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Naranjo v. Spectrum Security Services, Inc. (2024) 15 Cal.5th 1056
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IN THE SUPREME COURT OF
CALIFORNIA
GUSTAVO NARANJO et al.,
Plaintiffs and Appellants,
v.
SPECTRUM SECURITY SERVICES, INC.,
Defendant and Appellant.
S279397
Second Appellate District, Division Four
B256232
Los Angeles County Superior Court
BC372146
May 6, 2024
Justice Kruger authored the opinion of the Court, in which
Acting Chief Justice Evans and Justices Corrigan, Liu, Groban,
Jenkins, and Rodriguez* concurred.
__________________________
* Associate Justice of the Court of Appeal, First Appellate
District, Division Three, assigned pursuant to article VI, section
6 of the California Constitution.
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NARANJO v. SPECTRUM SECURITY SERVICES, INC.
S279397
Opinion of the Court by Kruger, J.
California law requires employers to provide their
employees with written wage statements listing gross and net
wages earned, hourly pay rates, hours worked, and other
employment-related information. (Lab. Code, § 226.) If a
claimant demonstrates that an employer has failed to comply
with this requirement, the claimant is entitled to an injunction
compelling compliance and an award of costs and reasonable
attorney’s fees. (Id., subd. (h).) But in the case of a “knowing
and intentional failure . . . to comply,” the law provides for
statutory penalties of up to $4,000 or the employee’s actual
damages, should the employee’s damages exceed the statutory
penalties. (Id., subd. (e)(1).) The question presented is whether
an employer has knowingly and intentionally failed to comply
with section 226’s requirements when the employer had a good
faith, yet erroneous, belief that it was in compliance.
This case returns to us after we resolved a division in state
and federal courts about whether the law requires employers to
treat certain amounts — premium pay awarded for the
deprivation of a lawful meal or rest break — as wages earned
for purposes of provisions penalizing the willful failure to timely
pay wages to former employees (Lab. Code, § 203) and the
knowing and intentional failure to report wages earned in
compliance with Labor Code section 226. Answering that
question in the affirmative, we held that employers are required
to treat missed-break premium pay as wages. We remanded for
1
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Opinion of the Court by Kruger, J.
consideration of whether the requirements for imposing
penalties were otherwise satisfied.
On 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. (See In re Trombley
(1948) 31 Cal.2d 801, 808; Barnhill v. Robert Saunders & Co.
(1981) 125 Cal.App.3d 1, 8–9; see also Cal. Code Regs., tit. 8,
§ 13520.) But courts are 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.
We now conclude 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. We affirm the judgment of the
Court of Appeal, which reached the same conclusion.
I.
We have previously recounted the factual and procedural
background of this case. (Naranjo v. Spectrum Security
Services, Inc. (2022) 13 Cal.5th 93, 102–104 (Naranjo III).) We
restate the central facts here, adding further background
relevant to the issue now before us.
Defendant Spectrum Security Services, Inc. (Spectrum)
provides secure custodial services to federal agencies. Spectrum
transports and guards prisoners and detainees who require
outside medical attention or have other appointments outside
custodial facilities. Plaintiff Gustavo Naranjo worked as a
2
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Opinion of the Court by Kruger, J.
guard for Spectrum. Naranjo was suspended and later fired
after leaving his post to take a meal break, in violation of a
Spectrum policy that required custodial employees to remain on
duty during all meal breaks. (Naranjo III, supra, 13 Cal.5th at
pp. 102–104.)
Naranjo filed a putative class action on behalf of Spectrum
employees, alleging, among other things, that Spectrum had
violated state regulations governing meal breaks. (Lab. Code,
§ 226.7 (section 226.7); Industrial Welf. Com. (IWC) wage order
No. 4-2001, § 11.) The complaint sought an additional hour of
pay — known as “premium pay” — for each day on which
Spectrum failed to provide employees a legally compliant meal
break. (See § 226.7, subd. (c); IWC wage order No. 4-2001,
§§ 11(B), 12(B).) The complaint further alleged two additional
Labor Code violations related to Spectrum’s premium pay
obligations: (1) that Spectrum had violated Labor Code sections
201, 202, and 203 by failing to timely pay owed meal break
premiums as wages to employees once they were discharged or
resigned; and (2) that Spectrum had violated Labor Code section
226 (section 226) by failing to report the premium pay it owed
as wages on employees’ wage statements. Among other forms of
relief, the complaint sought the statutory penalties prescribed
for “willful[]” failure to comply with the timely payment
requirements (Lab. Code, § 203 (section 203), subd. (a)), and the
penalties prescribed for the “knowing and intentional” failure to
comply with the wage statement requirements (§ 226, subd.
(e)(1)).
In the approximately decade and a half since it was filed,
the case has taken a number of turns up and down the court
system. The details of its extensive procedural history are not
strictly necessary to understand the issues now before us, except
3
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NARANJO v. SPECTRUM SECURITY SERVICES, INC.
Opinion of the Court by Kruger, J.
as they illuminate the scope and nature of the many debates
that have surfaced about Spectrum’s liability for Naranjo’s meal
break claims.
At first, the trial court granted summary judgment for
Spectrum, ruling that Naranjo’s sole remedy lay in a federal
administrative claim procedure for employees of federal
contractors. The Court of Appeal disagreed and reversed.
(Naranjo v. Spectrum Security Services, Inc. (2009) 172
Cal.App.4th 654, 663, 670 (Naranjo I).)
On remand, the trial court certified a class for the meal
break and related timely payment and wage statement claims
and held a trial in three phases. (Naranjo III, supra, 13 Cal.5th
at p. 103; Naranjo v. Spectrum Security Services, Inc. (2023) 88
Cal.App.5th 937, 942 (Naranjo IV).) The first phase was a bench
trial where Spectrum presented certain affirmative defenses. In
particular, Spectrum argued that California meal break
requirements did not apply to the class members because they
were performing federal functions and because many of them
worked on federal properties outside the reach of state
regulation. (Naranjo IV, at p. 942.) At the end of the first phase,
the trial court held that Spectrum failed to carry its burden to
establish any of these defenses. (Ibid.)
In the second phase, the section 226.7 meal break claims
were tried to a jury. (Naranjo IV, supra, 88 Cal.App.5th at
p. 942.) The relevant IWC wage order, wage order No. 4-2001,
requires employers to give covered employees an off-duty meal
period on shifts lasting over five hours. (Ibid., citing IWC wage
order No. 4-2001, § 11(A) and Brinker Restaurant Corp. v.
Superior Court (2012) 53 Cal.4th 1004, 1034.) Wage order No. 4-
2001 recognizes an exception to the off-duty meal period
4
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requirement that “allows for ‘ “on duty” ’ meal periods if ‘the
nature of the work prevents an employee from being relieved of
all duty,’ but only when ‘by written agreement between the
parties an on-the-job paid meal period is agreed to.’ ” (Naranjo
IV, at p. 942.) The trial court agreed with Naranjo that
Spectrum did not have a valid written on-duty meal break
agreement with its employees during part of the class period and
directed a verdict for the class on the meal break claim for a
period starting in June 2004 and ending in September 2007.
(Ibid.) The jury, however, found Spectrum not liable for the
period starting on October 1, 2007, after Spectrum had issued a
memorandum setting forth its on-duty meal break policy and
obtained written consent to that policy from employees. (Ibid.)
In the third phase of the trial, the court considered the
class’s claims under section 203 and section 226. (Naranjo III,
supra, 13 Cal.5th at p. 103.) Spectrum argued that it was not
liable under section 203 and section 226 because premium pay
awarded under section 226.7 is not “wages” subject to these
statutory timing and reporting requirements, but instead a
penalty for break violations. Spectrum also argued that even if
it had violated an obligation to timely pay and report the
premium pay owed, its failure to comply was neither “willful”
for purposes of awarding section 203 penalties nor “knowing and
intentional” for purposes of awarding section 226 penalties.
Spectrum argued that the class could not recover section 203
penalties because it had raised several reasonable defenses in
good faith, which, according to Division of Labor Standards
Enforcement (DLSE) regulations and governing appellate case
law, precluded a finding that it “willfully” failed to pay premium
pay upon separation. (§ 203, subd. (a); see Cal. Code Regs., tit.
8, § 13520; Barnhill v. Robert Saunders & Co., supra, 125
5
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Opinion of the Court by Kruger, J.
Cal.App.3d at pp. 8–9 (Barnhill).) Spectrum argued that its
failure to comply with section 226’s reporting requirements
likewise was not “knowing and intentional.” Among other
things, Spectrum cited the testimony of John Oden, its Vice
President and Personnel Manager, who stated that he “was not
aware that there was any obligation to pay an extra hour of pay
if Spectrum officers did not get an off-duty meal break.”
The trial court found that Spectrum had, in fact, violated
sections 203 and 226 by failing to pay and report the missed -
break premium pay as wages in accordance with those
provisions. But the court issued a split decision on the question
of penalties. With respect to section 203 penalties, the court
ruled in Spectrum’s favor. The court found that “Spectrum’s
defenses presented in the first phase of the trial . . . , if
successful, would have defeated plaintiffs’ claims in their
entirety” and that those defenses “were presented in good faith
and were not unreasonable or unsupported by the evidence.”
Thus, under DLSE regulations and governing case law,
Spectrum’s failure to timely pay the premiums was not willful.
