On August 15, 2024, the California Supreme Court issued a momentous unanimous decision in Stone v. Alameda Health System (“Stone”), concluding that public employers are exempt from various Labor Code provisions and PAGA penalties.
Stone’s Procedural History
The former employee-plaintiffs in Stone worked at a hospital operated by Alameda Health System (AHS). AHS had been authorized by the county Board of Supervisors and Legislature to operate as a separate public agency, strictly and exclusively dedicated to managing the county’s public health facilities.
Following the employees’ separation of employment, plaintiffs filed a class and PAGA representative action against AHS claiming violations of various wage and hour laws including:
- failure to provide off-duty meal periods;
- failure to provide off-duty rest breaks;
- failure to keep accurate payroll records;
- failure to provide accurate itemized wage statements;
- unlawful failure to pay wages;
- failure to timely pay wages; and
- civil penalties for these violations under PAGA (§ 2698 et seq.)
AHS filed a demurrer to the Complaint, asserting that because the entity was a public agency, it could not be subject to suit for the Labor Code violations asserted. The Trial Court sustained the demurrer without leave to amend, which the Court of Appeal subsequently reversed in part. The California Supreme Court then took the matter on appeal to address whether public entities may be held liable for wage and hour violations and civil penalties under PAGA.
Public Employers Exempt from Plaintiffs’ Labor Code Claims
The Court began its analysis by noting, the general rule that “provisions of the Labor Code apply only to employees in the private sector unless they are specifically made applicable to public employees.” The Court concluded that the Legislature’s clear intent was to expressly exempt public agencies such as AHS from Labor Code provisions governing meal and rest breaks and related statutes governing full and timely payment of wages.
Citing Brinker Restaurant Corp. v. Superior Court (2012) 53 Cal.4th 1004, 1026, the Court noted “wage and hour claims are today governed by two complimentary and occasionally overlapping sources of authority: the provisions of the Labor Code, enacted by the Legislature, and a series of 18 wage orders, adopted by the IWC.” The Court identified the relevant provisions asserted by plaintiffs as requiring employers to provide employees with meal and rest breaks and comply with various wage payment provisions. Accordingly, the Court’s decision regarding whether AHS was exempted from the Labor Code requirements, rested on the issue of whether AHS was an ‘employer’.
Notably, the Labor Code does not define who constitutes an “employer.” However, the wage orders do, stating that the term “‘employer’ means any person as defined in Section 18 of the Labor Code...” Section 18 states, “‘person’ means any person, association, organization, partnership, business trust, limited liability company, or corporation.” The Court determined this language affirmatively excluded government employers because the listed entities omitted reference to public entities.
Because the language of the alleged Labor Code sections did not affirmatively apply to employers in the public sector, and given the restrictive language of Section 18 expressly excluded such entities, the Court held that the plaintiffs could not maintain their claims for meal and rest violations against AHS. Because AHS, as a public entity employer, had no obligation under the Labor Code to provide meal and rest breaks, all of the claims that were derivative of those allegations would also necessarily fail.
Additionally, the Court also acknowledged that PAGA incorporates reference to Labor Code section 18 as well, similarly indicating that the Legislature did not intend public employers to be subject to civil penalties. The Court noted that imposing penalties on public employers would have a strange result leading to the public incurring the costs of such penalties via taxpayer-funds. The Court continued that if the Legislature had intended for public employers to be subject to PAGA penalties, it would have clearly communicated its intention to do so. Accordingly, public entities cannot be held liable for PAGA penalties.
Takeaways
While the issue whether an employer may be subject to any given Labor Code violation will be dependent on whether it is expressly intended to apply to government entities, Stone makes clear that a public entity cannot be held liable for meal and period violations, for derivative claims related to the payment of wages, or for civil penalties under PAGA. This is a significant win for public employers, including municipal corporations.
