Iloff v. LaPaille: Employers Must Make a Reasonable Legal Inquiry to Invoke the §1194.2 Good‑Faith Defense; Paid Sick Leave Claims Are Cognizable in Berman Appeals

Introduction

In Iloff v. LaPaille, the California Supreme Court resolved two recurring issues in wage-and-hour litigation that reverberate across the state’s low-wage economy and the enforcement of the Healthy Workplaces, Healthy Families Act of 2014 (the Paid Sick Leave law).

First, the Court clarified the standard for the “good faith” defense to liquidated damages under Labor Code section 1194.2 in minimum wage cases. The Court held that an employer cannot defeat or reduce the otherwise mandatory award of liquidated damages merely by showing ignorance of the law or that the worker agreed to the unlawful arrangement. To establish the good faith defense, the employer must prove it made a reasonable attempt to determine the governing minimum wage requirements and undertook a good faith effort to comply.

Second, the Court held that employees may raise Paid Sick Leave claims in the superior court when an employer appeals a Labor Commissioner decision under Labor Code section 98.2 (a “Berman appeal”). The Court rejected the Court of Appeal’s contrary interpretation that would have precluded such claims and effectively allowed employers to nullify Paid Sick Leave awards simply by filing a de novo appeal.

The decision reverses the Court of Appeal and remands for further proceedings, reaffirming the state’s policy of liberally construing the Labor Code to protect workers and promoting expeditious, accessible enforcement mechanisms.

Background

Laurance Iloff performed maintenance and related work for Bridgeville Properties, Inc., managed by Cynthia LaPaille, in Humboldt County. Under an informal arrangement, Iloff lived rent-free on the property; he received no wages or benefits. After the arrangement ended, Iloff filed a wage claim with the Labor Commissioner (the Berman process), which found he was an employee—not an independent contractor—and awarded unpaid wages, liquidated damages, penalties, and interest.

The employers appealed to the superior court for a de novo trial. Represented by counsel from the Labor Commissioner’s office, Iloff filed a notice of claims reasserting his wage claims and adding additional claims, including penalties under the Paid Sick Leave law. After a bench trial, the superior court found that Iloff was an employee under Dynamex but denied liquidated damages under Labor Code section 1194.2 based on a “good faith” finding and rejected the Paid Sick Leave claim on the ground it could not be raised in a Berman appeal. The Court of Appeal largely affirmed those determinations. The California Supreme Court granted review on the liquidated damages and Paid Sick Leave issues.

Summary of the Opinion

Liquidated damages good faith defense (§1194.2): An employer must show it made a reasonable attempt to determine the requirements of the minimum wage law and undertook a good faith effort to comply. Ignorance of the law, mutual misunderstanding, or an employee’s acquiescence to an unlawful arrangement is insufficient. Only after the employer satisfies this demanding burden does the trial court have discretion to deny or reduce liquidated damages.
Paid Sick Leave claims in Berman appeals (§§ 98, 98.2, 248.5): Employees may raise Paid Sick Leave law claims in the de novo superior court proceedings following an employer’s appeal from a Labor Commissioner decision. Section 248.5’s reference to enforcement “through the procedures set forth in Sections 98, 98.3, 98.7, 98.74, or 1197.1,” together with the cumulative-rights provisions and the Berman framework, supports allowing such claims on appeal. A Berman appeal is not a “private right of action,” and precluding Paid Sick Leave claims would undermine legislative intent and allow employers to nullify administrative awards by appealing.
Attorney’s fees request: The Court denied the employers’ request to withhold jurisdiction over anticipated attorney’s fees motions under §98.2(c). Any fee issues may be litigated on remand.

Analysis

Precedents Cited and Their Influence

The Court’s analysis is anchored in statutory text, context, legislative history, and persuasive federal authority.