But with respect to section 226 penalties, the court ruled against
Spectrum. The trial court found that Spectrum was liable for
penalties because its failure to report premium pay for missed
meal breaks in employees’ wage statements was “knowing and
intentional and not inadvertent.”
Both sides appealed the trial court’s ruling. The Court of
Appeal affirmed the trial court’s holding that Spectrum had
violated meal break laws between June 2004 and September
2007. But it reversed the trial court’s holding that Spectrum
had violated section 203 and section 226 by failing to timely pay
and report the meal break premium pay owed as “wages,”
reasoning that the premium pay was instead in the nature of a
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penalty rather than compensation for work performed.
(Naranjo v. Spectrum Security Services, Inc. (2019) 40
Cal.App.5th 444, 474 (Naranjo II).)
Because the Court of Appeal’s decision deepened a conflict
on this issue, we granted review to decide whether section 203
and section 226 claims can be brought based on unpaid and
unreported missed-break premium pay. (Naranjo III, supra, 13
Cal.5th at p. 104.) We answered that question in the
affirmative. We held: “Missed-break premium pay is indeed
wages subject to the Labor Code’s timely payment and reporting
requirements, and it can support section 203 waiting time
penalties and section 226 wage statement penalties where the
relevant conditions for imposing penalties are met.” (Id. at
p. 125.) We thus reversed the decision of the Court of Appeal.
But because the Court of Appeal had not addressed the parties’
arguments as to whether the relevant conditions for imposing
penalties under sections 203 and 226 were met, we remanded
for the Court of Appeal to consider the parties’ arguments on
that issue. (Naranjo III, at p. 126.)
This brings us to the decision now before us on review. On
remand from this court, the Court of Appeal affirmed the trial
court’s conclusion that Spectrum’s failure to timely pay meal
period premium wages was not “willful,” and therefore did not
support penalties under section 203, because substantial
evidence supported the conclusion that Spectrum had a good
faith basis for believing it was not liable. (Naranjo IV, supra, 88
Cal.App.5th at p. 948.)
The Court of Appeal held, however, that the trial court
erred in finding that Spectrum’s failure to report meal premium
pay on employees’ wage statements was “ ‘knowing and
7
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NARANJO v. SPECTRUM SECURITY SERVICES, INC.
Opinion of the Court by Kruger, J.
intentional.’ ” (Naranjo IV, supra, 88 Cal.App.5th at p. 951.)
The Court of Appeal reasoned that the section 203 “willfulness”
requirement and the section 226 “knowing and intentional”
requirement are substantially identical, so the same finding of
good faith that precluded an award of penalties under section
203 should also preclude an award of penalties under section
226. (Naranjo IV, at pp. 949–951.) It further noted that, “[i]n
addition to the trial court’s finding that a good faith dispute
existed regarding whether premium pay was owed, . . . there
was a good faith dispute regarding whether premium pay
constituted ‘wages’ that must be reported on wage statements,”
which was unsettled until this court decided Naranjo III in
2022. (Id. at p. 951, fn. 8.)
As the Court of Appeal acknowledged, the issue has
divided the many state appellate courts and federal district
courts that have considered it. The Court of Appeal in this case
aligned itself with “the majority view” among federal district
courts “that an employer’s good faith belief it is not violating the
California Labor Code precludes a finding of a knowing and
intentional violation” of section 226. (Naranjo IV, supra, 88
Cal.App.5th at p. 950; Oman v. Delta Air Lines, Inc. (N.D.Cal.
2022) 610 F.Supp.3d 1257, 1273–1275 (Oman II); Arroyo v. Int’l
Paper Co. (N.D.Cal. 2020) 611 F.Supp.3d 824, 840–842;
Magadia v. Wal-Mart Associates, Inc. (N.D.Cal. 2019) 384
F.Supp.3d 1058, 1084, revd. in part, vacated in part on other
grounds (9th Cir. 2021) 999 F.3d 668.) “To hold otherwise would
‘read out of [section] 226[, subdivision] (e) the mental state
implicated by the phrase “knowing and intentional.” ’ ”
(Naranjo IV, at p. 951, quoting Arroyo, at p. 841.)
As the Court of Appeal recognized, a smaller group of
federal district courts have reached a different conclusion.
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Opinion of the Court by Kruger, J.
(Naranjo IV, supra, 88 Cal.App.5th at p. 951, citing Greenlight
Sys., LLC v. Breckenfelder (N.D.Cal., June 28, 2021, No. 19-cv-
06658-EMC) 2021 WL 2651377 at p. *13, 2021 U.S.Dist. Lexis
120288 at p. *39.) So have other Courts of Appeal. These courts
have concluded that a violation is “ ‘knowing and intentional’ ”
if the employer is aware of the “ ‘ “factual predicate” ’ ”
underlying the violation — for instance, that it has not reported
certain information on an employee’s wage statement —
regardless of whether the employer believes in good faith that it
has complied with the law. (Furry v. East Bay Publishing, LLC
(2018) 30 Cal.App.5th 1072, 1085 (Furry); Kao v. Holiday (2017)
12 Cal.App.5th 947, 961–962 (Kao); Gola v. University of San
Francisco (2023) 90 Cal.App.5th 548 (Gola).)1
We granted Naranjo’s petition for review to resolve the
conflict.
II.
A.
The wage statement statute, section 226, was added to the
Labor Code in 1943. (Stats. 1943, ch. 1027, § 1, p. 2965.) In its
1 The Court of Appeal in this case distinguished Furry and
Kao on the ground that those cases had rejected a defense to
section 226 penalties when employers argue ignorance of the
law, whereas here Spectrum argues that it believed in good faith
that it was complying with the law. (Naranjo IV, supra, 88
Cal.App.5th at p. 951, fn. 7.) This distinction appears to rest on
a misreading of Furry and Kao, both of which clearly reject a
good faith (and not merely ignorance-based) defense.
The decision in Gola, supra, 90 Cal.App.5th 548, issued
after the Court of Appeal’s decision in this case. It expressly
considered and rejected the Court of Appeal’s decision, instead
siding with Furry and Kao. (Id. at pp. 566–567.)
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original form, section 226 simply required employers to provide
an itemized statement of deductions from wages. Section 226
has since been amended numerous times. The statute currently
in force contains detailed requirements for the content of wage
statements, including requirements to report an employee’s
hours worked, wages earned, hourly rates, and employer - and
employee-identifying information. (§ 226, subd. (a).)
As initially enacted, the statute contained no express
specification of remedies available to private plaintiffs. At first,
enforcement of the provision was left to the DLSE under its
general authorization to enforce labor laws. (See Lab. Code,
§ 95.) But in 1976, the Legislature added the provision at issue
in this case, prescribing statutory penalties for knowing and
intentional violations. (Stats. 1976, ch. 832, § 1, pp. 1899–1900;
see Murphy v. Kenneth Cole Productions, Inc. (2007) 40 Cal.4th
1094, 1108 [“In section 226, the Legislature imposed a penalty
on employers who fail to provide itemized wage statements that
comply with the Labor Code. (§ 226, subd. (e) [$50 for initial
violation, $100 for subsequent violations].)”].) That provision,
as amended, now provides: “An employee suffering injury as a
result of a knowing and intentional failure by an employer to
comply with subdivision (a) [requiring provision of wage
statements containing specified information] is entitled to
recover the greater of all actual damages or fifty dollars ($50)
for the initial pay period in which a violation occurs and one
hundred dollars ($100) per employee for each violation in a
subsequent pay period, not to exceed an aggregate penalty of
four thousand dollars ($4,000), and is entitled to an award of
costs and reasonable attorney’s fees.” (§ 226, subd. (e)(1).) (To
“suffer injury” within the meaning of this provision is not quite
what it sounds like; an employee is deemed to be injured if the
10
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Opinion of the Court by Kruger, J.
employer either fails to provide any wage statement or if it
provides a wage statement that fails to provide “accurate and
complete information” about certain items such that the
employee “cannot promptly and easily determine from the wage
statement alone” certain specified wage-related information.
(Id., subd. (e)(2)(A), (B).))
In 1984, the Legislature added another enforcement
provision, Labor Code section 226.6, that makes the knowing
and intentional violation of section 226 a misdemeanor offense:
“Any employer who knowingly and intentionally violates the
provisions of Section 226, or any officer, agent, employee,
fiduciary, or other person who has the control, receipt, custody,
or disposal of, or pays, the wages due any employee, and who
knowingly and intentionally participates or aids in the violation
of any provision of Section 226 is guilty of a misdemeanor” and
faces fines of up to $1,000, imprisonment of up to one year, or
both, “in addition to any other penalty provided by law.” (Lab.
Code, § 226.6, added by Stats. 1984, ch. 1490, § 3, p. 5218 and
amended by Stats. 2010, ch. 328, § 150.5, pp. 1718–1719.)
The statute does not define what constitutes a “knowing
and intentional” violation. But in 2012, the Legislature added a
provision specifying what a “knowing and intentional” violation
is not: “For purposes of this subdivision, a ‘knowing and
intentional failure’ does not include an isolated and
unintentional payroll error due to a clerical or inadvertent
mistake. In reviewing for compliance with this section, the
factfinder may consider as a relevant factor whether the
employer, prior to an alleged violation, has adopted and is in
compliance with a set of policies, procedures, and practices that
fully comply with this section.” (§ 226, subd. (e)(3), added by
Stats. 2012, ch. 843, § 1, p. 6629.)
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Opinion of the Court by Kruger, J.
