In Stone v. Alameda Health System, the California Supreme Court considered whether all public entities that are not specifically governmental in nature are exempt from the obligations in the Labor Code such as meal and rest breaks and overtime, and whether penalties available under the Private Attorneys General Act (PAGA) apply to public entities. The Court held that public entities were exempt from obligations under the Labor Code unless specifically stated and that PAGA penalties do not apply to public employers.

Underlying Case

Highland Hospital is a facility operated by Alameda Health System (AHS), a public agency established to manage, administer, and control the medical center by the Board of Supervisors of Alameda County.

The plaintiffs in the underlying case were employees of Highland Hospital who brought a complaint alleging violations of the Labor Code and wage orders, specifically related to meal and rest breaks and derivative claims.

AHS demurred on the ground that it was a public entity and not subject to suit for the Labor Code violations asserted. The argument was predicated on a case that had held that provisions of the Labor Code apply only to private sector employees unless they are specifically made applicable to public employees.

California Supreme Court’s Opinion

The California Supreme Court considered several angles in reaching its conclusions regarding exemptions for public employers. The Court considered the legislative intent and determined the Legislature intended to exclude public employers from meal and rest break obligations and related statutes based on legislative history and actions. Further, the statutory language of the Labor Code and wage orders define “employer’ in such a way that excludes public entities.

The Court also reviewed prior case law in the area and found that appellate decisions have uniformly concluded, unless the laws in question expressly state otherwise, the Labor Code’s wage and hour requirements do not apply to public employers.

As to the PAGA application, the Court undertook a similar analysis finding that the statutory language of PAGA which references definitions in the Labor Code, does not include public employers. Moreover, the legislative history of PAGA indicated that it was not intended to apply to public employers.

The Court also noted public policy concerns in applying PAGA civil penalties to public entities, noting the argument that the Government Code seeks to protect public entities from penalties that are intended to punish and deter, similar to punitive damages. Moreover, diverting funds to pay penalties would interfere with public entities’ ability to fulfill their missions.

Based on the Court’s decision, Court of Appeal was directed to remand the matter to the trial court with directions to reinstate its ruling on the demurrer and conduct any further proceedings as appropriate.