Court of Appeal finds that the California Labor Code Applies to Alameda Health System

In Stone v. Alameda Health System (2023) 88 Cal.App.5th 84 (review granted), Plaintiffs, a Medical Assistant and a Licensed Vocational Nurse employed by Alameda Health System (“AHS”), sued AHS alleging seven claims:

1. Failure to provide off-duty meal periods;

2. Failure to provide off-duty rest breaks;

3. Failure to keep accurate payroll records;

4. Failure to provide accurate itemized wage statements;

5. Unlawful failure to pay wages;

6. Failure to timely pay wages; and

7. Claims under the Private Attorneys General Act (“PAGA”).

The lower court dismissed all seven claims, finding that AHS was a “statutorily created public agency” beyond the reach of the Labor Code and Industrial Welfare Commission Wage Order. Plaintiffs appealed.

Overturning the trial court, the Court of Appeal ruled that Plaintiffs can pursue their claims over AHS’s failure to provide off-duty meal periods, provide off-duty rest breaks, keep accurate payroll records, pay wages and timely pay wages, and that Plaintiffs can pursue PAGA remedies for at least two of their claims. However, it determined Plaintiffs cannot pursue their claim regarding AHS’s failure to provide accurate itemized wage statements.

In its analysis, the Court of Appeal addressed the following issues: (1) whether the “sovereign powers” doctrine renders AHS liable for alleged Labor Code violations, despite the general rule exempting government agencies from such liability; (2) whether AHS is an exempt “municipal corporation” under Labor Code section 220(b); (3) whether AHS is an exempt governmental entity under Labor Code section 226(i); and (4) whether AHS can be sued under PAGA.

The Court of Appeal found that Plaintiffs can pursue their claims regarding AHS’s failure to provide off-duty meal periods, failure to provide off-duty rest breaks, and failure to keep accurate payroll records, because AHS is not a governmental entity exempt from liability. Subjecting AHS to such liability “would not infringe upon any sovereign governmental powers.” The Court of Appeal explained that AHS failed to show any principled distinction between the powers wielded by AHS and those that might be wielded by a private institution that had been delegated a government function. As AHS did not implicate any sovereign governmental powers, it is not excluded from the provisions of the Labor Code regarding failure to provide breaks and keep accurate payroll records.

The Court of Appeal also found that AHS is not a “municipal corporation,” and therefore is not excluded from liability under Labor Code section 204. As such, Plaintiffs can pursue their claims regarding AHS’s unlawful failure to pay wages and to timely pay wages. For Plaintiffs’ claim regarding AHS’s failure to provide accurate itemized wage statements, the Court of Appeal found that AHS is a “governmental entity” within the meaning of Labor Code section 226. As such, Plaintiffs cannot pursue their claim regarding AHS’s failure to provide accurate itemized wage statements.

Last, the Court of Appeal found that PAGA remedies can be available against a public entity for claims in which the underlying law specifies the amount of the “civil penalty.” Therefore, Plaintiffs can pursue PAGA remedies for at least two of their claims.

Currently, this case is pending review by the California Supreme Court. For more information, contact your labor law counsel.