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The California Supreme Court recently addressed two issues concerning the rights of California workers whose employers fail to pay them the minimum wage or provide them paid sick leave benefits.
The first issue related to the good faith defense to the default rule that employees who prove minimum wage violations are entitled to liquidated damages. The second issue relates to the process for raising claims under the Healthy Workplaces, Healthy Families Act of 2014 (HWHFA).
Background
The plaintiff lived and worked in an unincorporated area of Humboldt County known as Bridgeville, on property owned by Bridgeville Properties, Inc. and managed by the defendants. The plaintiff’s employers rented out the property, which includes small houses, cabins, and other structures. For several years, the plaintiff performed maintenance on Bridgeville’s structures, grounds, and water system, and the defendants provided him instructions, directions, and approvals in relation to this work. Under an informal arrangement, the employers let him to live rent-free in one of the houses but didn’t provide him any other benefits or compensation for his services.
After his employers ended this arrangement, the plaintiff filed claims against them with the Labor Commissioner, starting a process for adjudicating wage claims informally known as “the Berman process.” The employers argued that the plaintiff was an independent contractor, but the Labor Commissioner determined that he was an employee and as such, was entitled to unpaid wages, liquidated damages, penalties, and interest. The employers appealed, and the plaintiff—now represented by an attorney from the Labor Commissioner’s office—filed a notice of claims. In this notice, the plaintiff reasserted the wage claims he'd raised before the Labor Commissioner and added new claims, including a claim for penalties under the Paid Sick Leave law.
After a bench trial, the superior court found that the plaintiff was an employee. Applying the framework set out in Dynamex Operations West, Inc. v. Superior Court (2018), the court reasoned that the plaintiff was properly classified as an employee, rather than an independent contractor, because he wasn’t “free from the employers’ control and direction,” and he performed work that was within the “usual course” of their business. The court ruled that the plaintiff was entitled to unpaid wages, penalties, and interest.
On the two issues addressed the Supreme Court, however, the superior court ruled in favor of the employers. First, the court ruled that the plaintiff wasn’t entitled to liquidated damages because his employers acted in “good faith” in not paying him and had “reasonable grounds for believing” they were complying with the law governing minimum wages. The trial court based this ruling on its findings that the employers and the plaintiff intended and expected him to perform his services in exchange for free rent and that neither he nor the employers understood or believed, at any time before his termination, that he’d be paid wages or treated as an employee. Second, the court rejected the plaintiff’s claim for penalties under the Paid Sick Leave law, concluding that the statute did not authorize the plaintiff to see those penalties in the context of the employers’ Berman appeal.
The plaintiff appealed, and the Court of Appeal affirmed in part and reversed in part, affirming the trial court’s judgment in the employers’ favor on the liquidated damages and Paid Sick Leave law issues. The plaintiff then appealed that decision to the California Supreme Court.
To Prove the Good Faith Defense to Liquidated Damages, an Employer Must Show it Made a Reasonable Attempt to Determine the Requirements of Minimum Wage Law
California Supreme Court Justice Joshua Groban addressed whether an employer may prove the “good faith” defense to liquidated damages without showing that it attempted to determine the requirements of the law governing minimum wages.
The trial court’s conclusion that the employers established the good faith defense was based on its finding that they and the plaintiff intended and expected that he’d perform his services in exchange for free rent and that he wouldn’t be paid wages or otherwise treated as an employee. The employers didn’t claim in the trial court that they’d tried to determine what the law required at any point during the plaintiff’s employment, and they didn’t present any evidence suggesting that they’d made such an attempt. As such, Justice Groban said that the Supreme Court’s resolution of this issue turned on whether, to establish the good faith defense, an employer must show that it made an attempt to determine what the law required. The Court concluded that that an employer must make this showing. While the form and extent of the required attempt is context dependent, the 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. Application of this rule here was relatively straightforward: because the employers didn’t show they made any attempt to determine what the law required and comply with those requirements, they didn’t prove the good faith defense.
The Labor Code’s default rule for liquidated damages in minimum wage actions mandates an award: when a court finds an employee is entitled to unpaid minimum wages, as the superior court found the plaintiff to be, the court must award the employee “liquidated damages in an amount equal to the wages unlawfully unpaid and interest thereon.” Section 1194.2(b) establishes the “good faith” defense to this otherwise mandatory award. The burden is on the employer to establish the defense by proving 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.” If the employer carries this burden, the provision authorizes the court “as a matter of discretion” to deny a request for liquidated damages or to order less than the full amount to which the employee would otherwise be entitled.
