California Supreme Court: Employees Are Not Entitled to Wage Statement Penalties When Employer Acted in Good Faith
Earlier this week, a unanimous California Supreme Court held that employers have a viable good faith defense to claims for statutory penalties arising out of wage statement violations. The Court's decision, in Naranjo v. Spectrum Security Services, Inc. (No. S279397, May 6, 2024), is a significant and rare win for the state's employers.
Naranjo Case Background and Procedural History
This ruling arose out of a long-running lawsuit a former employee brought against his employer for alleged violations of California's meal break requirements. Relevant here, Mr. Naranjo accused his employer of failing to report meal break premiums on employees' wage statements (i.e., paystubs) and failing to timely pay such premiums at the end of employment. Among other forms of relief, Mr. Naranjo sought statutory penalties for the "knowing and intentional" failure to comply with the wage statement requirements set forth in California Labor Code section 226.
As previously reported by DWT, the Naranjo case has an extensive procedural history including a prior trip to the California Supreme Court, which held in 2022 that unpaid meal and rest break premiums are wages that can be the basis for derivative claims for waiting time penalties (Cal. Lab. Code, § 203) and wage statement penalties (Cal. Lab. Code, § 226). The Supreme Court then remanded the case to determine whether the requirements for imposing these penalties were otherwise satisfied.
California Supreme Court's Latest Ruling
This time at the Supreme Court, the issue was whether an employer committed a "knowing and intentional" failure to comply with the Labor Code's wage statement requirements, giving rise to statutory penalties, when the employer had a good faith, yet erroneous, belief that it was in compliance. The Court unanimously held that such a good faith defense precludes a finding of "knowing and intentional" conduct and, thus, the employer is not subject to statutory penalties for its violation of the wage statement requirements.
This ruling is a significant win for employers as penalties for "knowing and intentional" wage statement violations can reach $4,000 per employee or the employee's actual damages, whichever is greater, in addition to reasonable attorneys' fees. In Naranjo, the Court has given employers a much stronger good faith defense to what can otherwise be a high-exposure claim—one that all too often is based on technical "gotcha" violations causing no one any harm.
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DWT will continue to monitor these issues and provide updates as developments arise. In the meantime, if you have any questions about your company's compliance with California's wage statement requirements or other wage-and-hour laws, please feel free to contact a member of DWT's employment services group.