Labor & Employment Law Daily Wrap Up, STATE-LAW CLAIMS—Cal. Sup. Ct.: Ignorance of law insufficient to establish good faith defense regarding minimum wages, (Aug 25, 2025)

By Todd Harrison, J.D.

An employer is required to show that it made a reasonable attempt to determine the requirements of California’s minimum wage law in order to assert a good faith defense.

Reversing a lower court’s ruling in favor of an employer on issues concerning liquidated damages and paid sick leave, the California Supreme Court determined that an employer could not plead ignorance of the law in order to assert a good faith defense with regard to minimum wage laws, and a court may consider a paid sick leave claim that an employee raises in the context of their employer’s appeal to the superior court of a Labor Commissioner ruling (Iloff v. LaPaille, No. S275848 (Cal Sup. Ct. Aug. 21, 2025)).

The employee in this case lived and worked in an unincorporated area of Humboldt County known as Bridgeville, on property owned by Bridgeville Properties, Inc., and overseen by a manager. The employee performed maintenance work on the property and, under an informal arrangement, was allowed to live rent-free in one of the employer’s houses. He was not otherwise compensated for his services.

Claims. After the employer terminated this arrangement, the employee filed claims against it with the Labor Commissioner, initiating a process for adjudicating wage claims informally known as “the Berman process.” The employer argued that the employee was an independent contractor, but the Labor Commissioner determined that he was an employee and as such, was entitled to unpaid wages, liquidated damages, penalties, and interest.

Subsequently, the employer appealed, seeking de novo review of the Labor Commissioner’s ruling in Superior Court. In response, the employee—now represented by an attorney from the Labor Commissioner’s office—filed a notice of claims. He reasserted his wage claims and added new claims, including a claim for penalties under the paid sick leave law.

Although the Superior Court determined that the employee was properly classified as such, it ruled in favor of the employer on two issues. First, the court found that the employee was not entitled to liquidated damages because the employer had acted in good faith in not paying him and had reasonable grounds to believe they were complying with minimum wage laws. Second, the court rejected his claims for penalties under the paid sick leave law, concluding that the statute did not authorize him to seek those penalties in the context of the employer’s Berman appeal. The Court of Appeals affirmed the lower court’s rulings on those issues, and this appeal to the California Supreme Court followed.

Good faith defense. First, the court addressed the employer’s good faith defense. The lower court had concluded that the parties agreed that the employee would be provided with free rent in exchange for his services and would not otherwise be paid wages. At no point did the employer claim that it had attempted to determine what the law required at any point during the employee’s tenure, and it proffered no evidence that they had ever made such an attempt.

As such, the court explained that its resolution of this issue turns on whether, to establish the good faith defense, an employer must show that it made an attempt to determine what the law required. The court held that an employer must make this showing, and because the employer in this case did not show that it had made any attempt to determine what the law required and whether it was in compliance with those requirements, it did not prove the good faith defense.

Legislative intent. Turning to the legislative history of the liquidated damages provision of the Labor Code, the court found that it suggested that the Legislature intended to require employers asserting the good faith defense to show that they had made a reasonable attempt to determine the requirements of the law governing minimum wages.

In supporting the bill, the Labor Commissioner observed that making liquidated damages available would assist the state “in enforcing minimum wages for employees” and would deter employers from violating minimum wage law.

“Liquidated damages would be much less effective as an enforcement tool and a means of deterring minimum wage violations if an employer could evade them merely by showing that it was ignorant of the law,” said the court. The court noted that this interpretation was also in line with what is required under the FLSA as it relates to the good faith defense.

Reasonable attempt. As an aside, the court observed that employers may be concerned that requiring them to show that they made a reasonable attempt to determine the requirements of the law places too great a burden on them. However, the court explained that although it was not at present determining the extent of the inquiry generally required, what constitutes a reasonable attempt will vary by context, and an individual employing a person on a casual, irregular basis may not need to undertake the same kind of inquiry expected of an established business with regular employees.

Regardless, the court’s determination in this instance was straightforward because the employer did not claim to have made any attempt to determine the requirements of the law governing compensation for the employee’s services to its business.

Paid sick leave. Next, the court considered whether a trial court may allow an employee to raise a paid sick leave law claim when an employer appeals a Labor Commissioner ruling. Answering this question in the affirmative, the court concluded that, considered in its broader statutory context, and bearing in mind the Legislature’s purpose in enacting it, the paid sick leave law is best understood to also authorize employees to raise claims in court in response to an employer’s appeal.

Nullification. According to the employee, based on the appellate court’s reading of the law, an employer’s appeal would automatically deprive an employee of the ability to recover on a paid sick leave law claim that the Labor Commissioner had found meritorious. That is, the statute permits employers to nullify the Labor Commissioner’s award by filing an appeal, after which employees may recover only on those claims they raise in the superior court. As the employee noted, by precluding employees from raising their paid sick leave law claims in superior court in response to their employers’ appeals, the appellate court’s interpretation would leave employees without any avenue to personally pursue their claims after the employer’s appeal nullified the Labor Commissioner’s award.

“The legislative history of the Paid Sick Leave law contains no indication that the Legislature intended to preclude employees from raising Paid Sick Leave law claims in Berman appeals,” explained the court, noting that since the Legislature did not enact any special procedure for the investigation or hearing of paid sick leave law claims, it presumably contemplated that the Labor Commissioner would use procedures set out in separate, unspecified Labor Code sections to conduct a full investigation or hearing.

Given the statutory language, legislative intent, and prior court decisions, the court determined that the Legislature intended the full Berman process—including the opportunity to raise additional related claims on appeal—to be available to employees seeking to enforce their rights under the law. Accordingly, the judgment of the appellate court was reversed and the matter was remanded for further proceedings.

The case is No. S275848.

Judge: Groban, J.

Attorneys: California Department of Industrial Relations for Laurance Iloff. Janssen Malloy and William H. Stein (Janssen Malloy) and Amelia F. Burrough (Burroughs Law Group) for Cynthia LaPaille.

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