Interpretive framework: Augustus v. ABM Security Services, Inc. (2016) 2 Cal.5th 257 (liberal construction of Labor Code to protect employees); Quach v. California Commerce Club, Inc. (2024) 16 Cal.5th 562 (statutory interpretation methodology).
Employment classification: Dynamex Operations West, Inc. v. Superior Court (2018) 4 Cal.5th 903 (ABC test); Vazquez v. Jan-Pro Franchising Internat., Inc. (2021) 10 Cal.5th 944 (state of the law over time).
Liquidated damages and purpose: Martinez v. Combs (2010) 49 Cal.4th 35 (liquidated damages function as a penalty equal to unpaid wages), and the U.S. Supreme Court’s Overnight Motor Transp. Co. v. Missel (1942) 316 U.S. 572 (liquidated damages compensate for hard-to-quantify harms of delayed wages).
FLSA analog and good faith: Section 1194.2 was modeled on the FLSA’s liquidated damages and good faith provisions (29 U.S.C. §§ 216(b), 260). Federal decisions uniformly require “active steps” to ascertain and comply with the law. See:
- Alvarez v. IBP, Inc. (9th Cir. 2003) 339 F.3d 894 (double damages the norm; defense is a “difficult” burden; disputes over law do not prove compliance efforts),
- Herman v. RSR Security Services Ltd. (2d Cir. 1999) 172 F.3d 132 (employer must take active steps to ascertain dictates),
- Marshall v. Brunner (3d Cir. 1982) 668 F.2d 748; Sinclair v. Automobile Club of Oklahoma, Inc. (10th Cir. 1984) 733 F.2d 726; Barcellona v. Tiffany English Pub, Inc. (5th Cir. 1979) 597 F.2d 464; Williams v. Tri-County Growers, Inc. (3d Cir. 1984) 747 F.2d 121 (ignorance does not suffice; mutual agreements that violate the law cannot establish good faith),
- Local 246 Utility Workers Union v. Southern California Edison Co. (9th Cir. 1996) 83 F.3d 292 (mutual agreement violating wage laws insufficient).
“To the satisfaction of the court”: McClanahan v. Mathews (6th Cir. 1971) 440 F.2d 320 (phrase denotes judge—not jury—decides the defense; it does not grant unfettered discretion to deny liquidated damages without the defense being proven).
Scope of de novo Berman appeals and addition of claims: Post v. Palo/Haklar & Associates (2000) 23 Cal.4th 942 (Berman appeals are de novo); Murphy v. Kenneth Cole Productions, Inc. (2007) 40 Cal.4th 1094 (trial court has discretion to allow additional related claims in Berman appeals; promotes expeditious resolution and deters frivolous employer appeals).
Effect of Berman appeal on administrative award: Arias v. Kardoulias (2012) 207 Cal.App.4th 1429 (appeal nullifies administrative award; the case begins anew in superior court).
Paid Sick Leave enforcement: Wood v. Kaiser Foundation Hospitals (2023) 88 Cal.App.5th 742 (PAGA remains available, but it is distinct from Berman appeal practice); Arias v. Superior Court (2009) 46 Cal.4th 969 (PAGA plaintiffs act as state proxies).
Comparative protections: Mendiola v. CPS Security Solutions, Inc. (2015) 60 Cal.4th 833 (California may provide broader worker protections than federal law); Raines v. U.S. Healthworks Medical Group (2023) 15 Cal.5th 268 (federal interpretations can be persuasive where statutes share language).
Legislative awareness: Buckley v. Chadwick (1955) 45 Cal.2d 183 (Legislature presumed to know existing judicial decisions).

Legal Reasoning

1) Good faith defense to liquidated damages (§1194.2)

Section 1194.2(a) mandates liquidated damages equal to unpaid minimum wages and interest whenever a violation is proven. Under subdivision (b), a court may deny or reduce liquidated damages only if the employer proves that (i) its act or omission was in good faith and (ii) it had reasonable grounds to believe it was not violating the law. The Court reads the defense against the backdrop of section 1194(a), which ensures recovery of minimum wages despite any contrary agreement to work for less, signaling that employer liability is the norm even when the employee agreed to an unlawful arrangement.

The Court emphasizes statutory context and legislative history. The Legislature enacted liquidated damages to deter violations and facilitate private and administrative enforcement. Allowing employers to evade liquidated damages based on ignorance would erode these aims. The Legislature modeled section 1194.2’s defense language on the FLSA’s Section 260; federal courts uniformly require employers to show “active steps” to ascertain and comply with the law. California’s provision includes prejudgment interest (unlike the FLSA), but that additional remedy does not alter the defense’s scope or purpose: liquidated damages remain both compensatory and deterrent.

The Court rejects the Court of Appeal’s expansive view of judicial discretion based on the phrase “to the satisfaction of the court.” That phrase allocates the decision to the judge rather than the jury; it does not allow the court to deny or reduce liquidated damages without first finding the defense proven. Only after the defense is established does discretion arise to deny or reduce liquidated damages.

Applying the clarified standard, the Court holds that the employers failed to carry their burden: they presented no evidence of any attempt to determine their obligations or to comply. The parties’ understanding that Iloff would work for rent, or that neither side expected payment, proves ignorance, not good faith. The unsettled state of classification law during some of the relevant period cannot substitute for an actual, reasonable compliance inquiry.