The Court’s understanding of the Legislature’s intent provided further support in documents in the legislative history reflecting that the good faith defense provision was modeled on a similar provision in the Fair Labor Standards Act. Under both statutes, the default rule is that employers found liable for “unpaid minimum wages” are also liable for “an additional equal amount as liquidated damages. The language of the Labor Code good faith defense provision mirrors the language of the FLSA provision, which similarly permits a court to decline to award liquidated damages or reduce the amount of the award only if the employer shows “that the act or omission giving rise to such action was in good faith and that he had reasonable grounds for believing that his act or omission was not a violation” of the FLSA. The Labor Code provision, like the FLSA provision, thus places the burden of proving the good faith defense on the employer, with double damages being the norm and single damages the exception.
In this case, the determination of the Supreme Court was straightforward because the employers didn’t claim to have made any attempt to determine the requirements of the law governing compensation for the plaintiff’s services to their business. The trial court’s findings that the employers and the plaintiff intended and expected that he would perform his services in exchange for free rent and that he would not be paid wages or treated as an employee are legally insufficient to support a good faith defense to liquidated damages. These findings established that the employers didn’t understand that they were required to pay the plaintiff the minimum wage, but “ignorance alone” doesn’t prove good faith, Justice Groban opined. An employer must show it made a reasonable attempt to determine the requirements of the law governing minimum wages. Because the employers didn’t make this showing, the plaintiff was entitled to an award of liquidated damages.
A Trial Court May Allow an Employee To Raise a Paid Sick Leave Law Claim When an Employer Appeals a Labor Commissioner Ruling
The second question related to the Paid Sick Leave law, which requires employers to provide their employees paid leave from work for health-related reasons or to care for sick family members. The plaintiff raised a claim for penalties under the Paid Sick Leave law in the notice of claims he filed in the superior court in response to his employers’ appeal of the Labor Commissioner’s ruling. At issue was whether the superior court may consider a Paid Sick Leave law claim that an employee has raised in this manner. The Court of Appeal interpreted the Paid Sick Leave law as authorizing employees to raise claims before the Labor Commissioner but not in court. The Supreme Court concluded that, considered in its broader statutory context, and bearing in mind the Legislature’s purpose in enacting it, the Paid Sick Leave law is best understood to also authorize employees to raise claims in court in response to an employer’s appeal, as the plaintiff did here.
The Paid Sick Leave law authorizes employees to raise claims before the Labor Commissioner. But the Supreme Court disagreed with the Court of Appeal’s conclusion that an employee may not raise a Paid Sick Leave law claim in response to an employer’s appeal from the Labor Commissioner’s ruling in the Berman process. Before we explain why we disagree, a little background on the Berman process may be helpful: the Berman process begins with an employee filing a complaint with the Labor Commissioner, who may conduct a hearing and issue an “order, decision, or award.” The Court has held that, in the context of such an appeal, the trial court may, in its “sound discretion,” allow an employee to raise additional claims that the Labor Commissioner didn’t consider during the administrative stage of the Berman process.
Justice Groban wrote that when considered in a broader context, the fact that § 248.5(a) includes a list of statutory procedures for enforcing the Paid Sick Leave law suggests that the Legislature intended Berman appeals to be available to parties prosecuting Paid Sick Leave law claims.
The Legislature didn’t intend to preclude employees from raising Paid Sick Leave law claims in Berman appeals. As a result, the Supreme Court held that an employee may properly raise claims under the Paid Sick Leave law in the context of a Berman appeal and reversed the Court of Appeal’s contrary determination. The judgment of the Court of Appeal was reversed. Iloff v. Lapaille (California Supreme Court 8/21/2025).
Bottom Line
To establish the good faith defense, an employer must show that it made a reasonable attempt to determine the requirements of the law governing minimum wages; proof that the employer was ignorant of the law is insufficient. Also, a court may consider a Paid Sick Leave law claim that an employee raises in the context of their employer’s appeal to the superior court of a Labor Commissioner ruling.