California Public Agencies Have More Wage Law Clarity Post-Stone

California public agencies have long operated in a legal gray zone when it comes to the application of state wage and hour law. Although the California Labor Code sets out extensive obligations for employers, the law had been unsettled as to whether those obligations apply to government entities—until the California Supreme Court’s decision in Stone v. Alameda Health System last August.

In Stone, the court clarified that Labor Code provisions only apply to public agencies if the statutory language expressly includes them. The court also held that Labor Code PAGA claims don’t apply to public agencies. The Stone decision is welcome relief from the previously unsettled legal landscape and has already been used by the courts to reject Labor Code lawsuits brought against public agencies.

Background

Under the Fair Labor Standards Act, if a state wage and hour law conflicts with a provision of the FLSA, employers must follow the law more favorable to employees.

Primarily found in its Labor Code and Industrial Welfare Commission Wage Orders, California wage and hour law generally provides more favorable terms for employees than the FLSA—such as for daily overtime and double-time, meal and rest periods, and extensive penalty provisions. For this reason, most California employers focus on compliance with state, not federal, law.

But this isn’t the case for California public agency employers. Certain California wage and hour laws expressly exclude public agencies from coverage. Moreover, the California Constitution protects counties and charter cities from statewide labor laws that regulate municipal matters, such as employee compensation.

Further, courts have held that Labor Code provisions not made expressly applicable to public agencies don’t evidence a legislative intent to apply them to public agencies.

These overlapping yet distinct legal principles were explored and clarified in the Stone case.

Stone Decision

In Stone, health-care workers at a municipal hospital system sued for alleged Labor Code violations, including the hospital’s failure to provide off-duty meal and rest periods, inaccurate wage statements, and failure to timely and fully pay wages.

They also sued under a Labor Code section called the Private Attorneys General Act, which permits employees to recover a multitude of civil penalties for Labor Code violations on behalf of themselves and similarly situated current and former employees.

The California Supreme Court rejected plaintiffs’ claims in its decision, holding that California Labor Code provisions that don’t expressly include public agencies—such as its meal and rest break provisions—don’t apply to public agencies. It reasoned that if the state legislature had intended for those provisions to apply, it would have expressly said so in the statute.

The court also held that Labor Code Section 220(b), which exempts public agencies from certain Labor Code provisions, broadly encompasses all government employers—not just counties, cities, and towns. The Stone court further held that PAGA doesn’t apply to public employers, in part because the statute doesn’t expressly include public employers, but also because applying PAGA penalties would create a liability that shouldn’t be borne by taxpayers.

Courts Applying Stone

Although Stone was decided only one year ago, California courts have already applied its reasoning to hold that various Labor Code provisions don’t apply to public agencies.

In Bath v. State of California, an appellate court cited Stone in holding that that Labor Code Section 222 doesn’t apply to public agencies, so state prison employees couldn’t sue under that provision for wages they claim were unlawfully withheld when they weren’t paid for time spent passing through security checkpoints before and after shifts.

In Krug v. Board of Trustees of California State University, an appellate court cited Stone in holding that Labor Code Section 2802—requiring reimbursement for work-related expenses—doesn’t apply to public agencies. The court rejected a professor’s claim that he was owed reimbursement for home office equipment her purchased to work from home during the Covid-19 pandemic.

Finally, in Larocque v. City of Los Angeles, a federal district court dismissed a firefighter’s various Labor Code claims for unpaid wages, noting that courts had already found Sections 222, 223, 510, and 1194 inapplicable to public entities. The court then examined Section 225.5, which provides civil penalties for unlawful withholding of wages, and Section 515, which governs alternative workweek schedules and timely payment of overtime wages.

Relying on Stone, the court concluded in Larocque that the legislature hadn’t clearly extended those statutes to government employers and that applying them to the city would interfere with the city’s constitutional authority to set local compensation. The court barred the state law claims.

What Comes Next

Post-Stone, public employers shouldn’t assume California wage and hour law applies to their agency, even if the agency has long assumed the provision applies.

For example, Labor Code Section 227.3 requires employers to pay employees for unused vacation at separation and prohibits use-it-or-lose-it vacation policies. Although public agencies have largely followed Section 227.3, the statute doesn’t mention public agencies. Following Stone, public employers and their legal counsel should evaluate whether Section 227.3 applies to their agency and, if not, whether they want to abide by it.

Another example is Labor Code Section 980, which regulates employer requests for employee/applicant social media information. Again, the statute doesn’t mention public agencies. Its legislative history indicates lawmakers considered but didn’t pursue an amendment that would have included public entities in the text of the statute. Post-Stone, public employers should evaluate whether Section 980 applies and, if not, whether they want to follow it.

Stone has clarified principles governing whether a Labor Code provision applies to a public agency, and courts have already put these principles into practice. As a result, public agencies have stronger defenses to state wage and hour claims that may be brought against them. They also may be able to revise or negotiate changes to local wage and hour rules and policies enacted to comply with laws that, post-Stone, may or don’t apply to public agencies.

The case is Stone v. Alameda Health System, Cal., No. S279137, decided 8/15/24.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law, Bloomberg Tax, and Bloomberg Government, or its owners.

Author Information

Lisa S. Charbonneau is a partner at Liebert Cassidy Whitmore, where her current practice includes labor relations and collective bargaining, as well as advice and counsel on all matters of employment law.

Jordan Carman is an associate at Liebert Cassidy Whitmore, where she provides labor, employment, and education law expertise to public and private education clientele.

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