Unreported / Non-Citable
Background
Esteban Palomino, a former hourly machinist at Northrop Grumman Systems Corporation's Sunnyvale facility, filed a class action and Private Attorneys General Act (PAGA) representative action in April 2019 alleging violations of Labor Code section 226, subdivision (a). Northrop Grumman issued its California employees two wage statements each pay period: a nationwide statement and a separate California supplement available only through a different link on the employee web portal. Palomino alleged the statements failed to show total hours worked, applicable hourly rates, and the correct legal employer name. After a two-day bench trial, the superior court ruled for Palomino, awarding $1,199,800 in class statutory damages and $3,160,950 in PAGA civil penalties, followed by $1,691,558.10 in attorney's fees and $10,633.71 in costs.
Northrop Grumman appealed the judgment and the post-judgment orders, arguing that its wage statements complied with section 226, that any violations were not "knowing and intentional," that Palomino failed to establish a deemed injury, and that the PAGA penalties were improper in several respects, including the base number used in the calculation. The Sixth District decided the consolidated appeals in light of Naranjo v. Spectrum Security Services, Inc. (2024) 15 Cal.5th 1056, issued after the judgment, which held that an employer's objectively reasonable, good faith belief that it provided adequate wage statements precludes a finding of a knowing and intentional violation.
The Court’s Holding
The Court of Appeal affirmed that Northrop Grumman violated section 226, subdivision (a). It concluded that the statute requires a single comprehensive wage statement, relying on the statutory text and the California Supreme Court's descriptions of the statute in Oman v. Delta Air Lines and Ward v. United Airlines; the nationwide statement and California supplement, accessible only through separate links and lacking page numbers showing collation, did not qualify. Substantial evidence also supported the trial court's determinations that the nationwide statement violated subdivision (a)(2) by not showing total hours worked when overtime hours were listed, and subdivision (a)(8) by listing only "Northrop Grumman" rather than the legal entity name; the court also inferred a forfeited finding that the statement violated subdivision (a)(9) by omitting applicable hourly rates.
The court nevertheless reversed the judgment and orders. Under Naranjo, the trial court erred by treating good faith as irrelevant to the knowing-and-intentional element; whether Northrop Grumman's noncompliance was knowing and intentional or made in good faith is a factual question the trial court must decide on remand, along with re-assessing any statutory damages. The court held that Naranjo does not categorically bar PAGA penalties, because section 226(e)(1)'s knowing-and-intentional requirement does not apply to PAGA claims, though good faith remains a factor the trial court may weigh in reducing penalties under section 2699(e)(2). It also held that section 226.3's heightened $250-per-pay-period penalty does not apply where the employer provided wage statements with deficiencies, and directed the trial court on remand to specify the starting base number for any PAGA penalties. The attorney's fee and cost awards fell with the reversed judgment.
Key Takeaways
- Labor Code section 226, subdivision (a), requires a single comprehensive wage statement; issuing a nationwide statement plus a separate California supplement violated the statute.
- Under Naranjo, an employer's objectively reasonable good faith belief that it complied with section 226 is a defense to statutory penalties, and the trial court must make that factual determination in the first instance on remand.
- Naranjo's good faith defense does not preclude PAGA penalties, but good faith may be considered in reducing the award under section 2699, subdivision (e)(2).
- Section 226.3's heightened penalties apply only where an employer fails to provide a wage statement altogether or fails to keep required records, not to deficient statements.
- Because the judgment was reversed, the attorney's fees and costs awards were reversed too, and the parties bear their own costs on appeal.
Why It Matters
This unpublished decision applies Naranjo to a wage-statement class action, confirming that the good-faith question is a factual one for the trial court on remand and that PAGA penalties remain available even if the employer acted in good faith, subject to the trial court's discretion to reduce them. It also reaffirms that section 226 demands a single comprehensive wage statement and clarifies that section 226.3's heightened penalties do not reach employers who issued deficient statements, providing guidance for PAGA penalty calculations on remand.