As many employers are aware, California has some of the most employee-friendly laws in the country. Two such employee-friendly laws are Labor Code sections 203 and 226. Section 203 imposes a waiting time penalty on an employer who willfully fails to pay wages owed to a terminated employee on the date of termination. The penalty for violating Section 203 is the payment of daily wages to the employee for up to thirty days following the date of termination, unless the wages owed to the now ex-employee are paid sooner.

Section 226 imposes a penalty on an employer who knowingly and intentionally fails to provide accurate wage statements to an employee. The penalty for violating Section 226 is the greater of all actual damages or $50 for the initial pay period in which a violation occurs and $100 per employee for each violation in a subsequent pay period.  The penalty is not to exceed an aggregate penalty of $4,000.

A recent California Court of Appeal decision[1] considered whether an employer’s good faith belief that no wages were owed would preclude a finding that the employer “willfully” or “knowingly and intentionally” failed to comply with the statutory requirements of Labor Code Sections 203 and 226.

The Court of Appeal ruled that an employer’s good faith belief that no wages were owed to an employee prevented the employer from being penalized under Sections 203 and 226. The plaintiff in Naranjo argued that the good faith defense applied only in labor commissioner hearings and not in lawsuits. The Court disagreed with the plaintiff’s argument and explained that even though the defendant’s defenses to the wage claims ultimately failed, such defenses were reasonable and were not made in bad faith.

The Court of Appeal explained that the “knowing and intentional” requirement cannot be satisfied by merely showing the employer’s inadequate wage statement was not an inadvertent error or a clerical mistake. Rather, the Court held that the “knowing and intentional” standard is similar to the “willful” standard under Section 203 and requires that the plaintiff show something more than an inadvertent error or mistake.

The Naranjo decision is a win for employers and provides an avenue for employers to avoid additional penalties under Labor Code Sections 203 and 226 if they are found to have violated other wage laws. While this decision is helpful, employers should still be careful to ensure that they are not violating other wage laws by failing to pay minimum wage or overtime wages, among other things. Employers who have questions about this recent decision or employment laws in general should contact Navigato & Battin.

[1] Naranjo v. Spectrum Security Services, Inc. (Feb. 27, 2023 Second District, Div. Four No. B256232)