defence that shields my clients from retroactive penalties, because those penalties – as opposed to any unpaid wages – are usually the greatest source of potential liability. When the California Supreme Court applies new law retroactively, the resulting owed wages are often small, but the derivative penalties stemming from those unpaid wages can be crippling. For example, with one employee, a single unpaid penny in wages can trigger up to $4,000 in penalties for inaccurate wage statements, up to 30 days’ worth of compensation for not timely paying the missing wages at separation (for an employee earning the $15 California minimum wage, these penalties max out at $3,600) and attorneys’ fees. That is $7,600 in penalties, plus attorneys’ fees, for one unpaid penny in wages. Multiply that by hundreds or thousands of employees, including employees earning above the minimum wage who trigger higher waiting time penalties, and companies are quickly facing significant liability. Under California law, an employer has a good faith dispute defence against these wage statement and waiting time penalties (among other wage-related penalties) if it reasonably believed it was following the law at the time and the law later changed, or if the law was unclear during the pertinent period. The mere fact that the California Supreme Court chooses to decide a case should necessarily establish the good faith dispute defence. After all, the California Supreme Court often takes up cases to resolve a split of authority among federal or lower state courts. Other times, federal appellate courts find it so difficult to forecast how the California Supreme Court will decide an issue of state law that they ask the California Supreme Court to decide the issue for them. Yet, as in all of the retroactively applied California Supreme Court cases discussed above, that Court often does not address whether a good faith dispute defence applies. As a result, companies must hire lawyers to litigate whether they are subject to penalties, and many companies are compelled to settle cases at inflated prices due to the spectre of massive penalties. Should the California Supreme Court change how it applies employment decisions retroactively and prospectively? Yes. Starting with prospective application, final California Supreme Court decisions are effective immediately. If a new decision entitles employees to additional wages, the employees should begin accruing those wages right away. But the California Supreme Court should provide a grace period before derivative penalties stemming from those wages can kick in. After all, some businesses have giant workforces with complicated personnel software controlled by third parties, which makes instant changes impossible. Smaller businesses may not have the resources to immediately figure out how to comply with new law. It is unfair to penalise well-intentioned, diligent employers that are willing to pay the new wages but simply need time to comply. Employers have advance notice of new laws passed by the legislature well before they become effective, which gives FEATUREOF THEMONTH 15 employers time to make changes and avoid penalties. The same should be true of new rules coming out of the California Supreme Court. Retroactively applying new law without the California Supreme Court specifying whether a good faith dispute defence exists essentially requires employers to predict the future or to constantly engage lawyers. Aside from a decision by the California Supreme Court, there is no official authority employers can consult to derive a definitive understanding of what California employment law requires and that will shield against future penalties if the law changes. As shown by Troester and Mendiola, employers cannot unreservedly rely on what the DLSE says about California law, because the California Supreme Court may ignore that agency’s interpretations and then retroactively apply contrary law without specifying whether the good faith dispute defence governs. Nor can employers unreservedly rely on opinions from the California Courts of Appeal or federal courts, because as shown by Ferra and Naranjo, the California Supreme Court can disagree with those courts and then retroactively apply contrary law without addressing the good faith dispute defence. The lack of a reliable self-help guide short of a California Supreme Court opinion leaves businesses having to constantly engage lawyers to anticipate forthcoming legal changes. But employment lawyers – even judges – cannot always predict how the California Supreme Court will decide an issue. For instance, Ferra shows that even when lawyers parse a statute and follow how the California Court of Appeal and multiple federal courts interpreted that statute, the California Supreme Court may disagree, make its decision retroactive without addressing the good faith dispute defence, and open employers who followed their lawyers’ advice and published court opinions to years of potential liability for unpaid compensation and penalties. In Ferra, the California Supreme Court held that premium pay must be paid at the “regular rate of pay”. That phrase is a term of art with a long-established meaning that is often used in statutes and Wage Orders to distinguish from the only I love the challenge of finding creative legal solutions that meet my clients’ business preferences.
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