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Good Faith Defense to Wage Statement Violations

by Jennifer Shaw and Melissa Whitehead | | May 13, 2024

We love reporting a rare win for employers in the California Supreme Court! Last week, the Court ruled that employers can avoid the often substantial penalties accompanying wage statement violations by proving that their noncompliance was not “knowing and intentional.” To understand why this decision is such good news for employers, some context is helpful.

Remedies for Noncompliant Wage Statements

California Labor Code Section 226 requires employers to provide specific information on employee wage statements. It also provides the remedies employees may seek when employers violate these requirements. Employees may seek injunctive relief and the costs and attorney’s fees associated with litigating such violations.  An employer whose noncompliance is “knowing and intentional,” also may be liable for penalties in the amount of $50 for the initial pay period in which a violation occurs and $100 per employee for each violation in a subsequent pay period, not to exceed an aggregate penalty of $4,000. 

Because of this penalty structure, employees who prevail on claims of noncompliant wage statements often recover penalties that far exceed their actual damages or costs. Historically, these penalties have applied even when the employer had a good faith belief that their wage statements were in compliance.

Naranjo v. Spectrum Security Services, Inc.

In the new case, a security company, Spectrum Security Services, Inc., terminated Naranjo, a prison guard, for leaving his post during a meal break. The Court previously ruled that meal period violation premiums are wages, which must be included on wage statements. Therefore, failure to pay those premiums renders wage statements inaccurate, and can support claims for wage statement violations.

Last week, the Court decided that Naranjo’s employer need not pay penalties for wage statement violations because the employer had an “objectively reasonable” misunderstanding of its legal requirements – at the time, the law was still unclear as to whether meal period premiums were “wages” to be included on wage statements. For that reason, the employer’s noncompliance was not “knowing and intentional,” and they were not required to pay statutory penalties. You can read the case here.

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Although this decision is a great result for employers who have long pined for a “good faith” defense to wage statement violations, it does not provide a complete “get out of jail free card.”   The new defense only applies when the uncertainty of the law and employee errors are “objectively reasonable.” So, employers should audit their wage statements (and wage and hour practices) to ensure compliance with current law, and keep a record of these audits and any corrective measures, to help demonstrate good faith if needed.

As always, we’re here to help! Join us on August 1, 2024, for our training session: “Million Dollar Violation: Wage-Hour Compliance 101.” We will discuss the Naranjo decision and other recent developments.  Click here for details and to register.

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