In Stone v. Alameda Health Systems, published August 15, 2024, the California Supreme Court reversed the decision of the lower court of appeal, which in turn reversed a dismissal after demurrer. Defendant AHS is a public agency created by statute to provide public health care. The plaintiffs, employees of AHS, sued AHS for alleged violation of meal and rest break provisions of the Labor Code, and for penalties for the violations under the Labor Code Private Attorneys General Act of 2004 (PAGA). The trial court sustained AHS’s demurrer on the ground that the Labor Code provisions and PAGA do not apply to public entities. The appellate court reversed, ruling that there was a legislative intent in the statute creating AHS to hold it liable for meal and rest break violations, and that it was subject to PAGA penalties for violating statutes that do not have specific penalties.
The Supreme Court ruled that the Legislature intended to exclude public entities from the meal and rest break provisions at issue. Labor Code statutes are generally interpreted to exclude public employers unless otherwise provided. The employers subject to the provisions are “persons” under Labor Code section 18, and the definition of “person” there does not include public entities. This interpretation is consistent with applicable wage orders, legislative history, agency interpretations, and case law. The Supreme Court also rejected the argument that the exemption applies only to public entities that have sovereign governmental powers that would be infringed by the provisions, and therefore does not apply to AHS. The enabling statute for AHS establishes that AHS is a public agency, and thus a public entity. A public agency need not be fully autonomous to be a public entity. Further, AHS is a “municipal corporation” and is therefore exempt from requirements of certain wage payment statutes under Labor Code section 220(b). Finally, the court determined that public entity employers are not liable for PAGA penalties. The statutory scheme shows a legislative intent to apply penalties to private employees, rather than public employees. Further, public policy does not favor imposing penalties on taxpayers.