Over the last two years the California Supreme Court case Naranjo et al. v. Spectrum Sec. Servs., Inc. has served to settle several divisive issues among the courts. With its May 6, 2024, ruling the Court gives us one final lesson.   

As discussed here, the original question before the Court concerned whether the law requires employers to treat certain amounts — premium pay awarded for the deprivation of a lawful meal or rest break — as wages earned for purposes of provisions penalizing the willful failure to timely pay wages to former employees and the knowing and intentional failure to report wages earned in compliance with Cal. Labor Code section 226.  Answering that question in the affirmative, the Court held that employers are required to treat missed-break premium pay as wages.  

As discussed here, the Court then remanded the case to the Court of Appeal for a determination on whether a good faith defense to allegations of willfulness can also be considered when deciding whether an alleged violation was knowing and intentional. This question was also answered in the affirmative. However, a division in the courts remained and the case was again remanded to answer the following question: 

• Whether an employer has knowingly and intentionally failed to comply with California Labor Code Section 226’s wage statement requirements when it had a good faith, yet erroneous, belief that it was in compliance. 

On remand it was made clear that, under long established law, an employer cannot incur civil or criminal penalties for the willful nonpayment of wages when the employer reasonably and in good faith disputes that wages are due. Affirming the lower court’s judgment, the Court’s final Naranjo ruling provides that if an employer reasonably and in good faith believed it was providing a complete and accurate wage statement in compliance with the requirements of section 226, then it has not knowingly and intentionally failed to comply with the wage statement law.   

Ultimately, if an employer can show it had a reasonable and good faith belief that a compliant and accurate wage statement was being provided, then it has a defensible argument against a claim that the alleged wage statement error was known and intentional. 

With its final ruling Naranjo offers clarity to employers navigating the complexities of wage statement requirements while offering a safe harbor in the case of genuine misunderstanding or inadvertent errors. Nonetheless, employers should remain cautious when relying on a good faith belief defense against failure to timely pay wages owed claims as any decision on the issue will be highly fact specific.