Good news – employers may now argue that wage statement errors were not “willful” as a defense to wage statement claims.

Not everything from Naranjo v. Spectrum Security Services, Inc. was bad. While the California Supreme Court unfortunately held (in May 2022) that meal and rest penalties (i.e., premium pay) constitute “wages” for wage statement violations purposes and waiting time penalties (“Naranjo I”), it remanded two questions to the Court of Appeal for consideration: (1) whether the trial court erred in finding Spectrum had not acted “willfully” in failing to timely pay employees premium pay (which barred waiting time penalties); and (2) whether Spectrum’s failure to report missed break premium pay on wage statements was “knowing and intentional,” as is necessary for recovery of wage statement violations (“Naranjo II”).

First, the Court of Appeal held that the evidentiary record supported Spectrum’s argument that it had “good faith” defenses for failing to pay premiums to separating employees. Therefore, the failure to pay premiums upon separation were not “willful” and did not warrant “waiting time penalties” (i.e., Spectrum was not required to pay the employee-plaintiff 30 days’ pay for failing to pay premiums owing at the time of separation).

Second, the Court of Appeal held that because Spectrum had a “good-faith belief” that it was complying with the wage statement laws, Spectrum was not liable for “knowing and intentional” wage statement violations. The Court of Appeal reversed the penalties awarded to the plaintiff by the trial court. 

In doing so, the Court determined that the “willful” standard applied to waiting time penalties is the same as the “knowing and intentional” standard for wage statement violations. That is, the Court of Appeal held that employers may now argue a “good faith dispute” defense to wage statement violations. The Court of Appeal noted that “knowing and intentional” requires more than a clerical or inadvertent mistake.

Key Takeaways:

Employers can find solace that Naranjo I does not create automatic waiting time penalties for failing to pay all premium pay owing at the time of separation. This is especially true for failing to pay premium pay at the regular rate before May 23, 2022, the date of the original Naranjo ruling, but can also be applied after that date in other circumstances.

Employers may also argue that a “good faith dispute” as to wage statement violations (under Labor Code sec. 226), again as to the rate for premium payment before May 23, 2022, and also after that date when warranted.

We will continue to monitor new trends and provide an update on how courts and the DLSE interpret this “good faith dispute” when applied to other wage-and-hour violations.