Earlier today, the California Supreme Court issued its opinion in Naranjo v. Spectrum Security Services, Inc., a decision that clarifies when California employers may be subject to statutory penalties for failure to provide accurate wage statements under California Labor Code section 226. Under Section 226, California employers must provide employees with written wage statements listing gross and net wages earned, pay rates, hours worked, and other information. Employers that knowingly and intentionally fail to provide the required written information may be liable for statutory penalties up to $4,000 per employee. In Naranjo, the Court held that an employer’s objectively reasonable, good faith belief that it provided employees with adequate wage statements precludes an award of statutory penalties as a matter of law. In so ruling, the Court resolved a split in various California Court of Appeal decisions.
The Court noted that the purpose of the penalties like those at issue, is to deter and punish rather than compensate alleged victims. Accordingly, employers that operate on a reasonable, good faith belief that they have complied with the law require no deterrence from repeating their honest mistake. The Court further recognized the plaintiffs’ wage statement claims frequently are derivative of other wage and hour claims, which may be addressed by other provisions of the Labor Code.
The opinion provides employers a significant defense in the face of potentially large penalty exposure related to wage statements. That said, it will continue to be crucial for employers to monitor their payroll practices and specifically their wage statements to demonstrate their objectively reasonable, good faith belief that they are in compliance with the law. In addition, today’s decision does nothing to detract from employees’ ability to still seek injunctive relief, costs, and attorneys’ fees for violations Section 226. Strict adherence remains critical.
The Court’s opinion is linked here.