In Iloff v. LaPaille, the California Supreme Court clarified the “good faith” defense to liquidated damages in minimum wage cases — putting the burden on employers to show they made some effort to determine their legal obligation.

What the Court Held

Under Labor Code section 1194.2, employees who prove minimum wage violations are entitled to liquidated damages in an amount equal to the unpaid wages and interest. The only exception: if the employer shows that the violation was made in good faith and with reasonable grounds to believe it was lawful.

In Iloff, the employer argued that both sides agreed to a “work-for-rent” arrangement, and no one believed wages were owed. The Court rejected this argument, finding that ignorance or mutual misunderstanding is not enough. To invoke the good faith defense, an employer must demonstrate that it made a reasonable attempt to determine the requirements of the law and act on that understanding.

Why It Matters

The decision aligns California law more closely with the FLSA:

• Ignorance ≠ Good Faith. An employer must actively investigate wage obligations.
• Employee Consent Doesn’t Excuse Violations. Even if workers agree to unconventional arrangements, minimum wage laws apply.
• Burden on Employers. Liquidated damages are the rule; avoiding them is the exception.

Practical Takeaways for Employers

• Audit Compensation Practices: Ensure all workers are properly classified and paid at least minimum wage.
• Document Efforts: Keep records showing you consulted legal, industry, or government guidance when setting pay practices.
• Be Proactive: Small businesses and casual arrangements are not exempt; even informal deals require compliance checks.

Bottom Line: Employers must do more than assume compliance — they must be able to prove they tried to understand and follow California’s wage laws. Without that showing, liquidated damages are mandatory.