In a recent decision, the California Supreme Court takes an in-depth look at legislative history to dissect whether a county hospital authority entity can be liable for meal and rest period violations under the labor code and whether they can be considered “persons” subject to California’s Private Attorneys General Act (PAGA) penalties. In short, they cannot.
Hospital authorities that manage a county’s public health facilities are considered public employers, and as such, they are exempt from the labor code’s provisions relating to meal and rest breaks. As public entities, these authorities aren’t considered people subject to penalties under PAGA.
Public Entities Are Not ‘Persons’
All counties in California are given a mandate to provide medical care for their indigent residents. After years of upholding this requirement on its own, the Alameda County Board of Supervisors determined it would be more efficient and effective to transfer the governance of this medical center to a designated “hospital authority.” In 1996, the California Legislature enacted Health and Safety Code section 101850 (the “enabling statute”), which permitted the Alameda Health System (AHS) to operate as a “separate public agency” dedicated to this task.
Medical assistant Tamelin Stone and licensed vocational nurse Amanda Kunwar worked at Highland Hospital, a facility operated by the AHS. Stone and Kunwar filed a class action against the AHS for a variety of wage and hour violations, claiming they weren’t afforded proper meal and rest periods under the labor code, and as a result, they weren’t paid fully, weren’t paid timely, and weren’t given accurate pay statements. They also filed a claim under the PAGA alleging the AHS owes civil penalties for the violations described.
In the early stages of the case, the AHS was successful in convincing the trial court to dismiss Stone and Kumar’s claims. The trial court held that, in general, labor code provisions apply only to private-sector employees unless there’s a provision specifically applying them to public employees, which these were not. The trial court also dismissed the PAGA claim, holding in part that the AHS wasn’t a “person” subject to PAGA penalties.
The court of appeal reversed in part, after conducting analysis of the “enabling statute,” rather than the labor code. It analyzed the AHS’s enabling statute to reflect that there was no legislative intent to exempt the AHS from the meal period requirements, rest period requirements, and payroll requirements identified by Stone and Kunwar. Its decision included analysis of the enabling statute’s language, which states that the AHS “shall not be considered to be an agency, division, or department of the county.”
The California Supreme Court used this case as an opportunity to conduct a thorough analysis of the statutory interpretation principles at issue and repeatedly reiterated the importance of looking to the full text of the statute and legislative intent to resolve any ambiguity. It also discussed the use of interpretive maxims, such as the maxim used by the court of appeals. It explained that while interpretive maxims are helpful in some instances of ambiguity, these do not replace analysis of legislative intent and the full context of the statute.
Public Entities Are Not Persons
Notably, the supreme court analyzed the labor code, rather than the enabling statute, to determine whether public entities are excluded from the labor code’s meal and rest period provisions. The court found that the statutory language, context, and history demonstrate a legislative intent to exclude public employers from meal and rest period obligations. It reasoned that although the labor code doesn’t explicitly define the term “employer,” a definition for the term is found in the quasi-legislative Wager Order No. 5. It defines “employer” to “mean” any person as defined in section 18 of the labor code. In turn, section 18 defines person to mean any “person, association, organization, partnership, business, trust, limited liability company, or corporation.” The labor code imposes meal and rest break requirements only on “employers,” but expressly relies on a definition that doesn’t include public entities.
The supreme court also noted that the labor code explicitly includes public entities as employers in other contexts. For example, public entities are expressly included in labor code provisions relating to minimum wage, workers’ compensation, and paid sick leave. The legislature enacted section 18 and workers’ comp as part of the same legislation, but it chose not to include public entities in section 18’s definition of “person,” on which meal and rest period liability relies.
Hospital Authorities Are Public Entities
Stone and Kunwar argued that even if public entities are exempt from meal and rest period requirements under the labor code, the AHS doesn’t qualify for the exemption because it isn’t a public entity. The supreme court disagreed. While Kunwar, Stone, and the court of appeals all relied on an analysis of governmental sovereignty to address whether the AHS should be considered a public entity, the supreme court’s analysis didn’t require that step. Rather, it turned again to the intent of the legislature in creating the AHS.
Looking now at the AHS’s enabling statute, the supreme court found the legislature intended for the AHS to serve as a “quasi-governmental public entity.” The supreme court noted that the enabling statute repeatedly refers to the AHS as a public agency, and that the health and safety code explicitly defines “public entity” to include “public authorities” such as the AHS.
The supreme court then addressed the language of the enabling statute used by the appellate court to reach an opposite conclusion. The relevant language provides that the AHS “shall not be considered to be an agency, division, or department of the county.” Here, the supreme court noted that this text was taken out of context of the statute as a whole. As it notes, the preceding phrase explicitly states the hospital authority “shall be a government entity,” albeit separate from the county.
Stone and Kunwar’s remaining claims for unpaid wages, failure to timely pay wages, failure to provide accurate pay statements, and PAGA penalties all relied on their claims relating to meal and rest period violations, and the decision could have ended there. However, the court engaged in further analysis of these claims to fully engage in its discussion of how to interpret these provisions and resolve a split of authority relating to these issues.
With respect to Stone and Kunwar’s claims for nonpayment of wages, the court found that the labor code’s relevant “wage payment” provisions (labor code sections 204, 22, 1194) required an analysis of whether the AHS is considered a “municipal corporation” exempt from these requirements. After further consideration of the language and history of the relevant provisions, the supreme court again found that the AHS does qualify as a municipal corporation meriting exemption.
Finally, the court found that the AHS is not a “person” who owes civil penalties under PAGA. PAGA allows “aggrieved employees” to sue on behalf of the state and on behalf of other aggrieved employees for violations of wage and hour laws. It imposes civil penalties against any “person” with one or more employees. Notably, PAGA specifically indicates that the term “person” has the same meaning as defined in section 18. This brings us back to the start of the court’s analysis. Tamelin Stone v. Alameda Health System (SC S279137 8/15/24).
Bottom Line
As the supreme court noted, this decision carries “obvious significance” for public employers that would potentially be subject to PAGA suits. The supreme court undertook significant effort to review the meaning and definitions of terms provided in the statutes to lend clarity to these issues. Public entities such as hospital authorities are not subject to the meal and rest period requirements—nor to the PAGA penalties—that are imposed on private employers, and they were not intended to be.
Ciara Dineen is an attorney with Duane Morris LLP in San Francisco and can be reached at cdineen@duanemorris.com.