Iloff v. LaPaille

To establish the good faith defense to liquidated damages under Labor Code § 1194.2(b), an employer must show 'that it made a reasonable attempt to determine the requirements of the law governing minimum wages'; 'proof that the employer was ignorant of the law is insufficient.' Both halves fall on the employer — an attempt reasonable under the circumstances, and a good faith effort to comply with what it disclosed. Justice Groban wrote for a unanimous court, Chief Justice Guerrero and Justices Corrigan, Liu, Kruger, Jenkins and Evans concurring without separate writings, reversing the Court of Appeal and remanding.

The second holding is procedural. A superior court hearing an employer's de novo appeal from a Labor Commissioner award under § 98.2(a) may consider a claim under the Healthy Workplaces, Healthy Families Act of 2014 (§ 245 et seq.) raised for the first time in that appeal; the absence of § 98.2 from the enforcement procedures listed in § 248.5(a) withdraws nothing. Two questions were left open: the court did 'not determine today the extent of the inquiry that is generally required,' and it 'express[ed] no view' on whether the employers' allegations of theft and nonperformance could have reduced an award had the defense been proved.

Laurance Iloff maintained the structures, grounds, and water system on Humboldt County rental property owned by Bridgeville Properties, Inc. and managed by Cynthia LaPaille, who 'provided him instructions, directions, and approvals in relation to this work.' Under an informal arrangement he lived rent-free in one of the houses and received nothing else. After it ended he filed claims with the Labor Commissioner, who rejected the employers' independent contractor position and found him an employee entitled to unpaid wages, liquidated damages, penalties, and interest.

The employers appealed for a trial de novo under § 98.2(a). Iloff, by then represented by an attorney from the Labor Commissioner's office (§ 98.4(a)), filed a notice of claims adding others, including paid sick leave penalties. Applying Dynamex Operations West, Inc. v. Superior Court (2018) 4 Cal.5th 903, the trial court found him an employee and awarded wages, penalties, and interest — then denied liquidated damages on a finding that the employers had 'reasonable grounds for believing' they complied, and rejected the paid sick leave claim as unavailable in a Berman appeal. The Court of Appeal affirmed both rulings (Seviour-Iloff v. LaPaille (2022) 80 Cal.App.5th 427, 447–451); the Supreme Court reversed both. The opinion read for this entry carries no official Cal.5th citation, so it is cited here by date and docket number.

Section 1194.2(a) makes the award mandatory: a court finding an employee entitled to unpaid minimum wages must award 'liquidated damages in an amount equal to the wages unlawfully unpaid and interest thereon.' Subdivision (b) is the only exit: the employer must prove the act or omission 'was in good faith' and that it 'had reasonable grounds for believing' there was no violation. The text does not say whether that requires an inquiry; context and history do. The neighboring section lets an underpaid employee recover '[n]otwithstanding any agreement to work for a lesser wage' (§ 1194(a)), so liability survives the employee's consent — and the 1991 legislative record treats liquidated damages as a 'disincentive[] to [the] violation of minimum wage laws,' which ignorance would neutralize.

The defense was modeled on the Fair Labor Standards Act's, and its language mirrors 29 U.S.C. § 260, so federal construction is instructive. It puts a 'difficult' burden on the employer, 'with double damages being the norm and single damages the exception' (Alvarez v. IBP, Inc. (9th Cir. 2003) 339 F.3d 894, 910), requires 'active steps to ascertain the dictates of the FLSA' (Herman v. RSR Security Services Ltd. (2d Cir. 1999) 172 F.3d 132, 142), and forecloses reliance on 'ignorance alone' (Marshall v. Brunner (3d Cir. 1982) 668 F.2d 748, 753). The Court of Appeal had rejected the analogy because California also allows prejudgment interest, making its liquidated damages a penalty rather than compensation. They are both, the court answered, and a more generous state remedy does not widen the defense.

Below, 'to the satisfaction of the court' had been read as conferring 'considerable latitude' to excuse the award. It means only that the question goes to the judge, not the jury (McClanahan v. Mathews (6th Cir. 1971) 440 F.2d 320, 322). Whether the defense is established is decided by applying law to facts; discretion to deny or reduce arises only afterward, and when the employer does not carry its burden 'the court must award liquidated damages.' The sequence controls the trial presentation: equitable material — here, that Iloff proposed the work-for-rent arrangement — belongs to the second stage, unreachable until the first is won.

The threshold itself is proportionate. What counts as a reasonable attempt varies by context: someone employing a worker casually and irregularly 'may not need to undertake the same kind of effort as an established business with regular employees,' and '[i]n many cases, even established businesses with regular employees may be able to satisfy this requirement without consulting legal counsel.' An employer that inquired may then argue 'the nature of the parties' relationship, their agreements with each other, and the legal landscape,' including the unsettled state of classification law; an employer that did not may argue none of it. McFeeley v. Jackson Street Entertainment, LLC (4th Cir. 2016) 825 F.3d 235, 245 draws the line the court adopted — a valid defense after the employer sought and implemented an attorney's incorrect advice, 'but not before it did so.'

