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March 9, 2023

Good Faith Belief Allows Employer to Avoid Penalties

In the 2022 case Naranjo et al. v. Spectrum Sec. Servs., Inc.,i the California Supreme Court found that meal and rest premiums payable pursuant to Cal. Labor Code section 226.7 constitute wages and – once owed – must be paid in accordance with all relevant wage and hour laws (e.g., inclusion on wage statements and paid within statutory deadlines). In ruling on the matter, the Court remanded the case to the Court of Appeal for a determination on the following questions: 

  • Whether the lower court erred in finding the employer had not acted “willfully” in failing to timely pay employees’ premium pay; and  
  • Whether the employer’s failure to report missed premium pay on wage statements was “knowing and intentional” under Cal. Lab. Code section 226. 

In ruling on the matter last week, the Court of Appeal affirmed the lower court’s decision that the employer’s good faith basis for failing to pay the meal premiums was not willful. Specifically, although the employer’s defensive arguments were decidedly unpersuasive, the Court found they were not unreasonably made nor were they unsupported by evidence or made in bad faith.  This reasoning was also applied (with the same outcome) by the Court as it considered the employer’s actions regarding the statute’s “knowing and intentional” standard. This ruling allowed the employer in Naranjo to avoid penalties assessed under the statute for willfully withholding final wages and knowingly and intentionally failing to provide accurate/required information on employee wage statements.  

The ruling is significant in that it settles a divisive issue among the courts as to whether a good faith defense to allegations of willfulness can also be considered when deciding whether an alleged violation was knowing and intentional. However, 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.