Whether or not a violation is knowing and intentional, the
statute makes clear that “[a]n employee may also bring an
action for injunctive relief to ensure compliance with this
section, and is entitled to an award of costs and reasonable
attorney’s fees.” (§ 226, subd. (h), formerly subd. (g), added by
Stats. 2002, ch. 933, § 1, p. 5903.) This provision means that
any plaintiff who establishes a section 226 violation is entitled
to costs and attorney’s fees, as well as an injunction compelling
future compliance. The question before us concerns only the
circumstances under which a plaintiff is entitled to statutory
penalties in addition to these other forms of relief, based on a
“knowing and intentional failure by an employer to comply with
[section 226,] subdivision (a).” (§ 226, subd. (e)(1).)
B.
The question revolves around the mental element, or
scienter, specified in section 226’s penalty provision: What must
be shown to demonstrate “a knowing and intentional failure by
an employer to comply with [section 226,] subdivision (a)” (§ 226,
subd. (e)(1))? The Courts of Appeal and federal district courts
that have addressed this issue have taken two divergent
approaches, as do the parties now before us. Under the
approach that Naranjo advocates, courts determine whether an
employer’s failure to comply with wage statement requirements
was knowing and intentional by asking whether the employer
was aware of the “factual predicate” constituting the violation.
Under this test, a failure to comply with section 226 is knowing
and intentional if the employer was aware of the underlying
facts giving rise to its violation of section 226, subdivision (a)
and the violation was not the product of a clerical error or
inadvertent mistake. (See, e.g., Gola, supra, 90 Cal.App.5th at
p. 566, citing Furry, supra, 30 Cal.App.5th at p. 1085, and Kao,
12
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Opinion of the Court by Kruger, J.
supra, 12 Cal.App.5th at pp. 961–962.) Here, according to
Naranjo, Spectrum’s failures to comply with section 226 were
knowing and intentional because Spectrum knew that it did not
provide guards with off-duty meal breaks, that it did not pay
meal premiums for missed breaks, and that it did not report
missed breaks and unpaid meal premiums on wage statements.
It is irrelevant, in Naranjo’s view, whether Spectrum knew or
should have known that the law required it to do any of these
things.
Spectrum, for its part, argues that the plain meaning of
the phrase “knowing and intentional failure to comply” requires
a showing that the employer knew that it was required to
include certain information in wage statements — here, unpaid
premium pay for missed meal breaks — and nevertheless
intentionally omitted that information from the wage
statements that it provided. Spectrum argues that it is not
liable for penalties under that provision because it had a
reasonable, good faith basis for believing (1) that it did not owe
its guards premium pay for missed breaks and (2) that it was
not, in any event, obligated to report missed-break premium pay
on wage statements. Both of these questions were ultimately
decided against Spectrum after years of litigation, but Spectrum
contends penalties are not warranted because it had a
reasonable basis at the time for believing the law was otherwise.
In everyday life and in the law both, the word “knowing”
is generally used to mean “done with awareness or
deliberateness” or “intentional.” (Webster’s 3d New Internat.
Dict. (2002) p. 1252; see also Black’s Law Dict. (4th rev. ed.
1968) p. 1012, col. 1 [defining “knowingly” as “[w]ith knowledge;
consciously; intelligently; willfully; intentionally”].) The word
“intentional,” for its part, generally means “done by intention,”
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which “simply indicates what one proposes to do or accomplish.”
(Webster’s 3d New Internat. Dict., supra, p. 1176; see also
Black’s Law Dict., supra, p. 947, col. 2 [defining “intent” as
“[d]esign, resolve, or determination with which person acts”;
“purpose to use particular means to effect certain result”; “the
exercise of intelligent will, the mind being fully aware of the
nature and consequences of the act which is about to be done,
and with such knowledge, and with full liberty of action, willing
and electing to do it”]; id. at p. 948, col. 1 [similarly defining
“intention” as “[d]etermination to act in a certain way or to do a
certain thing”; “[m]eaning; will; purpose; design”].) Both
parties’ arguments understand the terms in these generally
accepted senses. The critical debate between them concerns not
so much what the terms “knowing” and “intentional” mean, but
what the terms modify. That is to say, what, precisely, must be
done knowingly and intentionally: violating the law, or the acts
or omissions constituting the violation?
On its face, the statute might appear to answer the
question: It is the “failure to comply” with the law that must be
knowing and intentional — not simply the act of issuing a wage
statement that omits certain information that the law, properly
interpreted, requires to be included. The wording of the penalty
provision, which connects the employer’s culpable state of mind
to a violation of the law, is reasonably read to excuse intentional
acts or omissions that are based on a reasonable, good faith
mistake about what compliance with the law requires. (See,
e.g., Safeco Ins. Co. of America v. Burr (2007) 551 U.S. 47, 68–
70 [the phrase “willfully fails to comply with any requirement
imposed under this subchapter” (15 U.S.C. § 1681n(a)) in the
federal Fair Credit Reporting Act applies where the defendant
either knew it was violating the statute or showed reckless
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disregard for whether it was in compliance]; McLaughlin v.
Richland Shoe Co. (1988) 486 U.S. 128, 129 [same, for the
phrase “ ‘arising out of a willful violation’ ” in the Fair Labor
Standards Act]; Trans World Airlines, Inc. v. Thurston (1985)
469 U.S. 111, 125 (Thurston) [same, for the damages provision
in the Age Discrimination in Employment Act (ADEA), which
applies “ ‘only in cases of willful violations’ ”]; see also Rehaif v.
United States (2019) 588 U.S. ___ [139 S.Ct. 2191, 2200] (Rehaif)
[sentencing provision applicable to anyone who “knowingly
violates” (18 U.S.C. § 924(a)(2)) the federal prohibition on
firearm possession by convicted felons and other legally
prohibited persons requires proof “both that the defendant knew
he possessed a firearm and that he knew he belonged to the
relevant category of persons barred from possessing a firearm”];
Liparota v. United States (1985) 471 U.S. 419, 428 (Liparota)
[prohibition on use of food stamps “ ‘knowing [them] to have
been received . . . in violation of’ ” federal law requires that the
defendant knew of the illegality].)2
Naranjo’s contrary understanding is also reasonable,
however. There is no hard-and-fast rule that any mental state
requirement deployed in connection with the words “failure to
comply” or “violation” necessarily connotes a requirement that
2 Throughout this opinion, we refer to interpretations of
mens rea terms in criminal statutes, as well as in civil statutes,
to illustrate certain general propositions. The specific question
before us, however, concerns only the availability of civil
penalties in the Labor Code. We do not suggest that cases
elaborating mens rea principles in the criminal context are
necessarily determinative in the interpretation of civil
provisions like the one before us. Nor, certainly, is our
discussion intended to upset settled interpretations of criminal
mens rea provisions.
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the defendant appreciate the illegality of what it has done or
failed to do.3 (See Jerman v. Carlisle, McNellie, Rini, Kramer &
Ulrich L.P.A. (2010) 559 U.S. 573, 585 (Jerman); id. at pp. 582–
583 [federal Fair Debt Collection Practices Act defense for a debt
collector who can show its “violation was not intentional and
resulted from a bona fide error notwithstanding the
maintenance of procedures reasonably adapted to avoid any
such error” (15 U.S.C. § 1692k(c)) applies to mistakes of fact, but
not mistakes about what the law requires]; see also, e.g., Bryan
v. United States (1998) 524 U.S. 184, 193 [in the context of a
criminal statute, “unless the text of the statute dictates a
different result, the term ‘knowingly’ merely requires proof of
knowledge of the facts that constitute the offense” (fn.
omitted)].) Ultimately the issue here cannot be decided based
on the plain text, read in isolation, but on careful construction
of the words of the penalty provision “in their particular
statutory context.” (Jerman, at p. 585.)
Two features of this context are particularly relevant here,
and lead us to conclude that section 226, subdivision (e)(1) is
best read to allow for a defense based on good faith belief in
compliance. First, the operative “knowing and intentional”
language does not appear in a liability provision, but in a
penalty provision. In other words, the purpose of asking
3 To be clear, neither is there a hard-and-fast rule that any
mental state requirement deployed in connection with the
description of a particular act necessarily precludes
consideration of whether the defendant appreciates the
illegality of the conduct. Our decision in In re Trombley, supra,
31 Cal.2d 801 (Trombley), discussed below, is a case in point.
(See id. at p. 808 [criminal statute punishing “willful” failure to
pay wages is inapplicable where the defendant disputes in good
faith that wages are due].)
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whether the employer has knowingly and intentionally failed to
comply with the requirements of section 226 is not to determine
whether or not the employer has, in fact, violated the statute.
There is no doubt that an employer who issues incomplete wage
statements is not complying with the statute, and an employee
who can so demonstrate in court is entitled to remedies
consisting of injunctive relief, costs, and reasonable attorney’s
fees. (§ 226, subd. (h).) The question is only whether the
employee is also entitled to an additional monetary remedy in
the nature of penalties for knowing and intentional
noncompliance.
As a general rule, “courts refuse to impose civil penalties
against a party who acted with a good faith and reasonable
belief in the legality of his or her actions.” (Lusardi Construction
Co. v. Aubry (1992) 1 Cal.4th 976, 996–997 [addressing civil
penalties for violations of the prevailing wage statute for
employees working on public work projects (Lab. Code, § 1775),
citing Whaler’s Village Club v. California Coastal Com. (1985)
173 Cal.App.3d 240, 263, and No Oil, Inc. v. Occidental
Petroleum Corp. (1975) 50 Cal.App.3d 8, 30].) If an injured party
is fully compensated, penalties will generally not be imposed
unless “there has been a grossly negligent, willful or fraudulent
breach of a duty.” (Lusardi, at p. 996.) Much like punitive
damages, civil penalties are frequently aimed at some “ ‘positive
element of conscious wrongdoing’ ” or bad faith. (Kolstad v.
