California Supreme Court Confirms Public Agencies Are Exempt from State Meal and Rest Break Requirements and PAGA Civil Penalties
September 2024
Number 39
The California Supreme Court recently held in Stone v. Alameda Health System (August 15, 2024, No. S279137) __ Cal.__ __[2024 WL 3819163] that certain Labor Code provisions and related Industrial Wage Commission (IWC) wage orders governing meal and rest breaks do not apply to public agencies. The Court also held that public agencies are not subject to penalties under the Labor Code Private Attorneys General Act of 2004 (PAGA).
Previously, there was some uncertainty concerning whether all public agencies were exempt from the wage and hour provisions in the Labor Code. In 2009, the California Court of Appeals held that a water storage district was exempt from Labor Code meal break and overtime provisions, but did not address public agencies in general. (Johnson v. Arvin-Edinson Water Storage Dist. (2009) 174 Cal.App.4th 729.) The Court’s newest ruling on these issues resolves the uncertainty and confirms that public agencies are exempt from the subject Labor Code provisions unless they include express language to the contrary.
Alameda Health System (AHS) is a hospital authority formed by the Alameda County Board of Supervisors. In Stone, two employees filed a class action complaint and PAGA action against AHS. The complaint alleged that AHS failed to provide meal and rest breaks, keep accurate payroll records, provide accurate wage statements, and pay wages timely. The employees also sought civil penalties for the Labor Code violations under PAGA.
The trial court dismissed the case on the basis that AHS is not an “employer” under the relevant Labor Code provisions and not a “person” subject to PAGA civil penalties. The trial court also held that PAGA penalties could not be assessed against public agencies like AHS because they are punitive in nature. The California Court of Appeal partially overturned the trial court’s decision holding that AHS was subject to meal and rest break requirements, wage payment statutes, and PAGA penalties, but was exempt from the wage statement statute.
The California Supreme Court reversed, finding that the meal and rest break requirements set forth in the Labor Code (sections 226.7 and 512) and the wage order at issue do not apply to public agencies. The Court reasoned that: (1) the Labor Code provisions and wage order apply to “employers,” and public agencies do not meet the definition of that term under the pertinent Labor Code and wage order provisions; and (2) the relevant wage order expressly exempts public agencies from meal, rest breaks, and associated record requirements.
Meal and Rest Breaks: A Public Agency is Not an Employer
The Labor Code does not define “employer” for purposes of the meal and rest break provisions. Instead, the relevant wage order provides that an employer is a “person” and the Labor Code defines “person” as “any person, association, organization, partnership, business trust, limited liability company, or corporation.” Relying on past precedent interpreting other Labor Code provisions and legislative history, the Court concluded that “person” typically describes private entities not public agencies. The Court asserted that if the Legislature wished to include public agencies within the definition of “person,” they would have done so. The Court also pointed to the recent enactment of Labor Code section 512.1, which expressly requires certain public agencies to provide meal and rest periods to certain health care employees.
Wage Payment Provisions: Public Agencies Are Municipal Corporations
Stone also resolved a split in authority regarding whether a public agency is liable for failing to timely pay wages. In Stone, the employees alleged that AHS deducted a half an hour from their actual working hours when they were denied meal breaks. While the Court noted that it did not need to address the nonpayment statutes because they were premised on underlying meal and rest break claims, the Court addressed the issue to resolve the split. The Labor Code provides an exception from certain wage payment statutes for “municipal corporations.” California courts have different interpretations of the term, which the Court waded through. While the Court ultimately concluded AHS is a municipal corporation exempt from the wage payment statutes, a close read of the Court’s analysis reveals that the Court would likely include all public agencies in the definition, including, counties, cities and towns, school districts and community college districts, and special districts.
PAGA Penalties Unavailable
PAGA allows California employees to pursue civil penalties for certain Labor Code violations. Although the employees in Stone did not have the right to pursue PAGA penalties because their underlying Labor Code claims failed, the Court chose to address whether public agencies are subject to PAGA penalties. PAGA relies on the same definition of “person” as the wage order discussed above. Therefore, the Court concluded public agencies are not “persons” subject to suit under PAGA for penalties.
Takeaways
Number 39
The California Supreme Court recently held in Stone v. Alameda Health System (August 15, 2024, No. S279137) __ Cal.__ __[2024 WL 3819163] that certain Labor Code provisions and related Industrial Wage Commission (IWC) wage orders governing meal and rest breaks do not apply to public agencies. The Court also held that public agencies are not subject to penalties under the Labor Code Private Attorneys General Act of 2004 (PAGA).
