the terms “political subdivision” and “municipal corporation” in the Labor Code should be understood to include all government employers; and
public employers are not subject to California’s Private Attorneys General Act (PAGA) and no PAGA penalties may be pursued against public employers.
There is a lot in this ground breaking decision – none of it good for public servants claiming wage and hour protections under the California labor code. The California Supreme Court has the last word on the meaning of California statutes, so there is no avenue for further appeal through the court system. That task now rests with the California legislature.
No rest or meal breaks
Tamelin Stone and Amanda Kunwar worked at Highland Hospital in Oakland, California – Stone as a medical assistant and Kunwar as a licensed vocational nurse. Highland Hospital is run by the Alameda Health Systems (AHS), a public agency established by the County of Alameda to provide health services to the people of the county.
In their 2021 lawsuit, Stone and Kunwar allege that AHS frequently denied or discouraged workers from taking meal and rest breaks and automatically deducted 30 minutes from each workday even when employees did not take a meal period. Positioned as both a class action and PAGA representative action, the lawsuit asserted violations of the California Labor Code for failure to:
provide off-duty meal periods;
provide off-duty rest periods;
keep accurate payroll records;
provide accurate itemized wage statements; and
timely pay wages due.
In addition, it sought penalties under PAGA.
Flip flopping decisions
The Alameda County Superior Court concluded that, as a public agency, AHS was not subject to the state law wage and hour claims. The trial court also found that AHS was not an “employer” within the meaning of the law and, because PAGA damages are akin to punitive damages, they cannot be awarded against public agencies. Stone and Kunwar appealed the decision to the Court of Appeal.
The Court of Appeal sustained the trial court’s dismissal of the wage claims but allowed the plaintiffs’ PAGA claims to proceed as to statutorily defined penalties, but not as to default penalties. The appeals court concluded that the statutorily defined penalties were not analogous to punitive damages, which may not be awarded against public agencies.
The California Supreme Court held that neither California meal and rest break laws nor labor code PAGA penalties apply to public agencies. Further, these exemptions apply to all local government employers. The decision carves out a large exception to employee wage and hour protections and the potential for a PAGA representative lawsuit and then applies that exception to the largest plausible category of employers.
Meal and rest break protections
Sections 226 and 512 of the Labor Code require employers to provide a thirty-minute unpaid off-duty meal period and two ten-minute paid rest periods during a standard-length workday. However, the definition of “employer” in section 18 of the Labor Code defines the term in a way that excludes government employers. Wage Order No. 5, which covers hospital employees, similarly provides for meal and rest periods, but exempts employees directly employed by the State or any political subdivision.
The California Supreme Court’s decision seems firmly grounded in the plain language of the statute and the wage order. The underlying issue seems to be whether and to what degree the California legislature can exercise sovereign authority over the state and governmental entities created by the state.
The theory may make sense from a separation of powers perspective, but it is not clear that the policy does. Why should public employees have fewer legal protections than private workers? The answer may ultimately be that many government employees are unionized, so their rights may be protected under a collective bargaining agreement.
The war on PAGA
A similar dilemma exists with respect to PAGA penalties. Seventy-five percent of the penalties recovered in a successful PAGA action go to the California Labor & Workforce Development Agency (LWDA) to support its enforcement efforts. When the offending employer is another government agency, however, the funds are just moving from one government pocket to another. The Supreme Court described it as “robbing Peter to pay Paul.”
While the Supreme Court’s decision makes sense facially, it fails to consider the fact that the penalties, which can be steep, are also intended to deter employers from infringing on employee rights. Even apart from the pay for meal breaks, the deterrent effect of the penalty can be valuable for workers.
Particularly since the U.S. Supreme Court’s decision in Viking River Cruises v. Moriana, employers have sought to limit the impact of PAGA. On November 5, California voters will face a ballot question about whether to replace it with the California Fair Pay and Employer Accountability Act. This may be an important part of the context within which to understand the California Supreme Court’s Stone v. Alameda Health Systems decision.
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