California employers are subject to numerous state and federal statutes that regulate employee compensation and hours of work. Whether California Labor Code provisions, such as those that guarantee penalties for the late payment of final wages, apply to a specific employer must be evaluated on a case-by-case basis. Do they? For most private school employers, the answer is yes. For county and charter city employers, the answer is generally no. Indeed, Labor Code section 220(b) states that numerous key sections of the Labor Code do not apply to “employees directly employed by any county, incorporated city, or town or other municipal corporation.” (Cal. Lab. Code section 220(b).) For public agencies that are not counties, cities, or towns, i.e. school districts, special districts, and non-profit corporations performing public functions, the answer depends on whether the entity falls under the definition of “municipal corporation.”
Multiple Interpretations of “Municipal Corporation”
The term “municipal corporation” is used throughout various California statutory schemes and has been interpreted differently by courts depending on the legislative intent behind the statute that references the term. For example, in a recent case, Merced Irrigation District v. Superior Court, the California Fifth Appellate District Court of Appeal, in a matter of first impression, held that an irrigation district is not a municipal corporation as the term is used in section 10251 of the California Public Utilities Code, which authorizes municipal corporations to recover damages from persons who harm the facilities or equipment of a municipal corporation. However, irrigation districts have been found municipal corporations under other statutes, such as the California Irrigation District Act. And while no court has explicitly held that an irrigation district is a municipal corporation under Labor Code 220(b), in Johnson v. Arvin-Edison Water Storage District (2009), the Fifth District Court of Appeal held that water storage districts are municipal corporations for purposes of Labor Code 220(b). To complicate matters further, the court arrived at its conclusion by equating water storage districts with irrigation districts and water districts, writing that their public function is the same.
New Test for “Municipal Corporation” Under Labor Code 220(b)
Recently, the Third Appellate District, in Gateway Community Charters v. Heidi Speiss (2017), took up the meaning of “municipal corporation” for purposes of Labor Code 220(b) in the context of charter schools – specifically, a private nonprofit benefit corporation that operates public charter schools. In analyzing whether the school owed a former teacher waiting time penalties pursuant to Labor Code section 203, the Court provided a list of characteristics common to counties, incorporated cities, and towns that the entity must possess to characterize it as a municipal corporation per section 220(b):
- Does the entity perform an essential government function for a public purpose?
- Is the entity governed by an elected board of directors?
- Does the entity have regulatory or police powers?
- Does the entity have the power to impose taxes, assessments, or tolls?
- Is the entity subject to open meeting laws and public disclosure of records?
- Can the entity take property through eminent domain?
Applying these factors to the employer-defendant in the Gateway case, the Court held that although providing public education through its charter schools was an essential governmental function, and even though the schools were subject to the Brown Act and the CPRA, the private nonprofit benefit corporation was not a municipal corporation under Labor Code 220(b). According to the Court, “without the publicly elected board, the geographical jurisdictional boundary, and the power to forcefully raise funds or acquire property from people within its geographical jurisdiction” the corporation “bears little resemblance to a ‘county, incorporated city, or town’” or to the districts deemed as municipal corporations.
Where Does This Leave Us?
Courts have held that public school districts, public hospitals, and water storage districts are municipal corporations under Labor Code 220(b), which means individuals directly employed by these entities are not entitled to waiting time penalties under Labor Code section 203, among other Labor Code protections set forth in sections 200 – 211 and 215 – 219. (See Division of Labor Law Enforcement v. El Camino Hosp. Dist. (1970); see also Kistler v. Redwoods CCD (1993); see also Johnson.) On the other hand, an appellate court has held that a private nonprofit benefit corporation that operates public charter schools is not a municipal corporation under Labor Code 220(b) and thus its employee are entitled to waiting time penalties. (Gateway) And while no courts have specifically opined as to whether irrigation districts, parks districts, sanitation districts, transit districts or other quasi-public municipal entities are municipal corporations under Labor Code 220(b), such districts are likely to be found municipal corporations as long as they are subject to the Brown Act and the CPRA, and have a publicly elected board, a geographical jurisdiction, and the power forcefully to raise funds or acquire property from those within its geographical jurisdiction. However, public benefit corporations that have considered themselves municipal corporations due to their public purpose, i.e. to provide an essential government function, should not rely on that characteristic alone to define themselves as municipal corporations. Instead, such entities must review other factors to evaluate whether they are sufficiently similar to counties, cities, and towns to satisfy the requirements of Labor Code 220(b). If not, they will be subject to the Labor Code.