For the second time, the California Supreme Court issued a ruling in Naranjo v. Spectrum Security Systems in May. In May 2022, the California Supreme Court issued its first decision in Naranjo v. Spectrum Security Systems, which considered the issue of whether failure to pay premium wages for meal and rest period violations gave rise to claims for waiting time penalties or violations of wage statement requirements.

The underlying action was a class action brought by former and current employees of Spectrum Security for meal period violations. The class sought waiting time penalties and penalties for failure to provide accurate wage statements.

The case was remanded to the California Court of Appeal on two issues:

1. Whether the trial court erred in finding Spectrum Security had not acted “willfully” in failing to timely pay employees premium pay, which barred recovery of waiting time penalties.
2. Whether Spectrum Security’s failure to report missed-break premium pay on wage statements was “knowing and intentional” to allow recovery of penalties for failure to provide accurate wage statements.

The Court of Appeal concluded as to the first question that the substantial evidence supported the trial court’s finding that Spectrum Security presented defenses at trial in good faith for its failure to pay meal premium to departing employees and therefore its failure was not “willful” to entitle employees to waiting time penalties. As to the second question the Court of Appeal held that because Spectrum Security had a good faith belief that it complied with wage statement requirements, the trial court was precluded from finding the violation was “knowing and intentional” and awarding penalties.

In its second opinion on Naranjo issued on May 6, 2024, the California Supreme Court stated, “[o]n remand, the answer to the question of Labor Code section 203 penalties was clear. Under long-established law, an employer cannot incur civil or criminal penalties for the willful nonpayment of wages when the employer reasonably and in good faith disputes that wages are due…”

However, as the California Supreme Court noted in its decision, the courts have been divided over whether an employer’s good faith belief will also bar Labor Code section 226 penalties for a “knowing and intentional” failure to report the same unpaid wages or any other required information, on a wage statement.

The California Supreme Court agreed with the Court of Appeal below that if an employer reasonably and in good faith believed it was providing a complete and accurate wage statement in compliance with the requirements of section 226, then it has not knowingly and intentionally failed to comply with the wage statement law.

This decision is a bright spot for employers trying to comply with the myriad of California wage and hour laws. While the language of the statute has always stated that penalties could only be recovered for “knowing and intentional” violations, in light of this decision, employers that can demonstrate a good faith belief in the accuracy of their wage statements now can forcefully argue that there was no failure to comply with wage statement law, and thus no penalty should apply.