Following the California Supreme Court’s remand of Naranjo v. Spectrum Security Services, Inc., the California Court of Appeal in that same case held that the defendant-employer had not committed “knowing and intentional” violations of the wage statement statute by not including meal period premiums on the wage statements and had not “willfully” paid all wages due at the end of employment by not previously paying meal period premiums that were owed. The Court held that, although the employer did not prevail on its defense that employees in a certified class action were subject to valid on-duty meal period agreements, neither waiting time penalties (capped at 30 days’ of wages at the daily rate of pay for each former employee) nor wage statement penalties (capped at $4,000 per employee) could be imposed against the employer given the good faith dispute that any meal period premiums were owed.

Last year in Naranjo, the California Supreme Court held that meal period premium pay constitutes “wages” for purposes of derivative claims for (i) waiting time penalties under Labor Code section 203 and (ii) wage statement penalties under section 226.[i] Waiting time penalties may only be imposed against an employer in California when there is a “willful” failure to pay wages due at the end of employment, although a good faith dispute may negate such penalties. Similarly, wage statements penalties may only be imposed when, among other things, an employer “knowing[ly] and intentional[ly]” fails to provide a compliant, accurate wage statement. The California Supreme Court remanded the case to determine if the conditions were met for imposing such penalties.

After supplemental briefing, the Court of Appeal found that the employer did not willfully withhold wages when it asserted a defense that there was a good faith dispute that any wages were due. Although the plaintiff argued that the defenses were not in “good faith,” the Court concluded that such defenses were supported by evidence, even if the defenses were ultimately unsuccessful.

Regarding the penalties for failing to include the premiums on the wage statements, the Court held that the employer’s good faith belief that it was not violating California’s wage statement law precluded a finding of a knowing and intentional violation. Therefore, the court held that a good faith defense can be asserted against – and preclude – claims for both waiting time and wage statement penalties.

Although the California Supreme Court’s decision in Naranjo was disappointing for employers facing wage-hour lawsuits alleging claims for violating California’s meal and rest period laws, this case offers some hope that potential liability can be reduced and even extinguished for these derivative claims for waiting time and wage statement penalties. In circumstances when employees are not provided meal or rest periods, employers should still pay meal and rest period premiums timely and reflect such premiums on the corresponding wage statements. However, to the extent that there is a dispute regarding whether the meal and rest period premiums are owed, employers can assert good faith defenses for why they were not owed and should be prepared to present evidence to support such good faith defenses.

[i] Naranjo v. Spectrum Security Services, Inc. (2022) 13 Cal.5th 93, 117, 121.