Earlier this week, the California Court of Appeal reached a decision that may ease employers’ worries when presented with a wage and hour lawsuit.

California’s plaintiff-friendly laws provide avenues for plaintiffs to fill their pockets with penalties and attorneys’ fees, in addition to any wages they claim are owed. However, as decided on Monday in Naranjo v. Spectrum Security Services, Inc., plaintiffs will have to work a little harder to prove they are entitled to additional penalties and fees.

When an employee claims that they have not been paid all the wages they were entitled to both during and after their employment, they typically seek additional penalties and fees under Labor Code sections 203 and 226. To prevail on these claims, the employee must prove that the employer’s failure to pay certain wages was either “willful” under Labor Code Section 203, or “knowing and intentional” under Labor Code Section 226. In Monday’s decision, the Court held that an employer’s “good faith dispute” can prevent the employee from collecting penalties and attorneys’ fees for “willful” or “knowing and intentional” violations.

In this decision, the Court recognized that California Code of Regulation Section 13520 applies to Labor Code Section 203. Under this regulation, if the employer has a “good faith belief” that it complied with the law at the time final wages were due, then the employer’s violation is not considered “willful.” As a result, an employer who presents evidence establishing a good faith dispute can prevent the employee from collecting penalties under Labor Code Section 203.

Labor Code Section 226 allows plaintiffs to collect both penalties and attorneys’ fees if the employee can successfully demonstrate that the employer knowing and intentionally failed to provide compliant wage statements. In this case, the plaintiff argued that the employer’s mere knowledge that meal period premiums were not included on his wage statements demonstrated a knowing and intentional violation. However, the employer demonstrated that it had a good faith belief that it was not violating any laws when it did not include meal period premiums on its wage statements, therefore the Court held that it could not have knowingly and intentionally violated Labor Code Section 226.

Unfortunately, a minority of federal district courts in California do not hold that an employer’s good faith belief is sufficient to preclude a finding of knowing and intentional violation. These courts adopted the standard the plaintiff argued that “knowing and intentional” can be satisfied by simply showing that an employer provided an inadequate wage statement that was not a result of clerical error or inadvertent mistake. However, this Court disagreed with this interpretation, concluding that a good faith dispute can preclude plaintiffs from being entitled to penalties and attorneys’ fees under Labor Code Section 226.