Earlier this month, the California Supreme Court unanimously decided that the Private Attorneys General Act (PAGA) does not apply to public entities. In Stone v. Alameda Health System, the Court found that the Legislature intended to exempt public employers from the Labor Code provisions governing meal and rest breaks and related statutes governing the full and timely payment of wages. In its well-reasoned decision, the Court also concluded that public entities are not subject to PAGA penalties.
Background
In Stone, two employees of the Alameda Health System (AHS), a public entity, asserted seven class action claims against AHS relating to meal and rest breaks and payment of wages. The employees also sought civil penalties for these violations under PAGA. The trial court found that the relevant Labor Code provisions apply only to private employers, and AHS is not a “person” subject to PAGA penalties. The appeals court reversed the trial court’s decision in part, ruling that the laws governing meal and rest breaks and payment of wages applied to AHS. In addition, the appeals court decided that AHS was subject to PAGA penalties.
No Liability for Meal and Rest Break Violations
The Court first considered the issue of whether the Legislature intended to exclude public employers from the Labor Code’s meal and rest obligations. The Court noted that, although the Labor Code does not define “employer,” the applicable wage order defines “employer” to mean “person” as defined in Section 18 of the Labor Code. In looking at the definition of “person,” which generally references private individuals and entities, the Court found the use of this definition “communicates that government employers are not subject to the meal and rest break obligation it prescribes.” The Court also considered the relevant wage order, legislative history, agency interpretation, and case law to support its finding that, “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.”
No Liability for Wage Payment Violations
The Court next examined relevant statutory text, legislative history, and administrative interpretation to determine whether public entities are liable for wage payment violations. This examination resulted in the Court concluding that, as a “municipal corporation” (interpreted broadly to include public employers), AHS is exempt from the requirement of certain wage payment statutes. The Court heavily relied on the fact that “the Labor Commissioner’s office itself has concluded that government entities, and AHS in particular, are not subject to wage payment statutes” within the relevant Labor Code exemption.
No PAGA Penalties
Finally, the Court addressed the issue of whether public employers are subject to PAGA penalties. It decided that the purpose of PAGA, “to achieve maximum compliance with state labor laws in the underground economy and to ensure an effective disincentive for employers to engage in unlawful and anticompetitive business practices,” is not served by applying PAGA to public sector employers. For that reason, the Court found that PAGA only applies to private sector businesses.
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The Stone decision is a welcome one for public sector employers. It also provides clarification many employment lawyers have hoped for since PAGA became effective 20 years ago.