The Court underscores the defense’s context-sensitivity. What counts as a “reasonable attempt” will vary with the nature of the employer and arrangement; it need not always entail significant cost or consultation with counsel. But some affirmative, reasonable inquiry and effort to comply is required.

2) Paid Sick Leave claims in Berman appeals (§§ 245 et seq., 248.5, and 98.2)

The Paid Sick Leave law’s enforcement provision, section 248.5(a), directs the Labor Commissioner to enforce the statute “through the procedures set forth in Sections 98, 98.3, 98.7, 98.74, or 1197.1,” and authorizes appropriate relief. The Court reads the reference to section 98 (the Berman process) as confirmation that Paid Sick Leave claims belong in that administrative process.

The question is whether such claims may also be pursued in the superior court during a de novo Berman appeal under section 98.2. The Court concludes yes. Several interpretive anchors support this:

Textual context: Section 245(b) and section 248.5(g) declare that the Paid Sick Leave law’s procedures and remedies are “in addition to and independent of” and “cumulative” to other rights and procedures. Referencing section 98 signals that the entire Berman framework—of which section 98.2 appeals are an integral part—applies.
Structural logic: Section 98.2 concerns appeals from administrative rulings; it is not an initiation mechanism and thus not listed alongside provisions that do initiate proceedings. Its omission from section 248.5(a)’s list does not imply a prohibition.
Judicial backdrop: Murphy v. Kenneth Cole (2007) authorizes trial courts, in their sound discretion, to allow employees to add related claims in Berman appeals. The Legislature is presumed to have legislated against Murphy’s backdrop when it enacted and later amended the Paid Sick Leave enforcement scheme.
Avoiding nullification: A Berman appeal “nullifies” the administrative award; precluding Paid Sick Leave claims on appeal would allow employers to erase such awards merely by appealing, contrary to legislative design.
Not a private right of action: A Berman appeal is a statutory appellate mechanism, not a standalone private action. Allowing Paid Sick Leave claims in the appeal does not create a new private right; it simply preserves the claim within the existing Berman continuum.

The Court thus reverses the Court of Appeal and holds that employees may raise Paid Sick Leave claims in Berman appeals, subject to the trial court’s discretionary case-management considerations recognized in Murphy (relatedness, judicial economy, prejudice).

Impact

For employers

Elevated compliance expectations: To invoke the §1194.2(b) good faith defense, employers must be prepared to show contemporaneous efforts to learn and follow the minimum wage laws. Documentation of inquiry and compliance efforts becomes critical.
Ignorance and informal arrangements are not shields: Agreements to work “for rent” or perceived independent contractor status do not excuse nonpayment of minimum wage or liquidated damages absent reasonable, affirmative inquiry into the law.
Context-sensitive but real burden: The reasonableness of an employer’s inquiry depends on context (size, sophistication, nature of work). The Court indicates this need not always involve legal counsel, but some affirmative steps are required.
Litigation dynamics: Expect more liquidated damages awards where employers cannot show proactive compliance efforts. The clarified standard may shift settlement leverage toward employees.
Appeal strategy: Berman appeals now carry the added exposure that employees may add Paid Sick Leave claims (and other related claims) in the de novo trial. Appeals undertaken to delay or “wipe out” administrative awards risk broader liability and fee exposure under §98.2(c).

For employees and advocates

Stronger remedies in minimum wage cases: Liquidated damages are the default. Where employers lack proof of reasonable compliance inquiry, employees should recover the full statutory amount.
Paid Sick Leave access in Berman appeals: Employees can affirmatively raise Paid Sick Leave claims in superior court during de novo appeals, avoiding the need to rely exclusively on separate governmental enforcement actions.
Counsel’s role in appeals: As in Murphy, representation on appeal often surfaces additional, related claims. Trial courts retain discretion to manage such additions, but Iloff confirms Paid Sick Leave claims fit within that framework.
Fee leverage: §98.2(c) mandates costs and reasonable attorney’s fees if the employee obtains any monetary award in the appeal. The Supreme Court declined to restrict the trial court’s jurisdiction over fee motions on remand.

For the enforcement system

Deterrence consistent with legislative design: The ruling reinforces the Legislature’s strategy of coupling administrative and private enforcement to deter wage theft and noncompliance.
Resource efficiency: Allowing Paid Sick Leave claims in Berman appeals conserves limited governmental enforcement resources and aligns with the Labor Code’s commitment to expeditious resolution.

