Ignorance Isn’t Bliss: Check Minimum Wages or Pay Double

In the long-awaited decision, Iloff v. LaPaille, the California Supreme Court addressed two important wage issues for employers.

1. The Court clarified that ignorance of the law is not a valid defense to avoid liquidated damages for unpaid minimum wages.
2. The Court held that if an employer appeals a Labor Commissioner ruling to court, the employer may open the door to new paid sick leave law claims not previously raised.

This case sends a clear message to employers: proactively stay in compliance or pay the consequences!

Background Facts

Employee Laurence Iloff worked as a residential property manager at Bridgeville Properties, Inc. (BPI). BPI classified Iloff as an independent contractor (instead of an employee) for years and failed to follow minimum wage laws. Instead, BPI allowed Iloff to live rent-free in one of the houses, in lieu of any other benefits or compensation.

When BPI ended the relationship, Iloff filed a claim with the Labor Commissioner arguing he was misclassified and should have been considered an employee. As part of his claim for minimum wage violations, IIoff argued he was entitled to “liquidated damages” under Labor Code section 1194.2. These liquidated damages are a separate penalty on top of unpaid wages, and result in an employer paying two times the amount they owe for violating California’s minimum wage laws.

Liquidated Damages

BPI tried to make a “good faith” defense, arguing that it should not have to pay liquidated damages because the Company assumed that Iloff was an independent contractor during a time when the law was less clear about proper classification. While the lower court ruled in favor of BPI, the California Supreme Court reversed and rejected BPI’s ignorance-of-the-law argument. The Court highlighted that BPI never claimed they attempted to determine “what the law required at any point” and did “not present any evidence suggesting that they had made such an attempt.”

The “default” rule is that employees who prove minimum wage violations are entitled to liquidated damages. The Court found that to establish a good faith defense to avoid paying liquidated damages, the burden is on the employer to show they “made an attempt to determine what the law required that was reasonable under the circumstances.” Otherwise, there is no incentive to learn or follow wage and hour rules.

The Court explained that a reasonable attempt does not necessarily require significant effort or expense. The Court stated, “In many cases, even established businesses with regular employees may be able to satisfy this requirement without consulting legal counsel.”

Because the Court found no evidence that BPI made a reasonable attempt to determine the law on employee versus independent contractor classification, Iloff was entitled to liquidated damages.

New Paid Sick Leave Claims

Iloff’s case started before the California Labor Commissioner, where the agency issued a ruling as part of the administrative process. When BPI appealed the Labor Commissioner’s ruling to the Superior Court, IIoff raised a new claim for penalties under California’s Paid Sick Leave (PSL) law which had not been raised with or addressed by the Labor Commissioner. The lower court rejected IIoff’s PSL claims because they weren’t previously raised, however, the California Supreme Court again reversed. The Supreme Court found that employees who raise wage and hour claims before the Labor Commissioner may raise PSL claims when a Labor Commissioner ruling is appealed to court. Therefore, IIoff was able to bring his new PSL claims in court for the first time.

Takeaways & To Dos

This case serves as another reminder for employers to regularly audit their wage-and-hour practices, rather than turning a blind eye and hoping for the best. It also highlights the strong protections afforded to employees in California. Some recommended proactive steps for employers include:

1. Ensure you are paying employees correctly: The first step is to determine proper classification. Remember, the default in California is that anyone who performs work for you will be considered a non-exempt (i.e., hourly) employee, unless you can prove otherwise. For 2025, California’s minimum wage for non-exempt employees is $16.50/hour and is increasing on January 1, 2026 to $16.90/hour. California also has industry-specific minimum wages, such as for health care and fast food.
2. Schedule an HR Checkup to audit for California compliance: California employers should be regularly auditing their payroll practices, leaves of absence administration, safety, employee notice requirements and more. Schedule your comprehensive 50- Point HR Assessment, onsite or virtual, with CEA’s subject matter experts.
3. Draft a strong paid sick leave policy: Employers must also ensure they are following California’s strict paid sick leave laws. Different rules apply depending on whether your employees earn paid sick leave on an accrual basis, or as a lump sum. CEA can assist employers in drafting customized employee handbook policies, or employers may choose CEA’s Do-It-Yourself Handbook template to guide you through the process.

Need additional assistance? Members can call CEA at 800.399.5331.