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Naranjo v. Spectrum Security Services, Inc. (SC S279397 5/6/24) Penalties | Wage Statements

By May 6, 2024June 30th, 2024Uncategorized

California law requires employers to provide their employees with written wage statements listing gross and net wages earned, hourly pay rates, hours worked, and other employment-related information.  (Lab. Code, § 226.)  If a claimant demonstrates that an employer has failed to comply with this requirement, the claimant is entitled to an injunction compelling compliance and an award of costs and reasonable attorney’s fees.  (Id., subd. (h).)  But in the case of a “knowing and intentional failure . . . to comply,” the law provides for statutory penalties of up to $4,000 or the employee’s actual damages, should the employee’s damages exceed the statutory penalties.  (Id., subd. (e)(1).)  The question presented is whether an employer has knowingly and intentionally failed to comply with section 226’s requirements when the employer had a good faith, yet erroneous, belief that it was in compliance.

This case returns to us after we resolved a division in state and federal courts about 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 (Lab. Code, § 203) and the knowing and intentional failure to report wages earned in compliance with Labor Code section 226.  Answering that question in the affirmative, we held that employers are required to treat missed-break premium pay as wages.  We remanded for consideration of whether the requirements for imposing penalties were otherwise satisfied. 

On remand, the answer to the question of Labor Code section 203 penalties was clear.  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.  (See In re Trombley (1948) 31 Cal.2d 801, 808; Barnhill v. Robert Saunders & Co. (1981) 125 Cal.App.3d 1, 8–9; see also Cal. Code Regs., tit. 8, § 13520.)  But courts are divided over whether an employer’s good faith belief will also bar Labor Code section 226 penalties for a knowing and intentional failure to report the same unpaid wages, or any other required information, on a wage statement.  We now conclude 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.  We affirm the judgment of the Court of Appeal, which reached the same conclusion.