In a landmark decision issued in August 2025, the California Supreme Court drew a firm line around the use of the good-faith defense in minimum wage disputes under Labor Code 1194.2. For California employers, this ruling is a wake-up call.
Compliance must be:
- Intentional
- Documented
- Legally informed
It should not be based on assumptions or informal practices.
Background of the California Supreme Court’s Decision on Good Faith Defense in Minimum Wage Disputes
The case centered on a worker named Iloff, who was classified as an independent contractor and compensated with housing instead of wages.
The Labor Commissioner later determined that Iloff was, in fact, an employee and entitled to unpaid wages and liquidated damages.
On his part, the employer argued that they believed the arrangement was lawful and tried to invoke the good-faith defense. But, the Supreme Court wasn’t convinced.
3 Practical Takeaways from the Supreme Court’s Ruling for California Employers
- Good faith requires more than belief; it demands effort.
- Employers must make a reasonable and honest attempt to understand and comply with wage laws.
- Ignorance or misunderstanding of the law is not a valid excuse.
In this case, the employer had not researched wage laws or sought advice, making their defense insufficient.
To successfully claim a good-faith defense in the future, employers must show proactive compliance by:
- Researching wage and hour laws relevant to your workforce.
- Consulting reliable sources when uncertain.
- Documenting efforts to comply with wage and hour regulations.
- Avoiding informal agreements that sidestep wage requirements.
Recommended Wage and Hour Law Compliance Tips for California Employers
- Review worker classifications regularly, especially for contractors, interns, and gig workers.
- Train your teams on wage and hour laws.
- Keep records of compliance efforts.
- Update internal policies to reflect current labor standards.
This ruling reinforces a critical principle: compliance is proactive, not reactive.
Employers who take deliberate steps to understand and follow California labor laws are better protected, not just legally, but reputationally.
You can find all you need to know about California’s minimum wage updates for 2025 in our guide.
Next Steps for Employers After the California Supreme Court’s Decision on the Good Faith Defense in Wage Claims
Navigating California’s complex wage and hour laws isn’t something employers have to do alone. Consulting with an experienced HR Consulting team can help ensure your practices are compliant and defensible.
Reach out to Bizhaven today!
