Big and Small Employers Breathe a Sigh of Relief: Employer’s Good Faith Belief That No Wages Were Owed to an Employee Is a Defense to Liability Under Labor Code Sec. 203 and 226.

(Big and Small) Employers: Good faith dispute… is a good defense!

What seemed like a common-sense defense has now been explicitly accepted by the courts as a legitimate defense to employer liability for what are commonly referred to as “waiting time penalties” and “wage statement penalties”. Regardless of the size of your company, employers should be familiar with both penalties.

The phrase “waiting time penalties” refers to the penalties an employer must pay to the employee if the employer willfully fails to pay all the wages due and owing to the employee upon the employee’s termination or upon the employee’s resignation. If the employer willfully fails to pay all wages due and owing, the employer must pay a penalty.

Likewise, the phrase “wage statement penalties” refers to the penalties an employer must pay to the employee if the employer willfully fails to provide compliant wage statements. If the employer willfully fails to provide accurate wage statements, the employer must pay a penalty.

Both the waiting time penalties and the wage statement penalties are significant liabilities and employers (for years) have been asserting various defenses, including the fact that they did not act willfully and should not be liable for either penalties.

One example as to how these penalties come into play is when an employer believes he paid the employee for all of his or her hours upon the termination of the employee. However, the employee comes back after termination and claims he or she has been refused rest and meal breaks at some point. Each time the employer fails to provide a rest and meal break, the employee is entitled to one hour’s pay for each rest or meal break missed each day, which is referred to as a “premium pay.” Recently, the courts have affirmatively stated that the premium pay is to be included as “wages.”

Now, if the employer truly believes that his employee has been compensated for his or her hours worked and has not missed any rest or meal breaks, the employer would not have included premium pay in the employee’s last paycheck, nor in the employee’s wage statements.

Until recently, this issue of whether or not an employer may assert the defense of “good faith belief” that he or she was in compliance with the Labor Code was not settled. Recently in February of 2023, in a rare moment of support for the California employer, a California appellate court explicitly held that the employer is not liable for waiting time penalties or wage statement penalties if, at the time, the employer had a good faith dispute as to whether or not the employee was entitled to additional wages.

In other words, this is a win for many employers who do find themselves in such a predicament after terminating an employee.