Kaiser Foundation Hospitals owns and operates hospitals and medical facilities throughout California. Ana Wood, a nonexempt employee, was paid hourly wages by Kaiser.

In February 2021, she filed a PAGA action against Kaiser alleging that as an aggrieved employee she was properly suited to act on behalf [of] the state, and collect civil penalties for all violations committed against other aggrieved Kaiser employees in California.

Her first cause of action claimed that Kaiser violated the California’s Healthy Workplaces, Healthy Families Act of 2014 by not paying sick leave at the correct rate. The second cause of action alleges that Kaiser wrongfully denied employees the right to use sick leave. In the third, Wood maintained that Kaiser violated Labor Code provisions regarding vacation pay.

Kaiser demurred to the first cause of action on the grounds that the California’s Healthy Workplaces, Healthy Families Act “does not authorize PAGA actions for civil penalties.” The court sustained the demurrer without leave to amend. Following voluntary dismissals (without prejudice) of the remaining causes of action, the court entered a judgment of dismissal in Kaiser’s favor.

The Court of Appeal (4th Dist.) reversed in the published case of Wood v. Kaiser Foundation Hospitals – D079528 (February 2023).

The procedural setting of this case perfectly framed the issue as one of statutory interpretation. The trial court sustained Kaiser’s demurrer without leave to amend, determining that a PAGA action is one brought “on behalf of the public” and since it seeks only civil penalties, is prohibited by Labor Code section 248.5, subdivision (e).

The last clause of section 248.5, subdivision (e) was the focus of this appeal. It provides that “any person or entity enforcing this article on behalf of the public as provided for under applicable state law shall, upon prevailing, be entitled only to equitable, injunctive, or restitutionary relief . . . .”

The Act (Labor Code, § 245 et seq.) generally requires employers to provide eligible employees with at least three paid sick days per year. The Labor Commissioner and the Attorney General are charged with enforcing this law. Violators may be assessed compensatory as well as liquidated damages, plus civil penalties.

In particular, did the Legislature mean to include – and thus restrict – actions by aggrieved employees to recover civil penalties under the Labor Code Private Attorney General Act of 2004 (PAGA) (§ 2698 et seq.) as defendant Kaiser contends? Or instead, as plaintiff Ana Wood argues, did the Legislature have in mind an entirely different statutory scheme, the Unfair Competition Law (UCL) (Bus. & Prof. Code, § 17200 et seq.)?

The Court noted that the phrase “enforcing this article on behalf of the public” in section 248.5, subdivision (e) is ambiguous. It is susceptible of at least two possible meanings. It could refer to a PAGA action, because relief under PAGA has been characterized as being “designed primarily to benefit the general public, not the party bringing the action.”

But how PAGA relief has been characterized by the courts and who it “primarily” benefits does not necessarily indicate that the Legislature had PAGA in mind when it referred to “enforcing this article on behalf of the public.” It might have instead been describing an action alleging a claim under the UCL, which can be brought on behalf of the public by various government officials, and in which even private individuals can seek public injunctive and restitutionary relief.

The Court of Appeal concluded that “the statute’s text and history provide compelling evidence that the phrase “on behalf of the public as provided under applicable state law” in section 248.5, subdivision (e) was intended to refer to actions prosecuted under the UCL – not PAGA. Accordingly, it reversed the judgment of dismissal.

This case is being closely followed by the employment law community, and will likely be appealed to the California Supreme Court. However, at this time it is a binding precedential decision.

PAGA Penalties Expanded to Include Sick Pay Act Violations