American Dental Assn. (1999) 527 U.S. 526, 538 (Kolstad),
quoting McCormick, Law of Damages (1935) § 79, p. 280; cf.
Halo Electronics, Inc. v. Pulse Electronics, Inc. (2016) 579 U.S.
93, 105 [“The subjective willfulness of a patent infringer,
intentional or knowing, may warrant enhanced damages”];
Thurston, supra, 469 U.S. at p. 125 [liquidated damages, which
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are “punitive in nature,” are imposed “ ‘only in cases of willful
violations’ ” of the ADEA].)
That is because the purpose of imposing civil penalties is
typically, as with punitive damages, not primarily to
compensate, but to deter and punish. (See, e.g., Kwan v.
Mercedes-Benz of North America, Inc. (1994) 23 Cal.App.4th
174, 184 [stating that civil penalties under the Song-Beverly
Consumer Warranty Act, “like other civil penalties, [are]
imposed as punishment or deterrence of the defendant, rather
than to compensate the plaintiff”]; Troensegaard v. Silvercrest
Industries, Inc. (1985) 175 Cal.App.3d 218, 226–228 [agreeing
with the defendant that awarding punitive damages in addition
to civil penalties constitutes improper double punishment
because the two remedies serve similar functions].) Those who
proceed on a reasonable, good faith belief that they have
conformed their conduct to the law’s requirements do not need
to be deterred from repeating their mistake, nor do they reflect
the sort of disregard of the requirements of the law and respect
for others’ rights that penalty provisions are frequently designed
to punish. (See, e.g., People v. Nunn (1956) 46 Cal.2d 460, 468
[“ ‘good faith’ ” is “ordinarily used to describe that state of mind
denoting honesty of purpose, freedom from intention to defraud,
and, generally speaking, means being faithful to one’s duty or
obligation”]; see also Pugh v. See’s Candies, Inc. (1988) 203
Cal.App.3d 743, 764 [quoting approvingly Merriam-Webster’s
similar definition of “good faith” as, inter alia, “ ‘a state of mind
indicating honesty and lawfulness of purpose: . . . belief that
one’s conduct is not unconscionable . . . absence of fraud, deceit,
collusion, or gross negligence’ ”].)
That section 226, subdivision (e)(1)’s “knowing and
intentional” requirement defines a condition for imposing
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penalties, not finding liability, distinguishes this case from a
case like Jerman. That case concerned whether a defendant
could be held liable but not, as here, how the defendant is to be
held liable. (See Jerman, supra, 559 U.S. at pp. 581–583; 15
U.S.C. § 1692k(c) [“A debt collector may not be held liable in any
action brought under this subchapter if the debt collector shows
by a preponderance of evidence that the violation was not
intentional” (italics added)].)
This case more closely resembles cases like Thurston,
supra, 469 U.S. 111, in which the high court concluded that, to
be responsible for liquidated damages based on a “ ‘willful’ ”
violation of the ADEA, the defendant must know that its
conduct violates the ADEA or else act in reckless disregard of
that law (id. at pp. 125, 128–129), or Kolstad, supra, 527 U.S.
526, in which the court held that a punitive damages provision
applicable when the employer violated federal
antidiscrimination law “with ‘malice or with reckless
indifference to the [employee’s] federally protected rights’ ”
trains attention on “the employer’s knowledge that it may be
acting in violation of federal law, not its awareness that it is
engaging in discrimination” (id. at p. 535, italics omitted). Any
employer that fails to comply with section 226 can be the subject
of a DLSE enforcement action under Labor Code section 95 or a
private suit for injunctive relief under section 226, subdivision
(h), regardless of whether its noncompliance is “knowing and
intentional.” Statutory penalties under section 226, subdivision
(e)(1), on the other hand, only come into play when the employer
not only fails to comply, but does so knowingly and intentionally.
When a statute imposes a two-tier remedial structure, with
steeper penalties based on the employer having knowingly and
intentionally violated the law, it is reasonable to infer that the
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Legislature intended for the provision to target those who
knowingly and intentionally flout the wage statement law, and
not those who have made good faith mistakes about what the
law requires. 4
The second, and equally critical, contextual consideration
concerns the relationship between section 226 and other
provisions of the Labor Code. Section 226 wage statement
violations may be raised as freestanding claims. But as this case
illustrates, they are more typically raised as derivative claims
of other Labor Code claims concerning rates of pay and the
wages owed for labor — i.e., the substance of the transactions
that section 226 requires to be documented on an itemized
statement furnished to the employee. Employees will often
argue that an employer failed to pay them certain amounts to
which they were entitled — missed-break premium pay or
overtime, for instance — and on that basis will allege both
claims for failure to promptly pay wages under section 203 and,
relatedly, failure to report wages earned under section 226.
What this means in practice is that an employer’s good faith
4 Misdemeanor liability for wage statement violations
similarly attaches only when an employer “knowingly and
intentionally violates the provisions of Section 226.” (Lab. Code,
§ 226.6.) Naranjo makes no effort to distinguish this provision
governing criminal liability from section 226, subdivision (e)(1).
Indeed, Naranjo’s counsel conceded at oral argument that
adopting his position would spell potential criminal liability for
employers that fail to comply with wage statement
requirements based on a reasonable, good faith
misunderstanding of their obligations. We do not address that
question here, except to observe that it seems likewise unlikely
that the Legislature intended to prescribe criminal punishment
for employers that make good faith mistakes about the
requirements of the wage statement law.
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mistake about whether certain amounts are owed to a particular
employee will frequently give rise to at least two different causes
of action and associated remedies. In Naranjo III, we dispelled
any doubt there might have been about the permissibility of
bringing this sort of derivative wage statement claim when we
explained that the wage statement requirements apply to
amounts earned, even if those amounts were not paid because of
confusion over whether the amounts were owed in the first
place. (See Naranjo III, supra, 13 Cal.5th at p. 121.)
Because claims for failure to make timely payment of
wages and failure to report wages earned so often go hand in
hand, it is useful to compare the timely payment cause of action
and the remedies it makes available. Much like section 226,
subdivision (e)(1), the timely payment provisions contain
penalties for late payment based on a heightened mental state
requirement: “If an employer willfully fails to pay, without
abatement or reduction, . . . any wages of an employee who is
discharged or who quits, the wages of the employee shall
continue as a penalty from the due date thereof at the same rate
until paid or until an action therefor is commenced” for a
maximum of 30 days. (§ 203, subd. (a), italics added.)
This penalty provision was enacted in 1937. (Stats. 1937,
ch. 90, § 203, p. 197.) In the decades that have passed since, the
authorities have uniformly recognized a good faith defense to
section 203 “waiting time” penalties. The Court of Appeal
gestured to such a defense in Davis v. Morris (1940) 37
Cal.App.2d 269, in which the members of a mining partnership
appealed an award of waiting time penalties against them on
the ground that “the failure to pay the wages was not ‘wilful’
since, in good faith, [they] believed they were not due to the
[plaintiff] who contributed his services as a member of the
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partnership.” (Id. at p. 271.) The court rejected the members’
argument based on the evidence, without questioning the
premise that a good faith belief that wages were not owed to the
plaintiff would preclude an award of penalties: “It was the sole
province of the trial court to determine whether the defendants
were in good faith in claiming that wages were not due because
the plaintiff contributed his services as a member of the
partnership.” (Id. at p. 274.)
In 1948, this court construed Labor Code section 216,
subdivision (a), which makes it a misdemeanor to “willfully
refuse[] to pay wages due and payable after demand has been
made,” to incorporate a good faith defense. There, citing Davis,
we held that this provision does not “make the mere failure to
pay wages a crime, nor does it subject an employer to
imprisonment who disputes in good faith an employee’s claim
for wages.” (Trombley, supra, 31 Cal.2d at p. 808.) We noted
that “[a] similar construction was placed on section 203 of the
Labor Code which imposes penalties where an employer
‘willfully fails to pay . . . wages of an employee who is discharged
or who quits.’ In interpreting that section, it was recognized
that a dispute in good faith as to whether any wages were due
would be a defense to an action for such penalties. (Davis v.
Morris, [supra,] 37 Cal.App.2d 269 [99 P.2d 345].)” (Trombley,
at p. 808.) In sum, we explained, Labor Code section 216 “makes
it a crime for an employer having the ability to pay, knowingly
and intentionally to refuse to pay wages which he knows are
due.” (Trombley, at pp. 807–808.)
Some decades later, the court in Barnhill, supra, 125
Cal.App.3d 1, also followed the suggestion in Davis in
recognizing a good faith defense to section 203 penalties. But in
Barnhill, unlike Davis, the defense succeeded. The employer in
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Barnhill had withheld an employee’s wages as a “setoff” to a
debt that the employee owed the employer. (Barnhill, at p. 8.)
Whether such withholding was unlawful was an unsettled
question of law, as an equitable defense based on the setoff
doctrine was plausible and “several Courts of Appeal had
expressed the view that setoffs against employees’ wages were
proper.” (Ibid.) Given the legal uncertainty, the Barnhill court
concluded that “appellant should not be penalized for believing
that setoff was proper and payment of wages not required” and
its “attempt to exercise a right to setoff was not wilful
nonpayment of wages.” (Ibid.) Because the employer had acted
in good faith, it had not acted willfully, and section 203 penalties
were not appropriate even though the employer was ultimately
mistaken about the lawfulness of its actions.