Complex Concepts Simplified

Liquidated damages (minimum wage): An additional amount equal to unpaid minimum wages (plus interest) awarded by default in minimum wage cases. They both compensate for hard-to-measure harms from underpayment and deter violations.
Good faith defense (§1194.2(b)): A narrow exception that allows courts to deny or reduce liquidated damages only if the employer proves it made a reasonable attempt to understand and comply with the law and reasonably believed it was compliant. Mere ignorance, employee consent, or the longevity of an unlawful practice does not suffice.
Berman process and appeal (§§ 98, 98.1, 98.2): An administrative forum before the Labor Commissioner for wage claims, followed by a de novo appeal to the superior court. The appeal nullifies the administrative decision, and the case is tried anew.
Paid Sick Leave law (§ 245 et seq.): Requires employers to provide paid sick time for specified purposes. Section 248.5 outlines enforcement, including via the Berman process; claims can be pursued in the de novo appeal.
“To the satisfaction of the court”: In this context, it means the judge (not the jury) decides whether the defense is proven. It does not grant broad discretion to deny liquidated damages if the defense is not established.
PAGA vs. Berman appeal: PAGA lets employees act as agents of the state to seek civil penalties for Labor Code violations. A Berman appeal is the continuation of an individual wage claim case into the superior court de novo; it is not a standalone private right of action.

Practical Guidance

What can constitute a “reasonable attempt” to comply?

The Court declined to lay down a rigid checklist, emphasizing context. That said, employers seeking to preserve the good faith defense should consider:

Consulting readily available official sources: DLSE publications, FAQs, and opinion letters; Industrial Welfare Commission (IWC) wage orders; statutory and regulatory texts relevant to the industry.
Documenting inquiries and decisions: Keep records of research, guidance reviewed, calls or emails with DLSE, and steps taken to align practices with identified requirements.
Training and policy updates: Implement written policies reflecting compliance determinations; train supervisors accordingly.
Seeking tailored advice when complexity warrants: Particularly for classification questions, overtime, housing-as-compensation, or multi-factor arrangements, consider professional advice and retain documentation of the advice sought and followed.
Reassessing as the law evolves: Periodically revisit practices when notable decisions (e.g., Dynamex/Vazquez) or statutory amendments occur; update policies based on changes.

Crucially, the effort must predate the violation or at least reflect an ongoing commitment to compliance. Post hoc justifications typically will not satisfy §1194.2(b).

Open Questions and Boundaries

How much inquiry is “enough”? The Court deliberately left room for case-by-case evaluation. Small or casual employers may have a lower threshold than sophisticated businesses, but some affirmative inquiry remains necessary across the board.
Role of reliance on counsel: The Court cited federal authority recognizing that following counsel’s advice can support good faith; California courts are likely to assess such reliance for reasonableness and good faith under the circumstances.
Scope of added claims in Berman appeals: Murphy’s discretionary standard still governs. Trial courts may consider relatedness, prejudice, and judicial economy when deciding whether to allow additional claims, including Paid Sick Leave claims.
Remedial contours: While the Court confirms Paid Sick Leave claims can be raised on appeal, the precise remedial mix (e.g., specific penalties and forms of relief within §248.5(b)) will be applied by the superior court in the de novo proceeding.

Conclusion

Iloff v. LaPaille solidifies two important principles in California wage-and-hour law. First, the good faith defense to §1194.2 liquidated damages is narrow and affirmative: employers must show they made a reasonable attempt to learn and comply with minimum wage law. Ignorance, mutual misunderstanding, or employee acquiescence cannot defeat the statutory presumption in favor of liquidated damages. Second, employees may pursue Paid Sick Leave claims in a Berman appeal. The Berman process is a continuum, and the Legislature intended its full machinery—including the de novo appeal—to be available to vindicate Paid Sick Leave rights, consistent with Murphy’s allowance for additional related claims and the Labor Code’s commitment to expeditious, accessible enforcement.

The decision will likely reshape employer compliance practices and litigation strategy. Employers are on clear notice to invest in realistic, proportional compliance inquiries and to document those efforts. Employees, often with the assistance of the Labor Commissioner’s counsel on appeal, can now confidently raise Paid Sick Leave claims during de novo proceedings, strengthening enforcement in a forum designed for speed and accessibility. Taken together, the Court’s holdings advance the Legislature’s worker-protective aims and reinforce California’s leadership in wage-and-hour enforcement.