Minimum Wage Defense Must Show Reasonable Attempt to Follow the Law
When it comes to minimum wage law violations in California, employers should take note that ignorance of the law has been ruled out as a valid good-faith defense to an award of liquidated damages. In Iloff v. LaPaille, the California Supreme Court recently made clear that employers seeking to support a good-faith defense to liquidated damages for minimum wage violations have the burden to show that they made a reasonable attempt to determine the requirements of minimum wage law.
What the California Supreme Court Considered
In Iloff v. LaPaille, the plaintiff, Laurance Iloff, lived and worked on property owned by Bridgeville Properties and managed by Cynthia LaPaille. Under an informal arrangement, Ilof's employers allowed him to live rent-free in one of the houses on the property in exchange for maintenance work he performed, but did not provide him with any other benefits or compensation for his services.
Following his termination, Iloff filed wage claims with the Labor Commissioner. The Labor Commissioner found Iloff had been an employee, and awarded unpaid wages, penalties, and interest, as well as liquidated damages. California Labor Code section 1194.2 enables an employee to recover liquidated damages for wage violations, in the amount of wages unlawfully paid plus interest, unless the employer is able to show it acted in good faith and reasonably believed it was following the law.
The employers appealed to the superior court in an administrative process known as the "Berman" wage claim process. Iloff, who was now represented by an attorney from the Labor Commissioner's office, filed a notice of claims, adding a claim for penalties under the Paid Sick Leave law. Although the superior court found Iloff was an employee entitled to unpaid wages, penalties, and interest, it did not find that Iloff was entitled to liquidated damages (on grounds that the employers had acted in "good faith" based upon the mutual understanding that Iloff was not going to be paid wages) or Paid Sick Leave penalties (concluding that the Iloff was not entitled to seek those penalties in the context of the Berman appeal). Iloff appealed and the Court of Appeal affirmed the trial court's ruling in the employers' favor on the liquidated damages and Paid Sick Leave law issues.
On review, the California Supreme Court, in a unanimous decision, reached the opposite conclusion on both issues and reversed the Court of Appeal opinion. With regard to the minimum wage issue, the Court found that to establish a good-faith defense to the default rule that employees who prove minimum wage violations are entitled to liquidated damages, an employer must show that it made a reasonable attempt to determine the requirements of the law governing minimum wages. Based upon an analysis of legislative intent and history, the Court specifically rejected the argument that ignorance of the law, even mutual ignorance by both parties as to whether Iloff was required to be paid wages, is sufficient to establish good faith. While the Court acknowledged that the form and extent of the attempt to determine the requirements of the law can be context-dependent, given that the employer in this case did not claim to have made any attempt to determine the law and did not present any evidence suggesting that they had made such an attempt, the determination was straightforward and it was clear that Iloff was entitled to an award of liquidated damages.
As to the Paid Sick Leave law claims, the Court considered the legislative purpose and broader statutory context and found that it authorized employees to raise these claims in court in response to an employers' appeal in the Berman process. It found that the Berman process was not a new private right of action, but was instead a continuation of the administrative process. It also noted that there was nothing in the legislative history indicating that the Legislature intended to preclude employees from raising Paid Sick Leave law claims in Berman appeals.
Employers' Takeaways
The California Supreme Court's ruling serves as an important reminder to California employers that, when it comes to wage-and-hour laws, ignorance should never be relied upon as a defense. It is always wise to continually familiarize oneself with all relevant updates on the law to avoid litigation and potential penalties.
If you have any questions about this ruling or any potential impact upon your company, please feel free to contact a member of DWT's employment services group.