The California Supreme Court recently held in Iloff v. LaPaille (2025) Cal.5th 551 that employers who claim good faith ignorance of minimum wage laws are still subject to liquidated damages. Employers now bear the burden to establish they made reasonable efforts to understand minimum wage laws when defending against minimum wage claims. Further, employees may present California’s Paid Sick Leave Law claims on appeal from administrative hearings where such claims were not already alleged.
Liquidated Damages
Liquidated damages are available if a court finds an employee is entitled to unpaid minimum wages. (Lab. Code § 1194.2(a).) There, the court must award the employee “liquidated damages in an amount equal to the wages unlawfully unpaid and interest thereon.” (Ibid.) An employer may establish a “good faith” defense to such damages if it had “reasonable grounds for believing that the act or omission was not a violation.” (Lab. Code § 1194.2(b).) If good faith is established, the court has discretion to deny a request for liquidated damages or reduce the amount of damages.
Background
Laurance Iloff lived rent-free at a property owned by Bridgeville Properties, Inc. (“BPI”) in exchange for providing maintenance services. Cynthia LaPaille served as an executive for BPI and managed Iloff’s work. BPI and LaPaille (the “Employers”) treated Iloff as an independent contractor during his tenure and did not provide him benefits or compensation.
After several years, BPI terminated the arrangement. Iloff then filed claims against the Employers with the Labor Commissioner who decided Iloff was an employee and entitled to unpaid wages, liquidated damages, penalties, and interest. The decision was part of a “Berman” process which provides for an informal adjudication of wage claims.
The Employers appealed to the superior court where Iloff reasserted his wage claims and included a new claim for penalties under California’s Paid Sick Leave (“PSL”) law. The superior court found that Iloff was an employee and therefore entitled to unpaid wages, penalties, and interest. However, the superior court also held that Iloff was not entitled to liquidated damages or penalties under the PSL law. First, the superior court reasoned the Employers acted in “good faith” and reasonably believed they were compliant with California’s minimum wage laws. Second, the PSL statute did not allow Iloff a private right of action to seek penalties on appeal from the Berman hearing.
Iloff appealed the decision to the Court of Appeal who affirmed the district court’s ruling regarding the liquidated damages and PSL penalties. The Court of Appeal held that the employer reasonably believed that Iloff was an independent contractor and Iloff had no right to seek PSL penalties.
The California Supreme Court’s Decision
The California Supreme Court reversed the Court of Appeal’s decision. First, the Court held that an employer must show that it made a reasonable attempt to determine the requirements of the law governing minimum wages to establish a good faith defense. An employer that merely shows ignorance of the law cannot establish it acted in good faith. Once the employer makes such a showing, courts have discretion to deny a request for liquidated damages or reduce the amount of damages.
A “reasonable attempt” is context dependent, but the employer has the burden of showing it attempted to learn the law’s requirements. The Court posited that unsettled law may be relevant to the good faith defense but refused to determine how extensive the employer’s inquiry must be.
Second, the Court decided a court may consider a PSL claim that an employee raises in the context of their employer’s appeal from a Labor Commissioner ruling. An appeal from a Berman hearing is not a private right of action because it is a procedure for reconsideration of the Labor Commissioner’s ruling. The Court further reasoned that the Legislature did not intend to force an employee to file a separate complaint to raise claims not previously raised in the Berman process.
Employer Takeaways
Iloff is another example that ignorance of the law is not a defense. Employers should make efforts to understand California’s wage and hour laws and exercise caution before entering into agreements with contractors. Retention of outside counsel and continuing education may be critical to establish a good faith defense against liquidated damages.
