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On August 21, 2025, the California Supreme Court issued its opinion in Iloff v. LaPaille, a case that highlights the importance of strict compliance with California’s wage and hour laws.

Background

Plaintiff Laurance Iloff lived rent-free on a property in Humbolt County that was managed by Cynthia LaPaille, in exchange for maintenance work on and around the property.  The parties informally agreed that Iloff was an independent contractor and would not be receiving any additional compensation or benefits for his services. After several years the arrangement ended, and Iloff filed a wage claim with the Labor Commissioner for wage violations.  The Commissioner determined Iloff to be an employee, entitled to unpaid wages, statutory penalties, interest, and liquidated damages.

The employer appealed the Commissioner’s decision in the superior court. Following a bench trial, the court ruled that Iloff was indeed an employee, but he was “not entitled to liquidated damages because his employers had acted in ‘good faith’ in not paying him and had ‘reasonable grounds for believing’ they were complying with the law governing minimum wages.” The court also rejected Iloff’s claim for penalties under California’s paid sick leave law, concluding such claims could not be raised in this appeal context because the plaintiff did not include this in his administrative claim with the Labor Commissioner.

Iloff appealed to the Court of Appeal, which affirmed both rulings.

Issues Before the Supreme Court

The California Supreme Court reviewed two pivotal questions:

1. Good Faith Defense to Liquidated Damages
   Must an employer show actual attempts to understand and comply with wage laws to invoke the “good faith” defense to liquidated damages?
2. Paid Sick Leave Claims
   Can employees newly assert claims under the Paid Sick Leave law when their employers appeal a Labor Commissioner ruling to the superior court?

Rulings

1. On Liquidated Damages and Good Faith 

The Court held that ignorance of the law—even mutual, informal misunderstandings—does not meet the threshold for a “good faith” defense under Labor Code § 1194.2(b). Employers must make a reasonable attempt to determine legal requirements in order to invoke good faith and potentially avoid or reduce penalties for minimum wage violations. The Court underscored that the default rule demands liquidated damages when wages are unpaid, absent a documented effort to discern and comply with the law.

2. Paid Sick Leave Claims in Superior Court Appeals

The Court also clarified that employees may indeed raise claims under the Healthy Workplaces, Healthy Families Act in superior court, even if those claims were not presented to the Labor Commissioner. 

Outcome & Implications

The Supreme Court reversed the Court of Appeal decision and remanded the case, signaling that:

• Employers who cannot demonstrate they made “reasonable efforts” to understand wage laws cannot avoid liquidated damages, no matter how well-intentioned.
• Employees may assert previously unraised Paid Sick Leave claims during court appeals of Labor Commissioner rulings.

These rulings underscore employers’ responsibilities to proactively verify compliance with wage and hour and leave laws. For more assistance with ensuring that your HR policies and processes are compliant with California labor laws, don’t hesitate to reach out to our California Legal Services team at CAinfo@employerscouncil.org 

Mary Miller is an attorney with Employers Council