Air Carrier’s Good-Faith Belief It Was Complying With California Wage Laws Precludes Penalties, District Court Rules

Seyfarth Synopsis: Recent decisions from the California Supreme Court and Ninth Circuit Court of Appeals found that at least some of California’s wage and hour laws can apply to flight crew domiciled in the Golden State if crew do not spend a majority of their work time in any other state. These decisions rejected air carriers’ arguments that complying with California state law’s stringent requirements on meal and rest periods (among others) would violate the dormant Commerce Clause or would be preempted by the Airline Deregulation Act. But even though the courts ultimately did not agree with the air carriers’ arguments on these points the courts did not conclude the air carriers were acting in bad faith or willfully violating the law. This is important because, as recently decided by the Northern District of California, an employer’s good-faith belief in compliance with the law (even if ultimately wrong) precludes costly penalties for inaccurate wage statements and untimely final wages. 

The District Court’s Decision

On July 12, 2021, a federal judge in the Northern District of California addressed SkyWest Airline’s motion for summary judgment on plaintiffs’ wage and hour claims in the wake of the recent Bernstein v. Virgin America decision from the Ninth Circuit Court of Appeals.  Citing Bernstein and the California Supreme Court’s prior decision in Ward v. United Airlines, Inc., the district court rejected SkyWest’s arguments that plaintiffs’ meal and rest period, wage statement, and final wage claims are preempted by the Airline Deregulation Act or the Federal Aviation Act and violate the dormant Commerce Clause.

The district court then turned to plaintiffs’ claims for inaccurate wage statements and waiting time penalties stemming from SkyWest’s alleged failure to provide compliant meal and rest periods. California Labor Code section 226 allows statutory damages if the employee receives an inaccurate wage statement “as a result of a knowing and intentional failure by an employer to” comply with the law. Noting differences in past trial court decisions on what the phrase “knowing and intentional” might mean, the district court found that an employer’s “good faith belief in compliance precludes liability.” As a result, “wage statement claims under section 226 require a showing of willfulness.” Just the same, to recover waiting time penalties following termination under section 203, an employee must show their former employer “willfully” failed to pay all wages due. But, importantly, an employer does not “willfully” fail to pay wages if there is a “good faith dispute” those wages are due, even if the employer’s defense is ultimately wrong or a court disagrees. In other words, an employee seeking statutory damages is required to show more than just an inaccurate wage statement or inaccurate final wages; they must show a willful non-compliance with the law.

In a win for air carriers, the district court found employees could not establish bad faith or willfulness on the part of SkyWest. Instead, SkyWest had a good-faith belief that it was not violating California law due to the wealth of decisions holding federal law and the dormant Commerce Clause precluded applying California labor laws to interstate airline workers. Even though—at least according to this court—SkyWest ultimately was wrong, that does not mean SkyWest was not acting in good faith under then-controlling precedent. Consequently, the district court granted SkyWest’s motion for summary judgment on the wage statement and waiting time claims, but left the meal and rest break and on-call time claims for trial.

What the Ruling Means for Employers

This ruling affirms a common-sense interpretation of the California Labor Code that requires a showing of willfulness or bad faith before an employee may recover penalties for inaccurate wage statements or untimely final wages. Air carriers, for decades, acted in good faith that they were complying with federal and state law as interpreted by numerous courts; that those decisions were eventually overturned does not mean air carriers acted in bad faith leading up to Ward or Bernstein or that they are acting in bad faith while the United States Supreme Court considers whether to grant certiorari in these important, high-stakes disputes.