Alameda Health Systems (“AHS”) is a public agency established to provide health services. 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, two AHS employees brought a class and Private Attorney’s General Act (“PAGA”) representative action against AHS. They asserted violations of the California Labor Code on behalf of themselves and others for: 1) failures to provide off-duty meal and rest periods, keep accurate payroll records, provide accurate itemized wage statements, pay wages, timely pay wages; and 2) civil penalties under PAGA.
In the trial court, AHS moved to dismiss the employees’ complaint, arguing under Johnson v. Arvin-Edison Water Storage District (2009) 174 Cal.App.4th 729, 736, that absent express words to the contrary, public agencies are not covered by California Labor Code’s provisions. AHS also argued that as a public agency, it was not subject to PAGA penalties because it was not an “employer” and because PAGA damages are akin to punitive damages, which cannot be awarded against public agencies. The trial court agreed. The employees appealed.
The California Court of Appeal reversed most of the lower court’s decision, thus permitting most of the employees’ claims to go forward. AHS filed a petition for review in the California Supreme Court.
The California Supreme Court reversed the Court of Appeal’s decision, holding that the employees’ meal/rest break, PAGA, and other Labor Code claims were inapplicable to AHS and other public agencies. The Court first clarified that California meal and rest break laws do not apply to public agencies, because the statutory language, context and history show that the legislature intended to exclude public employers. The Court also wrote that if the legislature intended meal and rest break laws to apply to government employers, it would have expressly stated so in the statute.
The PAGA statute defines “employer” as any “person” as defined in Labor Code section 18. Labor Code section 18 defines “person” as “any person, association, organization, partnership, business trust, limited liability company, or corporation.” Because public entities are not listed in that definition, the Court concluded that public employers are not subject to PAGA, and that no PAGA penalties may be pursued against public employers. The Court found that PAGA penalties are akin to punitive damages and that the costs public entities could incur if subject to PAGA suits would be an unjustified “drain on public funds.”
Finally, the Court clarified that Labor Code section 220(b) exempts local government employers from the requirements of some wage payment laws. The Supreme Court rejected the lower court’s reasoning that AHS was not a municipal corporation under Labor Code 220(b). The Supreme Court held that “municipal corporation” should be read broadly to encompass all government employers (except the State, which is covered by section 220(a)).
Stone v. Alameda Health System, 2024 Lexis 4425 (Cal Supreme Court (2024).
Note: This decision reinforces the principle that public entities are not subject to Labor Code provisions unless the Labor Code provisions expressly reference public entities. The phrase “municipal corporation” should be read broadly to apply to all local governmental entities.