Supreme Court of California Rules Employers Can’t Claim Ignorance on State Wage Violations

Quick Hits

• The Supreme Court of California recently determined that employers need to show they tried to understand and comply with the state minimum wage rules in order to avoid paying liquidated damages after a violation.
• What constitutes a reasonable attempt will vary depending on the type of employer and the context.
• Arguing that the employer was ignorant of the minimum wage law is not sufficient for a good-faith defense.
• For paid sick leave claims, there is no private right of action to recover administrative penalties.

Background on the Case

A California resident, Laurance Iloff, sued Bridgeville Properties Inc. and its chief executive officer for failing to pay the state minimum wage and paid sick leave. From 2009 to 2016, Iloff performed maintenance on the structures, grounds, and water system for the property, which includes rental homes, cabins, and a post office. Under an informal agreement, Bridgeville allowed him to live there rent-free, but did not pay him any wages or benefits.

In January 2017, Iloff brought a claim to the state labor commissioner after Bridgeville ended the arrangement. The labor commissioner determined that he was entitled to unpaid wages, liquidated damages, penalties, and interest. After Bridgeville appealed the claim to a state appellate court, Iloff added an additional claim related to failure to provide paid sick leave. In July 2022, the appellate court rejected the liquidated damages and the paid sick leave claims. On appeal, the Supreme Court of California reversed the lower court’s decision and found in favor of Iloff.

Because both parties did not expect wages to be paid, Bridgeville argued that Iloff was an independent contractor who did not qualify for minimum wage, overtime, or paid sick leave. However, the Supreme Court of California reasoned that he was an employee because he worked under the control and direction of Bridgeville, and the work was part of Bridgeville’s usual course of business.

The court concluded that the state legislature intended to require employers asserting a good-faith defense to show they took steps to adhere to state minimum wage laws. “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,” the court stated.

A court may decline to award liquidated damages or reduce the amount of the award only if the employer “had reasonable grounds for believing that his act or omission was not a violation,” the court stated.

Liquidated damages serve as a deterrent to make employers less likely to violate the state minimum wage law. “Liquidated damages would be much less effective as an enforcement tool and a means of deterring minimum wage violations if an employer could evade them merely by showing that it was ignorant of the law,” the court stated.

Paid Sick Leave

Under the Healthy Workplaces, Healthy Families Act of 2014, California generally requires employers to provide workers forty hours of paid sick leave per year.

In this case, the Supreme Court of California concluded the state’s paid sick leave law permits employees to bring claims before the state’s labor commissioner or before a court via a Berman appeal, which is an administrative appeal of a labor commissioner’s hearing decision. However, employees in California do not have a private right of action to seek administrative penalties for violations of the paid sick leave law.

Key Takeaways

The decision illustrates the perils that employers face in California for noncompliance with the state’s numerous wage-and-hour laws, including properly classifying workers as employees and providing statutorily required paid sick leave.

While the decision confirms that an employer must make some showing to avail itself of a good-faith defense to a minimum wage claim, the fairly unique fact pattern in this case—including a worker who was not paid anything by the defendants—is distinguishable from most situations facing employers. As other California appellate decisions have shown, employers can argue against penalties when they have “reasonably and in good faith” sought to comply with California law, particularly where the law is unsettled.

Ogletree Deakins will continue to monitor developments and will provide updates on the California, Leaves of Absence, and Wage and Hour blogs as new information becomes available.

Alexander M. Chemers is a shareholder in Ogletree Deakins’ Los Angeles office.

Isabella B. Urrea is an associate in Ogletree Deakins’ Los Angeles office.

This article was co-authored by Leah J. Shepherd, who is a writer in Ogletree Deakins’ Washington, D.C., office.

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