Previously, there was some uncertainty concerning whether all public agencies were exempt from the wage and hour provisions in the Labor Code. In 2009, the California Court of Appeals held that a water storage district was exempt from Labor Code meal break and overtime provisions, but did not address public agencies in general. (Johnson v. Arvin-Edinson Water Storage Dist. (2009) 174 Cal.App.4th 729.) The Court’s newest ruling on these issues resolves the uncertainty and confirms that public agencies are exempt from the subject Labor Code provisions unless they include express language to the contrary.
Alameda Health System (AHS) is a hospital authority formed by the Alameda County Board of Supervisors. In Stone, two employees filed a class action complaint and PAGA action against AHS. The complaint alleged that AHS failed to provide meal and rest breaks, keep accurate payroll records, provide accurate wage statements, and pay wages timely. The employees also sought civil penalties for the Labor Code violations under PAGA.
The trial court dismissed the case on the basis that AHS is not an “employer” under the relevant Labor Code provisions and not a “person” subject to PAGA civil penalties. The trial court also held that PAGA penalties could not be assessed against public agencies like AHS because they are punitive in nature. The California Court of Appeal partially overturned the trial court’s decision holding that AHS was subject to meal and rest break requirements, wage payment statutes, and PAGA penalties, but was exempt from the wage statement statute.
The California Supreme Court reversed, finding that the meal and rest break requirements set forth in the Labor Code (sections 226.7 and 512) and the wage order at issue do not apply to public agencies. The Court reasoned that: (1) the Labor Code provisions and wage order apply to “employers,” and public agencies do not meet the definition of that term under the pertinent Labor Code and wage order provisions; and (2) the relevant wage order expressly exempts public agencies from meal, rest breaks, and associated record requirements.
Meal and Rest Breaks: A Public Agency is Not an Employer
The Labor Code does not define “employer” for purposes of the meal and rest break provisions. Instead, the relevant wage order provides that an employer is a “person” and the Labor Code defines “person” as “any person, association, organization, partnership, business trust, limited liability company, or corporation.” Relying on past precedent interpreting other Labor Code provisions and legislative history, the Court concluded that “person” typically describes private entities not public agencies. The Court asserted that if the Legislature wished to include public agencies within the definition of “person,” they would have done so. The Court also pointed to the recent enactment of Labor Code section 512.1, which expressly requires certain public agencies to provide meal and rest periods to certain health care employees.
Wage Payment Provisions: Public Agencies Are Municipal Corporations
Stone also resolved a split in authority regarding whether a public agency is liable for failing to timely pay wages. In Stone, the employees alleged that AHS deducted a half an hour from their actual working hours when they were denied meal breaks. While the Court noted that it did not need to address the nonpayment statutes because they were premised on underlying meal and rest break claims, the Court addressed the issue to resolve the split. The Labor Code provides an exception from certain wage payment statutes for “municipal corporations.” California courts have different interpretations of the term, which the Court waded through. While the Court ultimately concluded AHS is a municipal corporation exempt from the wage payment statutes, a close read of the Court’s analysis reveals that the Court would likely include all public agencies in the definition, including, counties, cities and towns, school districts and community college districts, and special districts.
PAGA Penalties Unavailable
PAGA allows California employees to pursue civil penalties for certain Labor Code violations. Although the employees in Stone did not have the right to pursue PAGA penalties because their underlying Labor Code claims failed, the Court chose to address whether public agencies are subject to PAGA penalties. PAGA relies on the same definition of “person” as the wage order discussed above. Therefore, the Court concluded public agencies are not “persons” subject to suit under PAGA for penalties.
Takeaways
- The California Supreme Court’s decision confirms public agencies are “municipal corporations” and that the general California meal and rest break provisions do not apply to them. Note, however, that there are other meal and rest period statutes that expressly apply to certain public agencies.
- The Stone holding clarifies the meaning of “person” in Section 18 of the Labor Code, which will help public agencies analyze the applicability of other Labor Code provisions that incorporate that definition.
- Public agencies remain subject to the Fair Labor Standards Act (FLSA) and some Labor Code provisions.
- The Stone holding does not impact meal and rest period provisions in public agency collective bargaining agreements.