The rule of Barnhill has since been codified in DLSE
regulations, which provide, in pertinent part: “A willful failure
to pay wages within the meaning of Labor Code Section 203
occurs when an employer intentionally fails to pay wages to an
employee when those wages are due. However, a good faith
dispute that any wages are due will preclude imposition of
waiting time penalties under Section 203.” (Cal. Code Regs., tit.
8, § 13520.) Courts have likewise uniformly recognized a good
faith defense to penalties under section 203. (See, e.g., Amaral
v. Cintas Corp. No. 2 (2008) 163 Cal.App.4th 1157, 1204
(Amaral) [“So long as no other evidence suggests the employer
acted in bad faith, presentation of a good faith defense, based in
law or fact, will negate a finding of willfulness”]; Diaz v. Grill
Concepts Services, Inc. (2018) 23 Cal.App.5th 859, 868 (Diaz)
[relying on Trombley, Barnhill, and Amaral as setting the
standards for willfulness and good faith but affirming the trial
court’s rejection of a good faith defense based on unexcused
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ignorance of the law]; see also Choate v. Celite Corp. (2013) 215
Cal.App.4th 1460, 1468 [“an employer’s reasonable, good faith
belief that wages are not owed may negate a finding of
willfulness”]; Nordstrom Com. Cases (2010) 186 Cal.App.4th
576, 584 [“There is no willful failure to pay wages if the employer
and employee have a good faith dispute as to whether and when
the wages were due”]; Armenta v. Osmose, Inc. (2005) 135
Cal.App.4th 314, 325 [“A good faith belief in a legal defense will
preclude a finding of willfulness”]; Road Sprinkler Fitters Local
Union No. 669 v. G & G Fire Sprinklers, Inc. (2002) 102
Cal.App.4th 765, 782 [“An employer’s good faith mistaken belief
. . . may negate a finding of willfulness”].)
The parties dispute whether “knowing and intentional”
connotes a materially different standard from “willful.” There
is some authority to support Naranjo’s theory that the two
mental state standards carry different presumptions about good
faith mistakes about the law. (See, e.g., Jerman, supra, 559 U.S.
at pp. 584–585.) But the most pertinent California case,
Trombley, did not draw such a distinction, instead using the
terms interchangeably: Though Labor Code section 216 speaks
of a “willful” failure to pay wages, we understood that provision
to punish an employer who, “having the ability to pay,
knowingly and intentionally to refuse to pay wages which he
knows are due.” (Trombley, supra, 31 Cal.2d at pp. 807–808,
italics added.) Before Trombley, other California authority had
likewise recognized that “willfully” can denote a culpable mental
state closely akin to knowledge and intent. 5 And several
5 In 1898, for instance, this court interpreted “ ‘willfully’ ” in
a perjury statute as requiring proof that the defendant made a
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provisions of the Labor Code not at issue here appear to reflect
this long-established understanding that the terms “knowing,”
“intentional,” and “willful” (and their adverbial forms) can be
used interchangeably. 6
statement “with the consciousness that he did not know that it
was true, and with the intent that it should be received as a
statement of what was true in fact.” (People v. Von Tiedeman
(1898) 120 Cal. 128, 135.) Early civil appellate cases show a
similar understanding of “willfully” at work. In a number of
insurance cases, the Court of Appeal concluded that, to void an
insurance policy, an insured’s inaccurate statement must be
“willfully false” — that is, “must have been knowingly and
intentionally made by the insured with knowledge of its falsity
and with the intention of defrauding the company.” (Miller v.
Fireman’s Fund Ins. Co. (1907) 6 Cal.App. 395, 398; accord,
Pedrotti v. American Nat. Fire Ins. Co., etc. (1928) 90 Cal.App.
668, 671; Shaw v. Imperial Mut. L. & B. Assn. (1935) 4
Cal.App.2d 534, 537–538.) More generally, doing an act
“willfully” has long been understood as doing it deliberately or
by an affirmative, conscious choice: As the Court of Appeal put
it over a century ago, the term “ ‘willful,’ as ordinarily used in
courts of law [means] merely that the thing done or omitted to
be done was done or omitted intentionally,” and “[i]t amounts to
nothing more than this: That the person knows what he is
doing, intends to do what he is doing, and is a free agent.” (May
v. New York M. Picture Corp. (1920) 45 Cal.App. 396, 404, citing
Benkert v. Benkert (1867) 32 Cal. 467, 470 [explaining that
“wilful” ordinarily means “intentional”] and Towle v. Matheus
(1900) 130 Cal. 574, 577 [same].)
6 Labor Code section 210, for example, provides penalties
for violations of statutes that dictate when employees are to be
paid. For initial violations, the penalty is $100 “for each failure
to pay each employee.” (Lab. Code, § 210, subd. (a)(1).) But for
“any willful or intentional violation,” the penalty is $200 “for
each failure to pay each employee, plus 25 percent of the amount
unlawfully withheld.” (Id., subd. (a)(2), italics added; see also
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Moreover, while Labor Code sections 203 and 216 speak of
the willful failure to pay, section 226, subdivision (e)(1) speaks
of the knowing and intentional failure to comply with the law.
This choice reinforces the conclusion that section 226’s penalty
provision was designed to capture a concept similar to the one
we articulated Trombley — that is, to avoid penalizing an
employer who reasonably and in good faith disputes that it is
required to report certain amounts as wages or otherwise
disputes its obligation to craft its wage statements in a
particular manner.
As a practical matter, because employees so often bring
claims for violations of section 203 and section 226 that derive
from the same primary violations of the Labor Code, the two
penalty provisions are best read in a manner that harmonizes
them rather than one that sets them at cross-purposes.
(Kavanaugh v. West Sonoma County Union High School Dist.
(2003) 29 Cal.4th 911, 919 [“a statute should be interpreted
‘ “with reference to the whole system of law of which it is a part
so that all may be harmonized and have effect,” ’ ” quoting Select
Base Materials v. Board of Equal. (1959) 51 Cal.2d 640, 645].) If
id., § 225.5, subd. (b) [similar penalties for “any willful or
intentional violation”].) Labor Code section 6311.5, which
imposes misdemeanor liability on anyone “who, after receiving
notice to evacuate or leave, willfully and knowingly directs an
employee to remain in, or enter, an area closed due to a menace
to the public health or safety,” links “willful” with “knowing.”
(Lab. Code, § 6311.5, subd. (a)(1), italics added; see also id.,
§§ 1695.7, subd. (c)(3) [“knowingly and willfully”; misdemeanor
provision], 6396, subd. (c) [same].) These examples suggest that
“knowing,” “intentional,” and “willful” are used interchangeably
in the Labor Code to denote a culpable mental state that
warrants imposing harsher remedies such as steeper penalties
and misdemeanor liability.
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anything, as a number of federal district courts have observed,
the case may be stronger for withholding penalties for
inadequate wage statements when the employer demonstrates
a good faith belief in its conduct’s legality, as “ ‘failure to pay
wages would seem to warrant lesser tolerance of defenses than
failing to provide accurate wage statements.’ ” (Oman II, supra,
610 F.Supp.3d at p. 1275, quoting Woods v. Vector Mktg. Corp.
(N.D.Cal., May 22, 2015, No. C-14-0264 EMC) 2015 WL 2453202
at p. *4, fn. 3.) We see no sound reason why the Legislature
would have wished to withhold penalties for nonpayment of
wages when an employer “disputes in good faith an employee’s
claim for wages” (Trombley, supra, 31 Cal.2d at p. 808), and yet
would have wished to impose penalties for failing to document
those same earned but unpaid wages on an itemized wage
statement. 7 The most logical inference to draw from the
7 We are not persuaded by Naranjo’s suggestion that this
asymmetrical treatment would make sense because “all other
remunerative sections of the labor code and wage orders depend
on” compliance with section 226. Certainly section 226 serves
an important purpose, “which is ‘to ensure an employer
“document[s] the basis of the employee compensation payments”
to assist the employee in determining whether he or she has
been compensated properly.’ ” (Oman v. Delta Air Lines, Inc.
(2020) 9 Cal.5th 762, 775 (Oman I), quoting Soto v. Motel 6
Operating, L.P. (2016) 4 Cal.App.5th 385, 390 (Soto).) But an
employer’s payment of employees’ wages does not depend in any
relevant sense on the issuance of compliant wage statements.
And as we have repeatedly observed, it is ultimately the full and
prompt payment of wages that is of overriding importance. (See,
e.g., Oman I, at p. 777 [“ ‘ “ ‘Delay of payment or loss of wages
results in deprivation of the necessities of life, suffering inability
to meet just obligations to others, and, in many cases may make
the wage-earner a charge upon the public’ ” ’ ” (quoting Smith v.
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wording of section 226, subdivision (e)(1), read in its broader
statutory context, is that the Labor Code considers an
employer’s good faith a defense to penalties for nonpayment and
nonreporting alike.
Naranjo raises two primary objections to this conclusion.
