November 15, 2025
Prior law on the Good Faith defense was unclear
California law requires employers to pay at least the state minimum wage, and allows courts to award “liquidated damages” (typically an amount equal to the unpaid wages) when violations occur. Employers may avoid these liquidated damages by showing they acted “in good faith” and had “reasonable grounds” to believe they were complying with the law. However, courts have not clearly defined what constitute reasonable grounds.
The new requirements for asserting a Good Faith defense
In Iloff v. Bridgeville Properties, Inc., the California Supreme Court held that employers must affirmatively demonstrate their efforts to understand and comply with minimum wage laws in order to assert a good-faith defense. Simply claiming ignorance of the law is not enough. And the burden is on the employer to show a reasonable, context-dependent attempt to determine legal requirements and comply with them.
Some context for the Iloff decision
Mr. Iloff worked for Bridgeville Properties from 2009 to 2016 maintaining property structures and systems under an informal agreement that allowed him to live rent-free. He received no wages or benefits. Mr. Iloff ultimately filed a claim for unpaid wages and sick leave. Bridgeville argued it reasonably believed Iloff was an independent contractor and was therefore exempt from wage laws. The California Supreme Court disagreed, finding Iloff was an employee and ruling that Bridgeville failed to show any reasonable effort to comply with minimum wage requirements.
Key Takeaways for Employers
- Ignorance of the law is not a defense. Nor is misunderstanding it. Simply claiming you were unaware of the law or misunderstood its application will not shield employers from liquidated damages. Employers have a proactive obligation to understand the laws that apply to their workers.
- The ability to rely on the Good-Faith defense requires action by an employer. Employers must demonstrate documented efforts to understand and comply with wage laws. This could include evidence of self-study of applicable law, or (more likely and easier for you) evidence that they consulted with legal counsel before implementing the practice. A wage and hour audit is an excellent (and documented) way to identify any mistakes you inadvertently are making, and make corrections in your practices that would allow you to rely on the Good Faith defense. Equally important, a wage and hour audit and corrective action can protect your company from a host of ugly wage and hour claims.
- And while we are on the subject of misclassifying employees: Misclassifying employees as independent contractors can lead to significant liability, including the obligation to provide back pay, exposure to penalties for missed meal and rest breaks and pay stub violations, failure to pay overtime, and this is just to name a few. Again, an audit of your independent contractors will protect your Good-Faith defense and also protect your workplace from litigation.
An ounce of prevention is worth a pound of cure
As we head into the new year, what better time to start fresh by taking a closer look at your wage and hour practices. Not only will your workplace be better protected, you will have documented proactivity that can prove invaluable if you are sued. Please let me know if you want to work together on protecting your workplace.
