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California Supreme Court:
Public Employers Are Exempt From PAGA Penalty Suits
Corrigan Says County’s Hospital Authority Qualifies as Exempted Governmental Agency
By a MetNews Staff Writer
The California Supreme Court held yesterday that public employers, including a county’s public hospital authority, are exempted from Labor Code provisions governing rest and meal break violations and are not subject to penalties for the infractions under the Private Attorneys General Act.
The decision comes in a case brought by two former employers of Highland Hospital, a facility operated by Alameda Health System (“AHS”), alleging that the facility frequently denied or discouraged the taking of meal and rest breaks and automatically deducted 30 minutes from each workday even when meal periods were not taken.
In 1996, the Legislature enacted Health and Safety Code §101850, which authorizes the establishment of AHS as a “separate public agency” that would be “dedicated to the management, administration, and control” of county hospitals fulfilling the duty to provide medical care for indigent residents.
Plaintiffs Tamelin Stone, a medical assistant, and Amanda Kunwar, a licensed vocational nurse, sued AHS in November 2011, asserting class action claims for failure to provide off-duty meal periods and rest breaks, failure to keep accurate payroll records, and failure to pay proper wages, among other Labor Code violations. They also sought civil penalties for the violations under the Private Attorneys General Act (“PAGA”), codified at §2698 et seq..
Demurrer Sustained
AHS demurred, arguing that it was a public entity exempt from liability for the asserted Labor Code violations. Alameda Superior Court Judge Noël Wise (who is awaiting confirmation by the Senate as judge of the U.S. District Court for the Northern District of California sustained the demurrer without leave to amend.
In an opinion by retired Fifth District Justice Rebecca A. Wiseman, sitting by assignment, Div. Five of the First District Court of Appeal reversed as to all but one cause of action. The court looked to §101850, rather than the Labor Code provisions and discerned no legislative intent to exempt AHS from wage and hour laws or certain of the PAGA penalties.
Justice Carol Corrigan authored the opinion for the unanimous court reversing the First District’s judgment.
Corrigan wrote:
“We conclude the Legislature intended to exempt public employers such as the hospital authority from Labor Code provisions governing meal and rest breaks…and related statutes governing the full and timely payment of wages….We further conclude public entities are not subject to PAGA penalties for the violations alleged here. Because the Court of Appeal reached different conclusions, we reverse its judgment.”
Justice John L. Segal of the Second District Court of Appeal sat by assignment on the matter and Justice Kelli Evans did not partake in the decision.
PAGA Penalties
The PAGA penalties fall into two categories—those expressly called for in the applicable Labor Code section and a new default penalty under PAGA when no penalty exists elsewhere. Sec. 2699(f) provides that for any “person” with one or more employees, the default penalty is set at $100 for the initial violation against each aggrieved employee, per pay period, and $200 for each subsequent violation.
Corrigan noted that PAGA defines “person” by reference to Labor Code §18, which defines the term as “any person, association, organization, partnership, business trust, limited liability company, or corporation.” She reasoned that the words and phrases used to describe a “person” covered by the act are commonly used to describe individuals and entities, not public or governmental agencies.
The jurist pointed out that other Labor Code sections, enacted in the same legislative session as §18, expressly include public employers and opined that “ ‘employer’ is defined by reference to section 18, and section 18 is not silent about whether government employers are covered; its language affirmatively indicates that they are not.”
The jurist noted that Wiseman acknowledged that AHS is a “public entity of some sort” and “not a ‘person’ ” under §2699(f) governing default penalties. However, Wiseman posited that the requirement that an employer be a “person” applies only to the default penalties and not to those statutory violations for which a civil penalty is specifically provided in the Labor Code.
Corrigan said that the opinion “cited no authority” for her reading of this distinction, but appears to have been influenced by its decision in the 2021 case of Sargent v. Board of Trustees of the California State University, which also distinguished between PAGA claims for defined and default penalties.