Section 248.5(a) directs the Labor Commissioner to enforce the paid sick leave law 'through the procedures set forth in Sections 98, 98.3, 98.7, 98.74, or 1197.1.' From the omission of § 98.2 the Court of Appeal inferred that such claims cannot be pursued in a Berman appeal at all. The inference was unfounded. Section 245(b) makes the law's provisions 'in addition to and independent of any other rights, remedies, or procedures available under any other law,' § 248.5(g) makes its procedures 'cumulative,' and every listed section describes a way to initiate enforcement. Section 98.2 initiates nothing — it supplies an appeal from an action begun under § 98, which is on the list — and a Berman appeal is not a private right of action but de novo reconsideration.

The structure of the appeal drives the result. An employer's appeal 'nullifies' the Labor Commissioner's decision (Arias v. Kardoulias (2012) 207 Cal.App.4th 1429, 1435), so the employee recovers only on claims raised in the superior court; the contrary reading would let an employer erase a meritorious award by filing. Murphy v. Kenneth Cole Productions, Inc. (2007) 40 Cal.4th 1094, 1120 had already given trial courts 'sound discretion' to allow claims the Commissioner never considered; paid sick leave claims are not carved out. And the appeal is what produces the additional claims: counsel appointed under § 98.4 'is likely to uncover and raise' them.

Iloff belongs beside the Naranjo good faith line, not inside it. Section 226(e) penalties require a 'knowing and intentional' failure and § 203 penalties a 'willful' one; under the 2024 Naranjo good faith decision and the good faith dispute doctrine (8 C.C.R. § 13520), an objectively reasonable belief in compliance negates an element of the employee's claim. Section 1194.2(b) is the mirror image — an affirmative defense to an otherwise mandatory award, carried by the employer, and satisfied by conduct rather than belief. A sincere belief, even one that looks defensible in hindsight, fails if the employer did nothing to form it.

The overlap is evidentiary, not doctrinal: one file serves all three inquiries — what the employer asked, whom it asked, what it was told, and what it did about it. But defeating § 226 scienter or establishing a § 203 good faith dispute does not carry § 1194.2(b), and an employer can owe liquidated damages while defeating both derivative claims. Keep the columns separate — and keep liquidated damages out of the PAGA column, because they travel with the employee's own wage claim rather than the civil penalties a representative action recovers.

The judgment is reversed and the case remanded. On liquidated damages the outcome is settled: no attempt was shown, so Iloff 'is entitled to an award of liquidated damages.' The paid sick leave claim returns to the trial court's Murphy discretion rather than to automatic recovery — a court may consider such a claim in a Berman appeal, and is not required to allow every one.

What is unresolved is the size of the inquiry now required; the court declined to fix it, so the content of a reasonable attempt will be built case by case. Two limits are worth stating, because the decision is easy to overread. It resolves nothing about who counts as an employer: the Dynamex-based employee finding went unchallenged, and the opinion analyzes neither employer status nor individual liability. And it says nothing about waiting time or wage statement penalties, which were not before the court.

The Court of Appeal has since decided the remand, and it is published: Iloff v. LaPaille (Dec. 23, 2025, A163504). Liquidated damages went the way the Supreme Court's holding required — the trial court erred in declining them — and so did § 248.5 administrative penalties, the § 203 calculation, and the limitations period, which had been computed so as to undervalue the wage award. The UCL denial was affirmed as within the trial court's discretion. None of that is surprising. The part that matters to an employer is the individual-liability holding, which the Supreme Court had expressly not reached and which the second limit above therefore did not cover.

Section 558.1(a) provides that a person acting on behalf of an employer who violates, or causes to be violated, any provision regulating minimum wages 'may be held liable as the employer for such violation.' The trial court read 'may' as its own discretion and declined to impose liability on the officer, reasoning that no party 'knew, expected or understood' wages were owed — the same good faith that had defeated liquidated damages below. The Court of Appeal held both steps wrong. Section 558.1 supports a private right of action, notwithstanding that it sits among twelve other Senate Bill 588 provisions that all route enforcement through the Labor Commissioner; and, following Jones v. Tracy School District (1980) 27 Cal.3d 99, the word 'may' is 'not directed to the trial court, but to the complaining party.' It marks the employee's election to pursue the individual, not a judicial discretion to excuse one.

Read together with the holding above, that closes a defense off at both ends. Good faith no longer defeats liquidated damages without proof of inquiry, and it no longer supplies a discretionary ground to spare the officer who caused the violation. An owner-operator or officer of a closely held employer should therefore be assumed exposed personally on any minimum wage theory from the outset of the matter rather than at the end of it, and the inquiry file described above should be built in that person's name as well as the entity's.

Section 1194.2 roughly doubles the wage component of a minimum wage case, and Iloff removes the argument that used to defeat the doubling. These employers lost on a gap in proof, not on the merits of their view of the arrangement. The mandatory award is measured by 'the wages unlawfully unpaid and interest thereon,' and the unpaid wages themselves carry interest at 10 percent under § 218.6, incorporating Civil Code § 3289(b). What was an equitable argument at the end of a case is now an evidentiary question: the records either exist or they do not.

Exposure concentrates where payroll infrastructure is absent — services for housing or equity, unpaid trial periods — arrangements that produce no timekeeping, no wage statements, and no compliance file when a reclassification finding arrives. The second holding compounds it in the Berman posture: price an appeal from a modest award against the case that will exist after it is filed, not the one that exists before.