In a comprehensive victory for California public agencies, the California Supreme Court decided Stone v. Alameda Health System on August 15, 2024. The Stone decision not only clarifies that California meal and rest break laws do not apply to public agencies, it also holds that Labor Code “Private Attorneys General Act” (PAGA) penalties do not apply to public agencies and clarifies that the definition of “municipal corporation” in Labor Code 220(b) includes all public employers. The decision is final, cannot be appealed, and covers the entire State of California. Liebert Cassidy Whitmore filed an amicus (friend of the court) brief in support of Alameda Health System, which was referenced by the Court in its opinion.
Background
Alameda Health Systems (AHS) is a public agency established by the County of Alameda to provide health services to the people of Alameda County. AHS was established under California Health and Safety Code Section 101850, as a “hospital authority” – a government entity separate and apart from the County.
In March 2021, AHS employees Tamelin Stone and Amanda Kunwar brought a class and PAGA representative action[1] against AHS in superior court asserting violations of the California Labor Code on behalf of themselves and others for (1) failure to provide off-duty meal periods, (2) failure to provide off-duty rest periods, (3) failure to keep accurate payroll records, (4) failure to provide accurate itemized wage statements, (5) failure to pay wages, (6) failure to timely pay wages, and (7) civil penalties under PAGA.
The Trial Court Decision
In the trial court, AHS moved to dismiss the plaintiffs’ complaint, arguing that AHS was exempt from plaintiffs’ state law wage and hour claims due to its status as a public agency. AHS relied on the rule established in Johnson v. Arvin-Edison Water Storage District (2009) 174 Cal.App.4th 729, 736, that absent express words to the contrary, public agencies are excluded from coverage under Labor Code provisions. The trial court agreed with AHS and dismissed the complaint’s wage and hour claims, concluding that as a public agency, AHS was not subject to the state law wage and hour claims pled in plaintiffs’ action. AHS also argued that as a public agency, it was not subject to PAGA penalties because it was not an “employer” subject to PAGA and because PAGA damages are akin to punitive damages, which cannot be awarded against public agencies. The trial court agreed. Plaintiffs appealed the decision to the Court of Appeal.
The Court of Appeal Decision
In a February 2023 decision, the Court of Appeal reversed most of the lower court’s decision, thus permitting most of plaintiffs’ claims to go forward. As to plaintiffs’ meal/rest break and recordkeeping claims, the Court of Appeal saw no legislative intent to exempt public agencies from these laws and thus applied the “sovereign powers” doctrine, under which government agencies are excluded from coverage under a statute only if including them would infringe on their sovereign governmental powers. Applying this doctrine, the Court of Appeal concluded that application of California’s meal/rest break and recordkeeping laws did not infringe on any sovereign power of AHS, and thus the claims could proceed. As to plaintiffs’ prompt payment claims, the Court of Appeal allowed them to go forward because AHS was not a “municipal corporation” under Labor Code 220(b),[2] and thus that section’s exclusion did not apply. The Court of Appeal also allowed plaintiffs’ PAGA claim to proceed as to statutorily defined penalties (but not as to default penalties), concluding the statutorily defined penalties were not analogous to punitive damages (which may not be awarded against public agencies). The Court of Appeal sustained the dismissal of plaintiffs’ wage statement claims.
AHS filed a petition for review of the Court of Appeal decision to the California Supreme Court, which granted review of the decision in May 2023.
California Supreme Court Decision
On August 15, 2024, the California Supreme Court reversed the Court of Appeal’s decision, holding that plaintiffs’ meal/rest break, PAGA, and other Labor Code claims were inapplicable to AHS and other public agencies. The decision is summarized below.
California Meal and Rest Break Laws Do Not Apply to Public Agencies
The Stone decision clarifies that California meal and rest break laws do not apply to public agencies, unless they specifically state they apply to public agencies, because the statutory language, context and history show that the legislature intended to exclude public employers from those obligations.