Unpersuaded by the purported distinction, Corrigan wrote:
“The dichotomy recognized by Sargent and the Court of Appeal carries obvious significance for public employers, which would potentially be subject to PAGA suits for specified penalties under Labor Code provisions that apply to them. [H]owever, this interpretation appears inconsistent with legislative intent and could lead to absurd results. It also runs counter to the policy underlying Government Code section 818, which shields public entities from punitive sanctions.”
She noted that other PAGA subdivisions reference §18’s definition of “person” and said:
“[S]ection 2699, subdivision (l) prohibits aggrieved employees from suing under PAGA if the [labor board] ‘cites a person’ for violating the same Labor Code provisions at issue….Because PAGA’s definition of ‘person’ does not include public employers…, subdivision (l)’s ban on duplicate actions protects only private employers. This result makes sense if public employers are not subject to PAGA penalties in the first place. But a potential absurdity arises if, as the Court of Appeal ruled, public employers are subject to PAGA suits for penalties defined in specific Labor Code statutes. The subdivision would protect private employers from duplicative PAGA actions for these penalties but would not extend the same protection to public employers. No reason for such a distinction has been suggested by the parties…and none appears in the legislative history of PAGA.”
She said “[t]he contrary holding of Sargent…regarding nondefault penalties…is disapproved.”
Hospital Authority
Turning to the specific rest and meal break violations alleged, Corrigan made note that the Labor Code does not define “employer,” but an applicable wage order does define the term by referencing §18. She said:
“Plaintiffs largely concede that the Labor Code provisions at issue are generally not applicable to public employers. Their primary argument is that the provisions apply to AHS because AHS is not a public entity.”
The jurist pointed out that §101850 “repeatedly” refers to the authority as a “public agency” and said:
“Other parts of the enabling statute specifically exempt AHS from laws that generally apply to public entities. These provisions are instructive because they indicate the Legislature viewed AHS as a public entity that would have otherwise been subject to the laws in question.”
She acknowledged a portion of the statute, relied upon by the Court of Appeal, which provides that “[t]he hospital authority…shall not be considered to be an agency, division, or department of the county,” but concluded that “[t]he Court of Appeal viewed the enabling statute through far too narrow a lens.”
Corrigan continued:
“[W]e cannot agree with the Court of Appeal that by designating AHS a ‘government entity separate and apart from the county’ the Legislature intended it to be treated as a private employer. On the contrary, read as a whole, the enabling statute makes clear that AHS is a public entity. Accordingly, as a public employer, AHS is not a ‘person’ subject to liability for the meal and rest break and associated payroll records violations alleged in plaintiffs’ complaint.”
Wage Payment Provisions
The plaintiffs asserted causes of action alleging that AHS failed to comply with the Labor Code’s wage payment provisions governing the amount and timing of wage payments due to non-payment for rest periods. She opined:
“Because we have determined that AHS, as a public entity employer, had no obligation under the Labor Code to provide meal and rest breaks, all claims premised on the asserted violations necessarily fail. Nevertheless, the parties have asked us to address the scope of public entity liability under the statutes in question, and there is a split of authority related to the issue….[W]e now conclude public hospital authorities such as AHS are excluded from liability under several of the asserted provisions.”
Corrigan said that some of these so-called “wage payment” provisions have been extended to apply to state employees, but “the Labor Code specifically exempts local government employers from the requirements of some wage payment laws” under §220.
Sec. 220 provides that “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 jurist reasoned that “AHS’s potential liability under the statutes referenced in section 220, subdivision (b) thus turns on whether it constitutes a ‘municipal corporation’ for purposes of the exemption.”
The Labor Code does not define the term, but she said historical precedent, administrative decisions, and jurisprudence in the area suggest a broad definition of the term that would apply to a county’s hospital authority regardless of whether it holds any sovereign governing power.
The case is Stone v. Alameda Health System, 2024 S.O.S. 2792.
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