California Supreme Court Holds Public Employers Exempt from Labor Code, PAGA Actions: Stone v. Alameda Health System

In Stone v. Alameda Health System,           Cal.5th           (Aug. 1, 2024), the California Supreme Court held that public employers are generally exempt from Labor Code provisions and are not subject to PAGA suits for civil penalties.

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Plaintiffs, employees of a public hospital, sued the hospital for various Labor Code wage and hour violations and sought civil penalties under PAGA. The trial court sustained the hospital’s demurrer, but the Court of Appeal reversed in part. Defendant filed a petition for review, and the California Supreme Court granted, reversing and remanding.

Referencing Wage Order No. 5 (Cal. Code Regs., tit. 8, § 11050) and Labor Code § 18, the court held that public employers are not considered “employers” under the Labor Code because the statute excludes government entities from the definition of “person.” The court found legislative intent to exclude government employers based on their explicit inclusion in certain Labor Code provisions, the history of the Industrial Welfare Commission, and numerous case law examples. The court rejected Plaintiffs’ reliance on the sovereign powers doctrine, holding per Wells v. One2One Learning Foundation (2006) 39 Cal.4th 1164, that the doctrine applies only when legislative intent is unclear. Citing Division of Labor Law Enforcement v. El Camino Hosp. Dist. (1970) 8 Cal.App.3d Supp. 30, the court adopted a broad definition of “municipal corporation,” exempting the hospital from wage payment provisions. The court also found no indication that the Legislature intended public employers to be subject to PAGA suits.

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