The California Supreme Court's decision in Iloff v. LaPaille provides critical guidance for employers navigating minimum wage compliance and paid leave requirements. This ruling clarifies the threshold employers must meet to invoke the good faith defense against liquidated damages and establishes how workers can enforce their rights under California's paid sick leave law through administrative proceedings.

Key Takeaways

The Iloff decision makes clear that good intentions alone won't protect employers from enhanced damages. What matters is whether employers can show they took concrete steps to understand and follow the law. The ruling establishes several critical principles:

• Ignorance of the law is never a defense to liquidated damages
• Employers must make affirmative efforts to understand their legal obligations
• The complexity of the law doesn't excuse failing to try to comply with it
• Employees have multiple enforcement pathways for wage and leave violations
• Documentation of compliance efforts is essential protection against enhanced penalties

Understanding the Good Faith Defense to Liquidated Damages

When employers fail to pay minimum wage, California law typically requires them to pay liquidated damages, essentially increasing the amount owed to the employee. However, Labor Code section 1194.2 provides a defense for employers who can demonstrate both good faith and reasonable grounds for believing their actions complied with the law. Importantly, if this defense succeeds, courts have discretion to reduce or completely eliminate liquidated damages.

The Supreme Court clarified that this defense remains available, but established a critical threshold: employers must first prove they made a reasonable attempt to determine what the law required regarding minimum wages. Simple ignorance of the law or even mutual misunderstandings between employer and employee are insufficient to invoke the defense. The showing of a reasonable attempt to understand the law is the gateway, without it, the defense is unavailable.

What Constitutes a Reasonable Effort?

The Court emphasized that the required level of effort is context-dependent and judged under a reasonableness standard. The analysis is not one-size-fits-all:

• Business size and sophistication: Established businesses with regular employees face higher expectations than individuals hiring occasional help for irregular tasks
• Nature of the employment relationship: The formality and regularity of the working arrangement matters
• Industry standards: What constitutes reasonable inquiry may vary by sector
• Resources available: While many established businesses can satisfy this requirement without consulting attorneys, some effort to research and understand obligations is mandatory

Critically, once an employer shows they made a reasonable attempt to determine legal requirements, courts may then consider additional contextual factors:

• The nature of the relationship between the parties
• Any agreements made between employer and worker (though these cannot substitute for the initial attempt to understand the law)
• The state of employment law at the relevant time, including whether the law was unsettled
• The specific compliance efforts undertaken

The Fatal Flaw in Iloff

In this case, the employers' defense failed at the threshold. They made no attempt whatsoever to determine what the law required. The dispute centered on whether the plaintiff should have been classified as an employee or independent contractor.

The Court held that because the employers made zero effort to understand the law, they couldn't rely on arguments about the complexity or unsettled nature of worker classification law to prove good faith. While the state of the law may be relevant after an employer shows a reasonable attempt to comply, it cannot excuse failing to make any attempt in the first place.

The Court warned that accepting a "mere assumption" as evidence of good faith would eliminate any incentive for employers to educate themselves about labor law requirements, undermining the statute's purpose entirely.

Enforcing Rights Under California's Paid Sick Leave Law

The Court also addressed how employees can seek relief when employers violate the Healthy Workplaces, Healthy Families Act, California's statewide paid sick and safe time law.

No Direct Lawsuits but Multiple Alternatives

Employees cannot file traditional lawsuits directly in court alleging HWHFA violations. However, this doesn't leave workers without recourse. Alternative enforcement options include:

• claims: Employees can pursue civil penalties through the Labor Code Private Attorneys General Act
• Unfair Competition Law claims: Workers can bring claims under California's UCL for HWHFA violations
• Labor Commissioner complaints: The primary administrative enforcement pathway (discussed below)

The Labor Commissioner Route

The primary enforcement mechanism is filing a complaint with California's Labor Commissioner. This administrative process is specifically outlined in the HWHFA itself. If the Labor Commissioner rules in favor of the employee and the employer appeals, the case moves to court for a completely fresh review, the court conducts its own independent trial and isn't bound by the Commissioner's findings.

A Surprising Procedural Twist

Perhaps most interesting, the Court ruled that employees can raise HWHFA claims for the first time during the court appeal process, even if they never mentioned these claims to the Labor Commissioner initially. This gives employees significant procedural flexibility when employers choose to challenge adverse administrative decisions.

What This Means For Employers

This decision reinforces that California offers workers numerous pathways to pursue violations, whether through administrative agencies, private lawsuits under different statutes, or a combination of approaches.

The Iloff decision makes clear that good intentions alone won't protect employers from enhanced damages. What matters is whether employers can show they took concrete steps to understand and follow the law. In California's complex regulatory environment, that means being proactive rather than reactive about compliance.

Getting Help with Your Wage & Hour Claim

If you or a loved one believe that you have a wage and hour claim, contact Kingsley Szamet Employment Lawyers to schedule your free case evaluation. Our expert Los Angeles wage and hour lawyers are ready to help you get the compensation you deserve.