California’s meal and rest break obligations are found at sections 226.7 and 512 of the Labor Code. In broad strokes, they require employers to provide a thirty-minute unpaid off-duty meal period and two ten-minute paid rest periods per a standard-length workday. Key to the Stone decision is the definition of “employer” for purposes of these sections, which is set forth at section 18 of the Labor Code. Looking at the statutory language, the court concluded section 18 of the Labor Code excludes government employers and therefore, public agencies are not employers subject to those meal and rest break laws. The Court also wrote that if the legislature intended meal and rest break laws to apply to government employers, it would have expressly stated that in the statute, as it has for other provisions that apply to public agencies. The Court went on to discuss the legislative history, agency interpretations, and case law that support this conclusion. The Court noted that the legislature did specifically apply meal and rest break laws to certain direct patient care workers for public entities in SB1334.
The court also rejected the Court of Appeal’s exclusion of AHS from the Wage Orders’ public agency exclusion.[3] As the Stone decision makes clear, the legislature intended the definition of “political subdivision” in the Wage Orders to be broad, and as a public agency, AHS is included within that definition.
Labor Code PAGA Penalties Do Not Apply to Public Agencies
PAGA claims allow an employee to pursue “defined penalties” (penalties set forth in specific Labor Code provisions) and “default penalties” (for each iteration of a violation) against an employer on behalf of themselves and employees so aggrieved, for Labor Code violations. However, like the meal and rest break laws, the PAGA statute defines “employer” with reference to Labor Code section 18. Following its reasoning on the section 18 definition of employer as applied to meal and rest break laws, the Stone court concluded that public employers are not subject to PAGA and as such, no penalties may be pursued against public employers under PAGA – neither defined nor default penalties. The court went on to ground its decision in legislative history and public policy, writing that PAGA penalties are akin to punitive damages and that the “potentially quite large” costs public entities could incur if subject to PAGA suits – including prevailing plaintiff’s attorney fees – would be an unjustified “drain on public funds.”
The Definition of Municipal Corporation in Labor Code 220(b) includes all Public Employers
Labor Code Section 220(b) exempts local government employers from the requirements of some wage payment laws. Section 220(b) states: “Sections 200 to 211, inclusive, and Sections 215 to 219, inclusive, do not apply to the payment of wages of employees directly employed by any county, incorporated city, or town or other municipal corporation.” The Court of Appeal held that AHS was not a municipal corporation and thus Labor Code 220(b) did not exempt AHS from those sections. However, the Stone court rejected the Court of Appeal’s reasoning, holding that section 220(b) should be read broadly to encompass all government employers (except the State, which is covered by section 220(a)), including AHS, within the definition of a “municipal corporation.”
What This Means for Public Employers:
This decision reinforces the principle that public entities are not subject to Labor Code provisions unless the Labor Code provisions expressly state so. Public employers are also not subject to liability for civil penalties imposed by PAGA cases.
On September 25 at 10 a.m., Liebert Cassidy Whitmore will be hosting a webinar that will discuss Stone v. Alameda Health System, as well as Senate Bill 525 and Labor Code section 512.1, which are new wage and hour laws applying meal/rest breaks and higher minimum wage rates to public health facilities. For more information on the webinar, click here.
The case is Stone, et al v. Alameda Health System, California Supreme Court No. S279137.
[1] A PAGA representative action is a type of lawsuit in California arising under the Private Attorneys General Act (Labor Code § 2698, et seq.) that authorizes an “aggrieved employee” to initiate an action for Labor Code violations against their employer on behalf of themselves or other current or former employees. Under PAGA, the “aggrieved employee” acts as an “agent or proxy” of the state to obtain civil penalties that previously could have been recovered by California’s Labor and Workforce Development Agency (LWDA). In addition to recovering these “defined penalties,” the PAGA statute provides for the recovery of additional default penalties per violation.
[2] Labor Code Section 220(b): “Sections 200 to 211, inclusive, and Sections 215 to 219, inclusive do not apply to the payment of wages of employees directly employed by any county, incorporated city, or town or other municipal corporation. All other employments are subject to these provisions.”
[3] Wage Order 5, which covers hospital workers, states that, unless specifically noted otherwise, “the provisions of this order shall not apply to any employees directly employed by the State or any political subdivision thereof, including any city, county or special district.” (Wage Order 5, subd. 1(C).) An identical provision is included in most other wage orders, including Wage Order 4, which applies to most public employees. (Wage Order 4, subd. 1(B).)