Unpaid Wages? You may also be owed Penalties and Interest

California Labor Code section 1194.2 applies to lawsuits and Labor Commissioner claims in which an employee sues to recover wages “because of the payment of a wage less than the minimum wage.” As a practical matter, that language applies to any claim where the employee was not paid anything for the work performed because, in such situations, the employee was clearly not paid the minimum wage.

California Labor Code section 1194.2(a) provides that employees who prevail in such cases are entitled to recover penalties known as “liquidated damages.” These penalties are equal to the unpaid wages plus interest. In other words, if an employee shows that they were not paid anything for the work performed, and that they are owed $10,000 in unpaid wages and $1,000 in interest, that employee can also recover an additional $11,000 in liquidated damages.

However, California Labor Code section 1194.2(b) provides that employers may have a defense to a claim for liquidated damages “if the employer demonstrates to the satisfaction of the court or the Labor Commissioner that the act or omission giving rise to the action was in good faith and that the employer had reasonable grounds for believing that the act or omission was not a violation of any provision of the Labor Code relating to minimum wage, or an order of the commission, the court or the Labor Commissioner may, as a matter of discretion, refuse to award liquidated damages or award any amount of liquidated damages not exceeding the amount specified in subdivision (a).”

In Iloff v. LaPaille, the California Supreme Court addressed the question of what an employer must show to avoid liquidated damages under Labor Code section 1194.2(a). The Court first reviewed the history of section 1194.2 and the purpose of the statute. The Court then held that to establish the good faith affirmative defense, an employer must show that it made an attempt to determine what the law required. The Court further held that the form and extent of the required attempt would vary depending on the context. However:

“[T]he burden is on the employer to show it made an attempt to determine what the law required that was reasonable under the circumstances and a good faith effort to comply with the requirements of the law.”

The Court noted that while liquidated damages may serve to both punish bad behavior and to deter future violations, they are also “damages” that are paid directly to the employees. In this sense, liquidated damages serve to compensate the employees for damages caused by the violations that would otherwise be too hard to calculate.

Finally, the Court noted that trial courts could reduce or eliminate liquidated damages under section 1194.2 only if the employer had met its burden of proof as to the good faith affirmative defense. When an employer fails to meet that burden, trial courts cannot reduce the liquidated damages.

What about the Naranjo Decisions?

The holding in Iloff is notably different from the California Supreme Court’s decisions in the Naranjo v. Spectrum Security Services, Inc. cases, handed down in 2022 and 2024. In the first Naranjo decision, the Court concluded that extra premium pay for missed meal and rest breaks breaks (Lab. Code, § 226.7) is wages that must be reported on wage statements (Lab. Code, § 226) and paid in a timely manner when an employee leaves a job (Lab. Code, § 203). (Naranjo I.)

However in Naranjo II, the Court held that Naranjo was not entitled to recover penalties for wage statement violations because the defendant’s violations were not “knowing and intentional” (Lab. Code, § 226(e). Furthermore, Naranjo was not entitled to recover waiting time penalties for late payment of final wages because it did not act “willfully” (Lab. Code, § 203). Put another way, an employer that has a reasonable and good faith belief that it is complying with the law, even it if is mistaken, is not liable for penalties under either Labor Code section 203 or Labor Code section 226.

However, the Naranjo decisions analyzed requirements that are not present in section 1194.2. Specifically, section 1194.2 does not require a showing of willfulness, or that the actions were “knowing and intentional” for an employee to prevail. Rather, it requires that an employer show that its actions were taken in good faith and that the employer had reasonable grounds for them. The Naranjo standards therefore do not apply.

Please feel free to contact the experienced wage and hour attorneys at Hunter Pyle Law, PC if you have questions about your right to unpaid wages under California law. We can be reached at inquire@hunterpylelaw.com or (510) 444-4400.