The first is that to permit an employer’s good faith belief that it
was in compliance to defeat a claim of penalties would run
counter to the age-old legal maxim “ignorance of the law is no
excuse.” (See, e.g., Novoa v. Charter Communications, LLC
(E.D.Cal. 2015) 100 F.Supp.3d 1013, 1028 [invoking the maxim
to reject the good faith defense]; see also Cabardo v. Patacsil
(E.D.Cal. 2017) 248 F.Supp.3d 1002, 1010 [adopting Novoa’s
reasoning]; Kao, supra, 12 Cal.App.5th at p. 962 [same]; Furry,
supra, 30 Cal.App.5th at p. 1085 [following Kao and Cabardo].)
This maxim reflects a principle that is deeply rooted in the
law. It explains why, for example, in an ordinary criminal
prosecution, the state must prove only that the defendant knew
or intended his criminal actions, and need not take on the
additional burden of proving the defendant understood the
illegality of those actions. (See Stark v. Superior Court (2011)
52 Cal.4th 368, 397 [in a prosecution for bigamy, for example,
“the defendant must know that he is marrying and that he is
already married to another,” but “[t]he defendant need not know
his conduct is illegal”].) But this venerable principle, stated
categorically as it often is, nonetheless has well-understood
exceptions. The law sometimes does make the consequences of
Superior Court (2006) 39 Cal.4th 77, 82)]; see also Voris v.
Lampert (2019) 7 Cal.5th 1141, 1148 [“prompt and complete
wage payments are of critical importance to the well-being of
workers, their families, and the public at large”].)
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a person’s actions depend on the person’s understanding of the
governing law. We have observed, for instance, that where
“violation of a penal statute is premised on the violator’s
harboring a particular mental state with respect to the nonpenal
legal status of a person, thing, or action,” it is “ ‘firmly
established’ ” that an offense’s requirement of “ ‘any special
mental element, such as that the prohibited act be committed
knowingly, fraudulently, corruptly, maliciously or wilfully’ ” will
not be met if “ ‘some mistake of nonpenal law’ ” precluded the
defendant from forming the requisite mens rea. (People v.
Hagen (1998) 19 Cal.4th 652, 661, fn. 4, italics omitted.) The
high court has similarly concluded that “the maxim [that
ignorance or mistakes of law are not excuses] does not normally
apply where a defendant ‘has a mistaken impression concerning
the legal effect of some collateral matter and that mistake
results in his misunderstanding the full significance of his
conduct,’ thereby negating an element of the offense.” (Rehaif,
supra, 588 U.S. at p. ___ [139 S.Ct. at p. 2198].) A penal statute
specifying that the defendant is liable if he or she “knowingly
violates” (18 U.S.C. § 924(a)(2)) one or more listed legal
provisions therefore does not make criminally liable the
defendant who is unaware of the legal conditions that make his
conduct unlawful. (Rehaif, at pp. 2199–2200; see also Liparota,
supra, 471 U.S. at p. 433 [holding that a statute imposing
criminal liability on “whoever knowingly uses, transfers,
acquires, alters, or possesses” food stamps “in any manner” not
authorized by law, 7 U.S.C. § 2024(b)(1), required proof “that the
defendant knew that his acquisition or possession of food stamps
was . . . unauthorized”].) When laws are specifically aimed at
conduct that has been undertaken with disrespect or disregard
for the governing law, it follows that the law will exempt
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unwitting violations — “despite the legal cliche ‘ignorance of the
law is no excuse.’ ” (Flores-Figueroa v. United States (2009) 556
U.S. 646, 652.)8
Naranjo’s second objection rests on section 226,
subdivision (e)(3), which states that “a ‘knowing and intentional
failure’ does not include an isolated and unintentional payroll
error due to a clerical or inadvertent mistake.” Naranjo adopts
the reasoning of certain courts that have read this language,
which was added in 2012, as an exhaustive statement of what is
not “knowing and intentional.” As the Gola court put it, the
addition of subdivision (e)(3) shows “that the Legislature
intended to exclude only truly errant or mistaken violations
from the reach of section 226’s penalty provisions, not competing
legal interpretations.” (Gola, supra, 90 Cal.App.5th at p. 566;
see also Furry, supra, 30 Cal.App.5th at p. 1085 [holding that
the employer had not presented a viable defense because it
conceded that the wage statements were deficient in the manner
alleged by the employee and did not “contend that the requisite
information was omitted due to a clerical or inadvertent
mistake”].) At the outset, the parties disagree about whether
subdivision (e)(3) is applicable at all in this case, since it was not
enacted until 2012 — years after the events relevant to the
penalty issue in this case, which occurred between June 2004
and September 2007. We need not resolve this dispute; whether
8 We speak here, of course, solely of the penalty provision in
section 226, subdivision (e)(1). As we have already explained,
even unwitting violations of the wage statement law can be
pursued in a DLSE enforcement action or a private suit seeking
injunctive relief and an award of costs and attorney’s fees.
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subdivision (e)(3) applies retroactively or not, it does not alter
the analysis.
Naranjo’s argument to the contrary rests on a misreading
of section 226, subdivision (e)(3). That provision does not
purport to set out a comprehensive definition of what “knowing
and intentional” means. It merely states one thing that
“knowing and intentional” does not mean: “a ‘knowing and
intentional failure’ does not include an isolated and
unintentional payroll error due to a clerical or inadvertent
mistake.” (§ 226, subd. (e)(3), italics added.) It does not follow
from this that a failure to comply is knowing and intentional
unless it stems from an isolated payroll error. As a general
matter, statements about what a statutory term does or does not
include should be read as illustrative rather than exhaustive.
(See Garner’s Dict. of Legal Usage (3d ed. 2011) p. 439
[“including” “should not be used to introduce an exhaustive list,
for it implies that the list is only partial”], citing Puerto Rico
Maritime Shipping Auth. v. I.C.C. (D.C. Cir. 1981) 645 F.2d
1102, 1112, fn. 26 [“It is hornbook law that the use of the word
‘including’ indicates that the specified list of carriers that follows
is illustrative, not exclusive”]; see also Ornelas v. Randolph
(1993) 4 Cal.4th 1095, 1101 [“ ‘includes’ [is] ordinarily a term of
enlargement rather than limitation”].) More importantly, to
read the provision in this manner would set the wage statement
law at odds with itself. Not every wage statement violation
depends on a payroll error (isolated or not). For all those wage
statement violations that depend on some other sort of error —
say, a factual mistake about whether a particular employee is
based in California and is thus entitled to a wage statement that
complies with California law (compare Ward v. United Airlines,
Inc. (2020) 9 Cal.5th 732, 760 [“Section 226 applies to wage
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statements provided by an employer if the employee’s principal
place of work is in California”] with Oman I, supra, 9 Cal.5th at
p. 776 [“non-California-based” employees are not entitled to
wage statements that comply with California requirements]) —
the effect of Naranjo’s reading of the 2012 amendment would be
to read the “knowing and intentional” requirement out of section
226, subdivision (e)(1). We presume this is not what the
Legislature intended when it added subdivision (e)(3) to the
statute. (See, e.g., California Cannabis Coalition v. City of
Upland (2017) 3 Cal.5th 924, 945 [invoking the “strong
presumption” against repeals by implication]; accord, Meza v.
Portfolio Recovery Associates, LLC (2019) 6 Cal.5th 844, 863 [we
expect the Legislature to speak clearly when it deviates from
established rules].)
As a variation on the same theme, Naranjo directs our
attention to the next sentence of subdivision (e)(3), which states:
“In reviewing for compliance with this section, the factfinder
may consider as a relevant factor whether the employer, prior to
an alleged violation, has adopted and is in compliance with a set
of policies, procedures, and practices that fully comply with this
section.” (§ 226, subd. (e)(3).) This provision does not help his
argument. Naranjo assumes the reference to policies and
procedures in this sentence refers to policies and procedures for
issuing itemized statements of hourly rates, hours worked, and
other required wage and employment-related information,
based on correct legal judgments about whether certain disputed
items fit into these categories. Even if Naranjo’s reading were
correct — a question we need not contend with here — this
sentence does nothing more than identify one, nonexclusive
factor for consideration in evaluating an employer’s compliance
with section 226. It does not purport to define the universe of
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matters a factfinder may take into account in deciding whether
a failure to comply with section 226 is knowing and intentional.
It thus does not undermine our conclusion that a court may also
take into account whether the employer’s failure to comply with
section 226’s requirements was the product of a reasonable, good
faith misunderstanding of those requirements and their proper
application. 9
9 Naranjo also invokes Labor Code section 226.3, which
states: “In enforcing this section, the Labor Commissioner shall
take into consideration whether the violation was inadvertent,
and in his or her discretion, may decide not to penalize an
employer for a first violation when that violation was due to a
clerical error or inadvertent mistake.” (Lab. Code, § 226.3
(section 226.3), added by Stats. 1979, ch. 1050, § 3, p. 3703 and
amended by Stats. 1992, ch. 424, § 1, p. 1554.) It is not entirely
clear how Naranjo thinks this provision helps his argument.
Naranjo appears to be relying less on this provision than on a
Court of Appeal decision he understands to have interpreted
“inadvertent,” in this context, to exclude good faith legal
mistakes. But the decision in question, Heritage Residential
Care, Inc. v. Division of Labor Standards Enforcement (2011)
192 Cal.App.4th 75, did not so hold; it instead simply held that
no such good faith defense had been made out under the
circumstances of the case, which involved misclassification of
employees as independent contractors. (See id. at p. 88.) In any
event, as case law makes clear, section 226.3 is sufficiently
different from section 226, subdivision (e)(1) that it would be
hazardous to draw any firm conclusions about the meaning of
one statute based on the other. (Cf. Raines v. Coastal Pacific
Food Distributors, Inc. (2018) 23 Cal.App.5th 667, 680 [“section
226.3 clearly does not include the knowing and intentional
requirement of section 226[, subd.] (e)”]; Gunther v. Alaska
Airlines, Inc. (2021) 72 Cal.App.5th 334, 354–355 [reading the
plain language of the statute to mean that section 226.3
penalties are available only where the employer fails to provide
wage statements or keep required records].)
