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California Supreme Court:
Ignorance of Employer as to Wage Laws Is Not ‘Good Faith’
Opinion Says Defense to Liquidated Damages Will Only Apply if Affirmative Steps Taken to Understand Rules; Court Also Held That Paid Sick Leave Claims Can Be Raised for First Time in Administrative Appeal
By Kimber Cooley, associate editor
The California Supreme Court held yesterday that an employer seeking to avoid mandated liquidated damages for failing to pay an employee the minimum wages required by law by asserting a good-faith defense must show that some efforts were made to understand what the law requires.
In a unanimous opinion authored by Justice Joshua P. Groban, the court separately held that the employee may raise a claim for penalties relating to unpaid sick leave under the Healthy Workplaces, Healthy Families Act of 2014 (“Paid Sick Leave law”) for the first time in the context of the employer’s appeal to the Superior Court relating to a ruling of the Labor Commissioner.
Groban acknowledged that the Paid Sick Leave law contemplates administrative resolution and does not create a corresponding private cause of action, but said that the “introductory provision of the…law specifies that [its] provisions are ‘in addition to and independent of any other rights, remedies, or procedures available under any other law.’ ”
Liquidated Damages
Labor Code §1194.2(a) requires that an employee “shall be entitled to recover liquidated damages in an amount equal to the wages unlawfully unpaid and interest thereon” but specifies, in subdivision (b):
“[I]f the employer demonstrates to the satisfaction of the court or the Labor Commissioner that the act or omission giving rise to the action was in good faith and that the employer had reasonable grounds for believing that the act or omission was not a violation of any provision of the Labor Code relating to minimum wage, or an order of the commission, the court or the Labor Commissioner may, as a matter of discretion, refuse to award liquidated damages or award any amount of liquidated damages not exceeding the amount specified in subdivision (a).”
Arguing that the good-faith defense requires more than ignorance of prevailing law was Laurance Iloff, who agreed to perform maintenance work in exchange for free housing on an unincorporated property in Humboldt County—featuring small rental units, a post office, and its own water system—owned by Bridgeville Properties Inc. and managed by Cynthia LaPaille.
Labor Commissioner Claims
After he was fired from his position in 2016, Iloff filed claims with the Labor Commissioner, initiating a so-called “Berman process” named after a former state assemblyman who introduced the legislation establishing the administrative procedure for seeking renumeration of unpaid wages.
Rejecting an assertion that Iloff was operating as an independent contractor, the commissioner found that he was an employee entitled to unpaid wages, liquidated damages, penalties, and interest. The employers appealed the decision in the Superior Court.
In such an appeal, the court is entitled to conduct a de novo reconsideration of the commissioner’s rulings.
Now represented by an attorney from the Labor Commissioner’s Office, Iloff filed a notice of claim, reasserting the cause of action he had raised in the administrative proceedings and, for the first time, requesting penalties under the Paid Sick Leave law.
Superior Court Proceedings
Following a bench trial, Humboldt Superior Court Judge Timothy A. Canning agreed with the commissioner that Iloff was an employee because he operated under the “control and direction” of LaPaille and performed work that fell within the “usual course” of business.
However, Canning concluded that Iloff was not entitled to liquidated damages because his employers had acted in “good faith” and had “reasonable grounds for believing” that they were complying with the law, citing the agreement between the parties. He also rejected the plaintiff’s claim for penalties under the Paid Sick Leave law, finding that the statute did not authorize him to seek those penalties in court.
Div. One of the First District Court of Appeal agreed with Canning, noting that both parties believed the plaintiff was an independent contractor and that the Paid Sick Leave Law contemplates only administrative proceedings.
Good-Faith Defense
Addressing the defendants’ good-faith defense, Groban wrote:
“[O]ur resolution of this issue turns on whether, to establish the good faith defense, an employer must show that it made an attempt to determine what the law required. We hold that an employer must make this showing. While the form and extent of the required attempt is context dependent, the burden is on the employer to show it made an attempt to determine what the law required that was reasonable under the circumstances and a good faith effort to comply with the requirements of the law.”
Acknowledging that “[t]he provision’s language does not directly answer the question,” he pointed to the fact that the statute mandates an award of liquidated damages whenever a minimum wage violation has been established and opined:
“Statutory context…suggests that the provision is best read as requiring the employer to make such a showing….It would be contrary to [the legislative intent] to read the good faith defense provision as allowing courts to relieve an employer of liability for liquidated damages without showing that it had made a reasonable attempt to determine the requirements of the law governing minimum wages and a good faith effort to comply with it.”
Applying these principles, he concluded:
“Because Iloff’s employers did not show they made any attempt to determine what the law required and comply with those requirements, they did not prove the good faith defense.”
Great Burden
Rejecting an assertion that the court’s interpretation “places too great a burden” on employers, Groban remarked:
“Although we do not determine today the extent of the inquiry that is generally required, we note that what constitutes a reasonable attempt will vary by context. An individual employing a person on a casual, irregular basis may not need to undertake the same kind of effort as an established business with regular employees. Depending on the nature of the work arrangement at issue, a reasonable attempt to determine the requirements of the law will not necessarily entail significant effort or expense. In many cases, even established businesses with regular employees may be able to satisfy this requirement without consulting legal counsel.”
As to the defendants’ assertion that they could not be expected to reasonably keep up with evolving characterizations of who qualifies as an employee versus an independent contractor, noting that the law was more unsettled at the time of Ilhoff’s employment than it was at trial, he responded:
“As a general matter, arguments like these may be relevant to the good faith defense….Here, however, the employers have not shown they made any attempt to determine whether their arrangement with Iloff complied with the law governing minimum wages.”
He faulted Div. One for misconstruing the statutory phrase “to the satisfaction of the court” as giving broad authority to a trial court to deny or reduce liquidated damages, remarking:
“Courts make such determinations not as an exercise of discretion, but by applying the law to the facts of the case. Only when an employer has established the defense does a court have discretion to deny a request for liquidated damages or to award a lower amount of liquidated damages than would otherwise be required by the Labor Code’s default rule.”
Paid Sick Leave
As to the plaintiff’s claims under the Paid Sick Leave law, he pointed to §248.5, which provides:
“The Labor Commissioner shall enforce [the law], including investigating an alleged violation, and ordering appropriate temporary relief to mitigate the violation or to maintain the status quo pending the completion of a full investigation or hearing through the procedures set forth in Sections 98, 98.3, 98.7, 98.74, or 1197.1…”
Explaining that Labor Code §98.2 establishes the right to seek appeal in superior court, he reasoned that “section 248.5, subdivision (a)’s reference to section 98 suggests that the Legislature contemplated that the Berman process would be among the avenues available for enforcing an employee’s rights under the…law, alongside enforcement actions filed in court by the Labor Commissioner or the Attorney General.”
He added:
“Under the Court of Appeal’s construction of section 248.5(a), a worker may file a Paid Sick Leave Law claim before the Labor Commissioner in the administrative stage of the Berman process but may not raise that claim in the de novo trial following an employer’s appeal of the Labor Commissioner’s decision….[S]uch a construction would permit an employer to nullify the Labor Commissioner’s award on a claim brought under the Paid Sick Leave law simply by filing an appeal.”
The case is Iloff v. LaPaille, 2025 S.O.S. 2441.
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