued that the Court would have to conduct individual trials for each of the GMs whom Wesson sought to represent, because the key question at the heart of the employer’s exemption defense—how each GM spent his or her time—could not be answered based on common proof.  While the Wesson Court affirmed the trial court’s determination that Wesson’s claims were unmanageable, and noted that PAGA claims “involve comparable or greater manageability concerns than other representative claims,” the Court observed that other PAGA claims may not present the same challenges, and courts may be able to narrow some claims to a manageable scope rather than striking the claims completely.  Therefore, defendants will likely have more success striking PAGA claims if they can show that the claims would require individualized inquiries instead of common proof.

C.  A Significant Win for California Employers

 Federal district courts in California have issued divergent opinions regarding whether PAGA claims must be manageable, with some courts holding PAGA actions to a manageability requirement, and some courts refusing to impose such a requirement.  Of the courts that have rejected a manageability requirement, most have reasoned that such a requirement would be inconsistent with PAGA’s purposes.

Wesson is the first decision by a California Court of Appeals addressing PAGA manageability, and the Wesson Court addressed—and found unpersuasive—arguments that a manageability requirement would be inconsistent with PAGA’s purpose: “[T]hat some claims may not be able to proceed without limitation will not nullify PAGA’s objectives.”

The Wesson decision is important precedent for California employers and will likely persuade more federal district courts in California to subject PAGA claims to a manageability analysis.