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C.
To the extent any ambiguity remains, we may consult the
legislative history. (See, e.g., People v. Smith (2004) 32 Cal.4th
792, 797–798.) The parties vigorously dispute what lessons to
draw from that history. We do not find the history to be
particularly revealing, but what we can glean is consistent with
the view that section 226, subdivision (e)(1) was not meant to
punish good faith wage statement mistakes.
The history behind the 1976 enactment of the penalty
provision in section 226, subdivision (e)(1) is sparse and oblique.
The parties focus on just two pieces of correspondence related to
the passage of the legislation. First, in a letter to the Governor
supporting the bill, Alex Saldamando, counsel for bill sponsor
California Rural Legal Assistance, stated that “[t]here are a
number of employers, usually small growers, who
systematically refuse to give wage stub information to their
employees. A number simply pay in cash, or pay by check
without furnishing itemized statements. One grower operating
in Yuba County went as far as detaching the wage stub before
giving the employee the paycheck. Serious consequences for
employees can result. . . . The law should permit them to recoup
their losses from an employer who knowingly and intentionally
flaunts the law.” (Alex Saldamando, California Rural Legal
Assistance, letter to Governor Edmund G. Brown, Jr., Aug. 30,
1976, p. 1, italics added.) Saldamando also stated that employer
interests had dropped their opposition to the bill after “we
persuaded them that an employer who deliberately failed to
provide wage information should be liable for the consequences
of his or her act to an employee who had labored in good faith.”
(Ibid.)
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Second, in a different letter to the Governor, the bill’s
sponsor in the Legislature, Assemblyman Bill Lockyer, similarly
stated: “I was surprised to learn that some employers
consistently fail to provide [wage stub] information to their
workers. The sponsors of the bill, California Rural Legal
Assistance, informed me that some growers make a practice of
not providing an itemization of wages.” (Assemblyman Bill
Lockyer, sponsor of Assem. Bill No. 3731 (1975–1976 Reg.
Sess.), letter to Governor Edmund G. Brown, Jr., Sept. 2, 1976.)
These bits of legislative history are neither authoritative
nor definitive. But we have previously said that these sorts of
“statements about pending legislation are entitled to
consideration to the extent they constitute ‘a reiteration of
legislative discussion and events leading to adoption of proposed
amendments rather than merely an expression of personal
opinion.’ ” (Martin v. Szeto (2004) 32 Cal.4th 445, 450–451,
quoting California Teachers Assn. v. San Diego Community
College Dist. (1981) 28 Cal.3d 692, 700; cf. Cornette v.
Department of Transportation (2001) 26 Cal.4th 63, 72
[considering similar evidence when “the purpose of the
legislation was best explained by its author in a letter to the
Governor urging him to approve it”]; Larkin v. Workers’ Comp.
Appeals Bd. (2015) 62 Cal.4th 152, 164, fn. 10 [“While there are
often limits to what an interpreter may reasonably infer from
an individual legislator’s letter [citation], we have considered
letters expressing the views of a bill’s sponsor where those views
are fully consonant with the statutory language and the history
of the legislation”]; but see People v. Wade (2016) 63 Cal.4th 137,
143 [“ ‘[T]he statements of an individual legislator, including the
author of a bill, are generally not considered in construing a
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statute, as the court’s task is to ascertain the intent of the
Legislature as a whole in adopting a piece of legislation’ ”].)
Here, the statements suggest that the intent behind the
penalty provision was to punish those who knowingly and
intentionally flouted the law by “deliberately fail[ing] to provide
wage information” to their employees. The available legislative
history contains no suggestion that the Legislature intended for
the same provision to punish those who make good faith
mistakes about what the law requires.
D.
Naranjo raises concerns that excusing employers from
section 226 penalties based on good faith mistakes of law will
excuse and even incentivize ignorance of the law. These
concerns are unfounded.
As a general rule, where the law is clear and thus can
easily be ascertained, knowledge of the law may be fairly
imputed to an employer. (Cf., e.g., Marshall v. A & M
Consolidated Independent Sch. (5th Cir. 1979) 605 F.2d 186, 191
[“actual awareness of the law is unnecessary to establish
willfulness. Knowledge is imputed”].) Moreover, courts that
have evaluated employers’ good faith when determining
whether to award waiting time penalties under section 203 have
uniformly focused on whether the employers’ basis for disputing
liability was objectively reasonable. In Barnhill, for example,
the Court of Appeal emphasized the “uncertainty,” underscored
by conflicting case law, about whether an employer had the right
to set off an employee’s debt against wages due on separation.
(Barnhill, supra, 125 Cal.App.3d at p. 8.) More recently, the
Court of Appeal concluded that the trial court correctly declined
to award penalties when the employer’s legal obligations under
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a living wage ordinance were “unclear,” and the employer
offered in good faith arguments that, although ultimately
adjudged incorrect, were not “unreasonable or frivolous.”
(Amaral, supra, 163 Cal.App.4th at p. 1202; see id. at pp. 1202–
1204.)
On the flip side, the Court of Appeal has affirmed trial
courts’ findings that the employer lacked a good faith belief in
the legality of its actions when the employer’s position was
clearly erroneous or based on an unexcused failure to ascertain
the law. (See, e.g., Road Sprinkler Fitters Local Union No. 669
v. G & G Fire Sprinklers, Inc., supra, 102 Cal.App.4th at p. 782
[affirming trial court’s award of section 203 penalties when the
employer’s classification of employees as pipe tradesmen rather
than sprinkler fitters was clearly erroneous and therefore not
reasonable]; Diaz, supra, 23 Cal.App.5th at p. 869 [affirming
trial court’s award of penalties when the employer negligently
failed to inquire into living wage increases under an amended
ordinance].)
Because courts already evaluate an employer’s
misunderstanding of legal requirements against a standard of
objective reasonableness, there is little reason to worry that
recognizing a good faith defense to section 226 wage statement
penalties will create adverse incentives for employers. As the
Ninth Circuit recently concluded after examining our appellate
courts’ application of the good faith defense to section 203
penalties, the defense does not “reward ignorance of the law”; it
only means that penalties will be imposed on “employers who
lack a good excuse” while employers who face genuine legal
uncertainty and make mistakes of law that are reasonable and
supported by evidence will be spared. (Hill v. Walmart Inc. (9th
Cir. 2022) 32 F.4th 811, 816.) Allowing a good faith defense in
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cases where the employer’s obligations are genuinely uncertain
“amply serves the balance struck by the applicable statutes and
regulations between incentivizing prompt payment of wages
and shielding innocent mistakes from penalties.” (Id. at p. 817.)
The same is true of the balance struck in the wage statement
law.
E.
To sum up: We hold that an employer’s objectively
reasonable, good faith belief that it has provided employees with
adequate wage statements precludes an award of penalties
under section 226, subdivision (e)(1). An employer that believes
reasonably and in good faith, albeit mistakenly, that it has
complied with wage statement requirements does not fail to
comply with those requirements knowingly and intentionally.
That conclusion provides a complete answer to the issue
as it arises in this case. The trial court awarded section 226
penalties to Naranjo based on its conclusion that Spectrum’s
wage statement violations were “not inadvertent” and therefore
must have been “knowing and intentional” within the meaning
of that provision. Reversing the trial court, the Court of Appeal
concluded that because Spectrum had, in fact, disputed its
liability reasonably and in good faith, Spectrum cannot be held
liable for penalties under section 226. The Court of Appeal was
correct.
There is no genuine question that Spectrum had a
reasonable, good faith basis for believing it was complying with
California wage and hour law. Over the more than 15 years this
case has been pending, Spectrum has succeeded with its legal
defenses more than once — even though the decisions in its
favor would later be overturned on appeal. The trial court
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agreed with Spectrum that its defenses in the first phase of the
trial would have precluded the class from any recovery at all and
“were presented in good faith and were not unreasonable or
unsupported by the evidence.” The trial court concluded that
there was at least some uncertainty, given Spectrum’s role as a
federal security contractor, whether California wage laws and
wage orders applied to Spectrum officers at all. At the very
least, the trial court concluded that the issue was not so clear
cut that Spectrum’s defenses were unreasonable or
unsupported. The trial court’s good faith finding implies that it
found Spectrum’s legal positions reasonable, if ultimately
unconvincing. That is to say, the trial court was persuaded that
Spectrum’s mistaken belief that it did not owe employees
premium pay for missed meal breaks was more than mere
ignorance; it was supported by evidence and reasonable legal
arguments. There is also no record evidence that Spectrum
acted in bad faith or knowingly and intentionally omitted
premium pay from wage statements. The Court of Appeal
affirmed the trial court’s good faith finding and Naranjo has not
renewed his challenge to that finding.
Whether premium pay for missed meal breaks should be
reported on wage statements as “wages earned” and missed
breaks credited as “hours worked” was also an unsettled legal
issue when this case was tried. Recall that Spectrum’s section
226 liability here is derivative of its section 226.7 liability:
Because Spectrum did not pay its employees all of the wages
that they were owed when it failed to compensate them for
missed meal breaks, Spectrum’s itemized wage statements were
inaccurate insofar as they failed to include all of the wages that
employees were owed. (Naranjo III, supra, 13 Cal.5th at p. 121.)
