The state Supreme Court ruled May 6th that an employer that reasonably and in good faith believed it was providing a complete and accurate wage statement in compliance with California law has not intentionally failed to comply with the wage statement law and doesn’t have to pay civil penalties.
Court’s Ruling
The defendant argued that the meaning of the phrase “knowing and intentional failure to comply” requires a showing that the employer knew that it was required to include certain information in wage statements— in this case, unpaid premium pay for missed meal breaks—and intentionally omitted that information from the wage statements that it provided.
The defendant argued that it is not liable for penalties under that provision because it had a reasonable, good faith basis for believing
1) that it did not owe its guards premium pay for missed breaks and
2) that it was not, in any event, obligated to report missed-break premium pay on wage statements.
The court noted – punitive damages aren’t intended to compensate but to deter and punish. Those who proceed on a reasonable, good-faith belief that they have conformed their conduct to the law’s requirements do not need to be deterred from repeating their mistake, nor do they reflect the sort of disregard of the requirements of the law and respect for others’ rights that penalty provisions are frequently designed to punish.
The Court ruled in favor of the employer and held that an employer’s objectively reasonable, good faith belief that it complied with the statute precludes an award of penalties for a knowing and intentional violation. Among other reasons for its decision, the Court acknowledged the correlation between claims for failing to pay wages and claims for failing to furnish accurate wage statements and observed that the legislature likely did not intend for employers to be able to assert a good faith defense to a claim for failure to pay wages and not assert such a defense to a claim for failing to furnish an accurate wage statement, which is arguably a less serious infraction than the failure to pay wages in the first place.
Red Flag Tips
To prevail on a “good faith” defense to wage-statement claims, employers must objectively establish that their errors were caused by legal uncertainty regarding pay practices and that their mistakes of law were reasonable.
To do so, and to comply with California’s wage-and-hour law generally, employers should implement measures showing their best efforts to comply with the law and consider taking these steps:
1. Audit or have your HR or legal counsel audit a sample of your wage statements to determine whether they meet the requirements set forth by Labor Code section 226(a).
2. Evaluate underlying pay practices – such as meal and rest breaks, overtime calculations, and timeclock rounding — that can serve as a basis for inaccurate wage statement claims.
3. Promptly address areas of non-compliance. Keep records of the audit and remedial measures taken. This documentation can be invaluable in demonstrating reasonable and good faith efforts to comply with the law.
For additional information, please call our office at 714.799.1115