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In response to “the challenges facing the Alameda County Medical Center arising from changes in the public and private health industries,” the Legislature in 1997 enacted Health and Safety Code section 101850, authorizing the Alameda County Board of Supervisors “to create a hospital authority.” (Health & Saf. Code, § 101850,4 subd. (a)(1).)

In turn, the Alameda County Board of Supervisors created respondent hospital authority to govern the various hospital facilities formerly known as the Alameda County Medical Center.  In so doing, the board deemed respondent “a public agency for purposes of eligibility with respect to grants and other funding and loan guarantee programs pursuant to” the enabling statute.

Tamelin Stone and Amanda Kunwar worked for Alameda Health System as a medical assistant and a licensed vocational nurse respectively.

In their first amended complaint against Alameda Health System, Stone and Kunwar alleged seven class action claims related to wages and hours, and six individual claims for race and sex discrimination. They alleged that Alameda “automatically deducted ½ hour from each workday” as if to account for a meal period, when in fact, employees “were not allowed or discouraged from clocking out for meal periods.” This alleged conduct formed the basis of seven class action claims.

Alameda demurred, arguing that the first six claims were “not authorized against public entities under any of the cited Labor Code sections.” As to the seventh claim, Alameda contended that it was not a “person” capable of being sued under PAGA, that the “PAGA claim [was] derivative of” the first six unauthorized claims, and that Government Code section 818 exempted Alameda from liability.

The trial court sustained the demurrer as to all seven class action claims. With respect to the first six, the trial court reasoned that Alameda was a “statutorily created public agency” beyond the reach of the Labor Code sections and Industrial Welfare Commission (IWC) Wage Order invoked in the complaint.

As to the seventh, a PAGA claim (PAGA, § 2698 et seq.), the trial court held that such an action would not lie because respondent is not a “person” within the meaning of section, there was no underlying statutory violation from which the PAGA claim could derive, and respondent’s “public agency” status exempted it from paying punitive damages.

The court of appeal affirmed in part and reversed in part in the published case of Stone v. Alameda Health System -A164021(February 2023).

The court of appeal reviewed following issues: (1) whether the “sovereign powers” doctrine renders respondent liable for certain Labor Code violations, notwithstanding the general rule of statutory construction exempting government agencies from such liability; (2) whether respondent is an exempt “municipal corporation” under section 220, subdivision (b); (3) whether respondent is an exempt “governmental entity” under section 226, subdivision (i); and (4) whether respondent can be sued under the Private Attorneys General Act (PAGA, § 2698 et seq.).

Subjecting Alameda to liability for the first, second, and third causes of action would not infringe upon any sovereign governmental powers. Thus, the trial court erred by finding that respondent was not included within the statutes underlying those causes of action and in sustaining the demurrer as to those claims.

With regard to their fifth and sixth causes of action, Section 220, subdivision (b), provides that section 204 does “not apply to the payment of wages of employees directly employed by any county, incorporated city, or town or other municipal corporation.” Because it is beyond dispute that respondent is not a county, incorporated city, or town, “the trial court erred in sustaining the demurrer as to the fifth and sixth causes of action.”

With regard to the fourth cause of action, Section 226, subdivision (a), requires employers to provide employees with “an accurate itemized statement in writing showing” the employee’s wages and hours worked, along with other information. Subdivision (i) exempts from this requirement the state, . . . any city, county, city and county, district, and “any other governmental entity.” The plain meaning of “other governmental entity” is expansive. The demurrer was properly sustained as to the fourth cause of action.

With regard to the PAGA claim in the seventh cause of action, under section 18, a “person” is “any person, association, organization, partnership, business trust, limited liability company, or corporation.” Alameda is a public entity of some sort and therefore is not a “person” when that term is used in PAGA. However, PAGA’s “person” requirement is limited to statutory violations subject to the default penalties set forth in section 2699, subdivision (f); it does not apply to those statutory violations “for which a civil penalty is specifically provided.”

A civil penalty is specifically provided for by at least two of the statutes underlying appellants’ class action claims. “For that reason, section 18 provides no ground for sustaining the demurrer as to the seventh cause of action.”

Finally, there is the trial court’s citation of Government Code section 818, which provides that “a public entity is not liable for . . . damages imposed primarily for the sake of example and by way of punishing the defendant.” However, PAGA penalties are not punitive damages. Consequently, because PAGA penalties are not punitive damages, section 818 presents no obstacle to appellants’ seventh class action claim.

Thus the court affirmed the order as to the fourth cause of action and reverse it as to the first, second, third, fifth, sixth, and seventh.