A California Court of Appeal recently ruled that an employer’s good faith belief that it was complying with state wage and hour laws precluded the award of both waiting time and wage statement penalties under the Labor Code.
In Naranjo v. Spectrum Security Systems, Gustavo Naranjo brought a class action case against Spectrum Security Systems for violations of California’s meal break requirements. The class sought meal premium pay and penalties for failure to pay final wages at separation and failure to report premium pay on wage statements.
The case made its way up to the California Supreme Court, which issued a decision in 2022, ruling that premium pay for missed meal and rest periods are wages under California law, subject to the same timing and reporting rules as other forms of compensation under the California Labor Code. The Court then remanded to case to the Court of Appeal to consider the following issues regarding penalties sought by the class:
- Whether Spectrum acted “willfully” in failing to timely pay employees meal premium pay (which would warrant waiting time penalties); and
- Whether Spectrum’s failure to report the missed meal premium pay on wage statements was “knowing and intentional” (which would warrant wage statement penalties and attorney’s fees).
The Court of Appeal issued its decision on February 27, 2023, holding that Spectrum’s good faith belief in its compliance and its defenses presented at trial precludes penalties under both sections.
A willful failure to pay wages within the meaning of Labor Code section 203 occurs when an employer intentionally fails to pay wages to an employee when those wages are due. However, a good faith dispute over whether any wages are due — that’s based on applicable law or relevant facts — will preclude imposition of waiting time penalties, even if those defenses ultimately are unsuccessful. Here, the court found that Spectrum presented good faith defenses at trial for its failure to pay meal premiums and, therefore, penalties were not warranted, even though the defenses ultimately failed.
Regarding wage statements, if an employer knowingly and intentionally fails to follow wage statement requirements, Labor Code section 226 allows employees to recover penalties and attorney’s fees. Notably, the court rejected the view taken by a minority of federal courts that “knowing and intentional” is a minimal standard satisfied by simply showing that an employer provided an inadequate wage statement not resulting from a clerical error or inadvertent mistake. Instead, consistent with California precedent linking the “willfulness” standard to a “knowing and intentional” standard, the court held that a good faith dispute over whether an employer is in compliance with section 226 precludes a finding of a knowing and intentional violation.
Here, the court found that Spectrum had good faith belief that it followed wage statement requirements and therefore didn’t knowingly and intentionally fail to report meal premiums on wage statements. As such, the court reversed the lower court’s award of penalties and attorney’s fees under section 226.
The court’s finding that a good faith defense precludes not only a “willfulness” finding under section 203, but also a “knowing and intentional” finding under section 226 is a rare, albeit narrow, win for California employers. Employers should continue to ensure employee meal and rest periods are taken and any premiums are paid on time and properly accounted for on wage statements.
CalChamber members can read more about Premium Pay for a Meal and/or Rest Break Violations in the HR Library. Not a member? Learn more about how HRCalifornia can help you.