Last week, in Iloff v. LaPaille, the California Supreme Court made clear the burden on employers when asserting a good faith defense to avoid paying liquidated damages for violations of minimum wage laws. In its long-awaited decision, the Court established that ignorance of the law is insufficient to establish a defense, and the employer must show that it made a reasonable attempt to determine the requirements of the law.
In this case, the employee, Laurance Iloff, lived and worked on property owned by Bridgeville Properties, Inc., which was managed by Cynthia LaPaille. Bridgeville was in the business of renting small houses and other structures. In exchange for his work on their properties as a maintenance worker, Bridgeville and LaPaille agreed that Iloff could live rent-free in one of the homes. Iloff received no other compensation or benefits.
Years later, Bridgeville terminated this arrangement, and Iloff filed a claim with the Labor Commissioner for unpaid wages and penalties, including a claim under Labor Code section 1194.2 for liquidated damages, which requires employers to pay double for any unpaid minimum wages.
The trial court ruled against Iloff on the issue of liquidated damages, reasoning that the employers had acted in “good faith” by not paying Iloff and had “reasonable grounds” for believing that they were complying with minimum wage laws. The court based its decision on its determination that Iloff and his employers both expected Iloff to perform maintenance work in exchange for free rent and that neither Iloff nor his employers believed Iloff would be paid wages or treated as an employee. The Court of Appeal affirmed.
Upon review, the California Supreme Court reversed the Court of Appeal’s decision, holding that to establish a good faith defense, an employer must demonstrate that it made a reasonable attempt to determine what the law requires, and ignorance of the law, even if mutual, is not sufficient for a “good faith” defense. The Court reasoned that, because Iloff’s employers presented no evidence that they ever attempted to determine the requirements of the law at any time during Iloff’s employment, they could not establish a “good faith” defense to liquidated damages. The Court further noted that if employers could evade violations of minimum wage laws by claiming ignorance, employers would have no incentive to learn the relevant laws and follow them.
The outcome of this case highlights the importance for employers to consistently educate themselves about California’s wage and hour laws in order to avoid wage and hour claims in the first place, and if faced with such a claim, to potentially preserve a good faith defense to liquidated damages claims.
Keep up-to-date with CDF’s blog and/or contact your favorite CDF attorney for guidance on how to stay compliant with California wage and hour laws.
