California’s Estrada Decision and Impact on Employers and PAGA Claims

Following Estrada v. Royalty Carpet Mills, Inc., the California Supreme Court’s employee-friendly Private Attorneys General Act (PAGA) ruling earlier this year, employers must remain more diligent than ever to prevent and mitigate costly wage and hour litigation. Estrada eliminated one of employers’ central tools to curb sprawling PAGA claims: requesting dismissal based on the court’s inherent authority to strike unmanageable claims. This article explains existing procedures that remain available to employers to reduce wage and hour risks and limit PAGA actions.

Estrada’s Key Holdings

Since PAGA took effect in 2004, trial courts have used their inherent authority to strike unmanageable PAGA claims as one of the few available methods to shield employers from unwieldy representative actions. Yet the Court’s unanimous Estrada decision concluded “trial courts lack inherent authority to strike PAGA claims on manageability grounds.” The Court based its holding on two primary arguments: (1) PAGA claims aren’t equivalent to class actions and lack a similar manageability prerequisite, and (2) prior precedent doesn’t grant trial courts broad authority to dismiss claims.

The aftermath of Estrada presents an important opportunity for employers to reassess their wage and hour policies and procedures and prepare strategies to defend against potential PAGA actions.

Remaining PAGA Limitation Tools Available to Employers

California employers should consider the following tools to prevent costly PAGA actions and reduce the burden they place on business priorities.

First, employers should review their wage and hour policies to ensure compliance with California labor laws. Maintaining strong compliance remains the best (and least expensive) way for employers to prevent costly wage and hour litigation, particularly in the wake of Estrada’s elimination of courts’ inherent authority to strike PAGA actions for unmanageability. In addition to reviewing policies, employers should continue to monitor on-the-ground wage and hour practices and remediate violations promptly when they occur.

Second, employers and their counsel should monitor PAGA actions closely. The Estrada Court explained that judges retain inherent authority to dismiss claims in “cases involving a failure to prosecute, frivolous claims, or egregious misconduct.” Thus, being more diligent than PAGA plaintiffs in asserting their defenses and challenging affirmative claims can be an effective and efficient way for employers to undermine PAGA actions from the start and throughout litigation, particularly if plaintiff’s counsel is not diligent in prosecuting claims.

Third, the Estrada Court wrote that PAGA defendants can rely on representative testimony, surveys, and statistical analysis to prove that certain issues or claims are untenable and that courts retain their rights to limit the “types of evidence a plaintiff may present.” Employers and their counsel should promptly seize on such tools when defending PAGA actions to attempt early resolution through substantive motions (such as summary adjudication motions or motions in limine) to dismiss claims or limit the evidence at trial. Furthermore, a statistical analysis of policies and covered employees may identify the number of aggrieved employees actually impacted by alleged unlawful practices, helping employers focus their attention on the impacted employees both in litigation and when considering remediation opportunities.

Fourth, the Court wrote that judges may still dismiss or sever claims when a plaintiff improperly “seeks to join multiple claims arising out of different facts, premised on different legal theories, against several different defendants.” Yet those rights arise not from the Court’s inherent authority to dismiss unmanageable claims but rather from statutes requiring that claims affect the named defendants and permitting courts to order a separate trial of a particular cause of action to avoid prejudice or promote judicial economy. Where possible, employers and their counsel should use these tools to seek dismissal of improperly joined claims.

While not as impactful as outright dismissal based on unmanageability, these existing tools can help employers focus the judge and parties on the key issues, identify maximum potential PAGA liability, gain partial dismissal or evidence exclusion, and potentially lead to productive settlement discussions. Doing so will help employers focus on their business priorities rather than becoming mired in costly and distracting wage and hour litigation.

Conclusion

Following the Supreme Court’s newest employee-friendly PAGA ruling, employers can and should continue to employ traditional litigation tools to trim and adjudicate PAGA claims. Estrada declined to rule on whether certain PAGA claims can be dismissed to preserve employers’ due process rights. That question is likely to prompt future review and gives employers a glimmer of hope, however remote, toward an efficient process for dismissal of unmanageable PAGA claims.