During the final phase of the trial, Spectrum argued that section
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226 penalties were not available in this case because premium
pay is itself a penalty for failure to comply with section 226.7’s
meal break requirements, not a wage that must be reported on
a wage statement. Section 226 does not include missed-break
premium pay among the categories of information that must be
included in wage statements. (See § 226, subd. (a).) A number
of federal district courts had concluded that meal premiums did
not need to be reported as wages when this case was tried in
2013. (See, e.g., Nguyen v. Baxter Healthcare Corp. (C.D.Cal.,
Nov. 28, 2011, No. 8:10-cv-01436-CJC (SSx)) 2011 WL 6018284
at p. *8 [rejecting — and noting the lack of support for — “the
proposition that meal period premiums must be included in an
employee’s wage statement”]; accord, Jones v. Spherion Staffing
LLC (C.D.Cal., Aug. 7, 2012, No. LA CV11-06462 JAK (JCx))
2012 WL 3264081 at p. *8 [“Plaintiff cannot advance a claim for
noncompliant wage statements pursuant to section 226[, subd.]
(a) or failure to pay wages due upon termination pursuant to
section 203 based solely on alleged violations of section 226.7”];
cf. Finder v. Leprino Foods Co. (E.D.Cal., Mar. 12, 2015,
No. 1:13-CV-2059 AWI-BAM) 2015 WL 1137151 at pp. *4–*5
[reaching the opposite conclusion while noting disagreement
among federal courts on the issue and the lack of state court
appellate authority].) No appellate court in California had
addressed the issue at the time.
Nor was it clear then that section 226 penalties are
available in cases where the section 226 claims are based on
underlying wage violations and the wage statements reflected
employees’ actual work hours and compensation. Nearly five
years after the trial here, the Court of Appeal concluded, as a
matter of first impression, that wage statements that “correctly
reflected the hours worked and the pay received” were accurate
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and lawful under section 226 even though the employer had
failed to pay overtime at an appropriate rate after improperly
adopting an alternative workweek schedule. (Maldonado v.
Epsilon Plastics, Inc. (2018) 22 Cal.App.5th 1308, 1337 [“That
the [alternative workweek schedule] ultimately turned out to be
invalid mandates that the employees receive unpaid overtime,
interest, and attorney’s fees,” but “[i]t does not mandate that
they also receive penalties for the wage statements which
accurately reflected their compensation under the rates at
which they had worked at the time”]; see id. at pp. 1334, 1336–
1337 & fn. 15; see also Soto, supra, 4 Cal.App.5th at pp. 392–
393 [“an employer is required to identify only those statutory
items that are part of the employee’s current monetary
compensation. The employer must provide the employee with
an itemized statement identifying the specific wages being paid
at the time of the payment” (italics added)].) Even then, it was
unclear whether wage statements that did not report earned but
unpaid wages were accurate — whether an employer that failed
to compensate employees adequately also violated section 226
when wage statements reflected the actual but unlawful rate at
which those employees were paid.
The Court of Appeal here was the first to consider whether
missed-break meal premiums must be reported on wage
statements. It agreed with Spectrum that section 226.7
premium pay does not need to be reported as an employee’s
“wages earned” or “hours worked” in wage statements and held
that such penalties were unavailable here as a matter of law.
(See Naranjo II, supra, 40 Cal.App.5th at p. 474.) We took up
review of that issue to correct the “confusion” among federal
district courts and the Courts of Appeal about the availability of
section 203 and section 226 penalties derivative of unpaid and
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unreported missed-break meal premiums, and we reversed in
part the judgment of the Court of Appeal. (Naranjo III, supra,
13 Cal.5th at p. 104; see also id. at p. 121 [noting “a split of
authority has developed among the many federal district court
cases to consider the question”].) Rejecting the reasoning in
extant appellate cases, we held that “failure to report premium
pay for missed breaks can support monetary liability under
section 226 for failure to supply an accurate itemized statement
reflecting an employee’s gross wages earned, net wages earned,
and credited hours worked” — even if meal premiums were not
paid. (Id. at p. 121.)
Before our 2022 decision, it was uncertain whether
Spectrum had violated section 226. The question whether wage
statements must include premium pay for missed meal breaks,
even if unpaid, was complex and debatable. (Cf. City of Ontario
v. Superior Court (1970) 2 Cal.3d 335, 345 [under Code Civ.
Proc., § 473, “an honest and reasonable mistake of law on [a
“ ‘complex and debatable’ ”] issue is excusable”]; accord,
McCormick v. Board of Supervisors (1988) 198 Cal.App.3d 352,
362 [“where the law is not yet established attorneys cannot be
expected to be omniscient”].) Given the uncertainty and
confusion, it was not objectively unreasonable for Spectrum to
believe, in the period between June 2004 and September 2007,
that it had no obligation to report meal premiums as wages.
Imposing liability under these circumstances would penalize
Spectrum not for failing to apprise itself of its obligations, but
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for failing to predict how unsettled legal issues would be
resolved many years down the line. 10
In short, the Court of Appeal in this case correctly
concluded that when an employer shows that it reasonably and
in good faith, albeit mistakenly, believed that it complied with
section 226, subdivision (a), that employer’s failure to comply
with wage statement requirements is not “knowing and
intentional,” and the employer is therefore not subject to
penalties under section 226, subdivision (e)(1). Here, the trial
court found that Spectrum argued in good faith that it did not
fail to comply with California meal break requirements.
Moreover, whether unpaid premiums for missed meal breaks
must be reported as “wages earned” and credited as “hours
worked” in wage statements was uncertain until we settled the
issue in 2022. Given these legal uncertainties, Spectrum’s
failure to include unpaid meal premiums in its employees’ wage
10 In his reply brief, Naranjo argues for the first time that
Spectrum’s failure to issue compliant wage statements was the
product of simple ignorance of the law, not the product of any
considered judgment about what the law requires. Naranjo
points out that John Oden, Spectrum’s Vice President and
Personnel Manager, testified at trial that he was not familiar
with any applicable wage orders before Naranjo filed this
lawsuit.
We need not address this belatedly raised argument,
which calls into question the very premise of the question
Naranjo raised for this court’s review: namely, whether
Spectrum’s good faith belief it was in compliance precludes the
imposition of section 226 penalties. But the argument based on
Oden’s professed unfamiliarity with the wage orders fails in any
event. As our discussion makes clear, Naranjo’s claims raised
several complex and previously unsettled legal questions, the
answers to which do not turn on the content of the wage orders.
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statements from June 2004 to September 2007 was not
“knowing and intentional” within the meaning of section 226,
subdivision (e)(1). 11
III.
The judgment of the Court of Appeal is affirmed.
KRUGER, J.
We Concur:
EVANS, Acting C. J.
CORRIGAN, J.
LIU, J.
GROBAN, J.
JENKINS, J.
RODRIGUEZ, J. *
11 We disapprove the following cases to the extent they are
inconsistent with this opinion: Gola v. University of San
Francisco, supra, 90 Cal.App.5th 548; Furry v. East Bay
Publishing, LLC, supra, 30 Cal.App.5th 1072; Kao v. Holiday,
supra, 12 Cal.App.5th 947.
* Associate Justice of the Court of Appeal, First Appellate
District, Division Three, assigned pursuant to article VI, section
6 of the California Constitution.
44
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See next page for addresses and telephone numbers for counsel who
argued in Supreme Court.
Name of Opinion Naranjo v. Spectrum Security Services, Inc.
__________________________________________________________
Procedural Posture (see XX below)
Original Appeal
Original Proceeding
Review Granted (published) XX 88 Cal.App.5th 937
Review Granted (unpublished)
Rehearing Granted
__________________________________________________________
Opinion No. S279397
Date Filed: May 6, 2024
__________________________________________________________
Court: Superior
County: Los Angeles
Judge: Barbara Marie Scheper
__________________________________________________________
Counsel:
Rosen Marsili Rapp, Howard Z. Rosen, Jason C. Marsili and Brianna
Primozic Rapp for Plaintiffs and Appellants.
Gusdorff Law and Janet Gusdorff for California Employment Lawyers
Association as Amicus Curiae on behalf of Plaintiffs and Appellants.
Duane Morris, Robert D. Eassa, Paul J. Killion, Eden E. Anderson,
Sarah A. Gilbert; Tremblay Beck Law and David Carothers for
Defendant and Appellant.
Munger, Tolles & Olson, Benjamin J. Horwich, Aimee Feinberg and
Maggie H. Thompson for Chamber of Commerce of the United States of
America and the California Chamber of Commerce as Amici Curiae on
behalf of Defendant and Appellant.
Quarles & Brady, George S. Howard, Jr., Jeffrey P. Michalowski and
Adrielli Ferrer for Employers Group and the California Employment
Law Counsel as Amici Curiae on behalf of Defendant and Appellant.
--- PDF page 47 ---
Counsel who argued in Supreme Court (not intended for
publication with opinion):
Jason C. Marsili
Rosen Marsili Rapp LLP
11150 West Olympic Boulevard, Suite 990
Los Angeles, CA 90064
(213) 389-6050
Paul J. Killion
Duane Morris LLP
Spear Tower, One Market Plaza, Suite 2200
San Francisco, CA 94105-1127
(415) 957-3000