California Supreme Court affirms good faith defense against wage statement penalties: Naranjo v. Spectrum Security Services, Inc.

In Naranjo v. Spectrum Security Services, Inc.,           (May 7, 2024), the Supreme Court held that an employer’s good faith belief it provided accurate wage statements precludes penalties under Labor Code § 226 for “knowing and willful” omissions.

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Plaintiff filed a class action alleging Defendant failed to provide compliant meal breaks, pay owed premiums, and report those premiums on wage statements. The trial court found violations of Lab. Code §§ 203 and 226 but awarded penalties only under § 226. Both parties appealed.

On appeal, the Court of Appeal held that Defendant did not violate either section because meal break premiums are penalties, not wages. The California Supreme Court reversed, holding that missed-break premiums are wages and must be included on wage statements. On remand, the Court of Appeal held that the trial court’s finding of good faith under § 203 precluded penalties under § 226. The California Supreme Court affirmed, finding that the Labor Code considers good faith a defense to penalties for both nonpayment and nonreporting of wages. The court reasoned that imposing § 226 penalties in this case, where the law was unsettled at the time of the violations, would unfairly penalize the employer for failing to predict how legal issues would be resolved years later.

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