Employment Law

California Supreme Court Upholds Good Faith Defense for Employers: A Win Against Wage Statement Penalties

In a state well known for its pro-employee labor code and court rulings, it appears as though employers have received welcome news from the state’s highest court indicating that an employer acting in “good faith” may be able to prevail in a claim alleging that the employer failed to provide accurate wage statements by failing to include premium payments based upon allegedly missed meal periods.

In the case of Naranjo v. Spectrum Security Services, Inc., the plaintiff was seeking to double dip in his claim for damages against his employer by not only alleging that he was entitled to premium payment for missed meal periods allegedly due to the action of his employer, but also seek damages for allegedly faulty wage statements that didn’t include the premium payment for the allegedly missed meal periods. 

The employer’s defense to these claims was that at the time the wage statements were issued, it had a good faith and a reasonable basis to believe that at the time of missed meal periods, it wasn’t legally obligated to pay the employee a premium payment for the missed meal periods. In fact, it wasn’t determined until litigation was commenced by the plaintiff that a court determined the employer had misapplied the rule calling for the payment of premium wages to the employee for the missed meal periods.

On appeal, the California Supreme Court held that an employer’s objectively reasonable, good faith belief that it had provided employees with adequate wage statements precludes an award of penalties under Section 226, Subdivision (e)(1). An employer that believes reasonably and in good faith, albeit mistakenly, that it has complied with wage statement requirements doesn’t fail to comply with those requirements knowingly and intentionally.

The court’s opinion also opens the door and acknowledges that the defense of “good faith” may be used with reference to other types of employee claims for damages. In its opinion, the state Supreme Court acknowledged that authorities have uniformly recognized a good faith defense to claims for wait time penalties in violation of Labor Code Section 203. 

Therefore, it now appears that employers will be able to point to these various authorities in an effort to avoid the penalty provisions provided in the California Labor Code when the employer is able to establish a reasonable and good faith dispute that it was required to make and/or report certain wages, or other potential alleged violations. However, to do so, an employer will be required to objectively prove that the alleged violations were the cause of legal uncertainty regarding pay practices in California and that their mistake was reasonable. 

All employers should take the reasonable steps of (1) having counsel review the employer’s pay practices and standards on an annual basis based upon the constant change and addition to the labor code, (2) promptly address with both counsel and any employee and pay dispute issues that may arise, and (3) keep records of all activities taken with reference to the employers continual good faith efforts to make sure it is complying with all labor code requirements.