California Supreme Court Cases Employers Should Watch in 2025

The California Supreme Court issued several important decisions in 2024 about issues such as the application of the state Private Attorneys General Act to public employees and the definition of “hours worked.”

Several cases are still pending before the state’s high court. Here are the highlights and what the decisions could mean for employers in the Golden State.

Brown v. City of Inglewood

Are elected officials “employees” for the purposes of whistleblower protection under California Labor Code Section 1102.5, subdivision (b)?

The plaintiff, the elected treasurer of Inglewood since 1987, sued the city and several members of the Inglewood City Council. The plaintiff alleged that after she reported concerns about financial improprieties, the city and the individual defendants defamed and retaliated against her. She brought claims of defamation, violation of Labor Code Section 1102.5 (which prohibits retaliation against employees for reporting illegal activities), and intentional infliction of emotional distress (IIED).

The defendants filed a special motion to strike the complaint under California’s anti-strategic lawsuit against public participation (anti-SLAPP) statute, which aims to prevent lawsuits that are intended to silence free speech. The trial court granted the motion in part but denied it regarding the Section 1102.5 retaliation claim and the IIED claim based on retaliation.

On appeal, the California Court of Appeal reversed the trial court’s decision in part. The appellate court ruled that the plaintiff, as an elected official, is not considered an “employee” under Section 1102.5 and, therefore, her retaliation claim under this statute was not legally sufficient. The Court of Appeal reasoned that the inclusion of elected officials in the definition of “employee” in other statutes such as the Workers’ Compensation Act but not within the definition for the purposes of Section 1102.5 reflected the Legislature’s plain decision to deny them the protections of that section of the Labor Code. Consequently, the court also struck down the retaliation-based IIED claim against the individual defendants. 

The California Supreme Court’s decision will be significant for public entities because it clarifies the scope of whistleblower protection under Labor Code Section 1102.5.

California Department of Corrections and Rehabilitation v. Workers’ Comp. Appeals Bd.

Should the calculation of enhanced workers’ compensation benefits for an employer’s serious and willful misconduct under Labor Code Section 4553 be based on temporary disability payments available under the Labor Code?

A correctional officer was severely injured in a preplanned attack by inmates in August 2002. He filed a workers’ compensation claim, alleging that his injury was caused by the serious and willful misconduct of his employer, the California Department of Corrections and Rehabilitation (CDCR). Under Labor Code Section 4553, such allegations could increase the compensation recoverable by 50% if proven.

The Workers’ Compensation Appeals Board (WCAB) initially found that the CDCR had failed to act on credible threats of inmate violence, which were reported before the attack. This decision was based on the board’s finding that the CDCR took the facility off lockdown despite knowing about the planned attack.

However, the California Court of Appeal annulled the WCAB’s decision. The court held that the compensation the correctional officer received while on industrial disability leave and enhanced industrial disability leave did not qualify as “compensation” under Section 4553 because, while the Government Code did provide for industrial disability leave and enhanced industrial disability leave, their inclusion of “temporary disability” under the Government Code definition of “industrial disability” did not alter the Labor Code’s definition for the purposes of determining compensation under Section 4553. Therefore, the base compensation for calculating the increased award should have been what the correctional officer would have received on temporary disability, which is typically two-thirds of a worker’s salary.

The decision will be important for employers in evaluating the settlement of serious and willful claims, which typically are not covered by workers’ compensation insurance.

Fuentes v. Empire Nissan Inc.

When an arbitration agreement is fair in substance, is it nevertheless unenforceable for unconscionability if it is a largely unreadable one-page form with tiny, seemingly blurred print and is presented on a take-it-or-leave-it basis?

Here, the trial court held that the arbitration agreement was procedurally unconscionable. The California Court of Appeal reversed, holding that while the tiny font of the agreement created a problem of procedural unconscionability, the substance of the arbitration agreement was fair and there was, therefore, no reason to invalidate the agreement for unconscionability.

The result of this case will shape the future of employment arbitration agreement enforceability, which has been changing dramatically in recent years.

Iloff v. LaPaille

For an employer to establish its “good faith” defense to liquidated damages, must it demonstrate that it took affirmative steps to ascertain whether its pay practices complied with the Labor Code and Industrial Welfare Commission Wage Orders? May a wage claimant prosecute a paid-sick-leave claim in a de novo wage claim trial conducted pursuant to Labor Code Section 98.2?

In this case, the plaintiffs filed wage claims with the Division of Labor Standards Enforcement (DLSE) against defendants Bridgeville Properties Inc. (BPI) and its CEO for unpaid wages in violation of the Labor Code. The plaintiffs received a favorable order from the labor commissioner, and BPI appealed to the Superior Court. In the subsequent Superior Court action, the plaintiffs were represented by the labor commissioner’s office.

Following a de novo trial on the wage claims, the court found that the plaintiffs were entitled to unpaid wages and certain penalties but rejected the plaintiffs’ unfair competition law claims under Business and Professions Code Section 17200. The court declined to award the plaintiffs liquidated damages or penalties for violations of sick-leave notice requirements, and did not impose personal liability on BPI’s CEO.

The issues here are the Court of Appeal’s holdings that liquidated damages were not appropriate for failure to pay minimum wages under Labor Code Section 1194.2(a) and that plaintiffs do not have private rights of action for sick-leave penalties.

Section 1194.2(a) allows courts to reduce or eliminate liquidated damages if an employer can show that it acted in “good faith” with “reasonable grounds” for believing it did not violate the law. Here, because the plaintiffs initiated the idea of working in exchange for rent rather than wages as independent contractors and given the unsettled status of the law on this subject at the time, the trial court acted within its discretion in finding that the defendants acted in good faith.

Moreover, sick-leave penalties require independent actions by the labor commissioner or the Office of the Attorney General, and no private right of action exists to enforce the requirements of the Healthy Workplaces, Health Families Act. Even though the plaintiffs were represented by the labor commissioner in their Superior Court action, this did not suffice to permit their pursuit of sick-leave penalties.

Separately, and not at issue with the Supreme Court, the Court of Appeal held that BPI’s CEO may be held personally liable due to her managerial role under Labor Code Section 558.1(a), which expressly permits personal liability for individuals “acting on behalf of an employer.” It further held that the trial court had discretion as to whether equitable relief for unfair business practices would be in the interest of justice, even where Labor Code violations exist. Because the parties appeared to lack understanding as to the plaintiffs’ entitlement to wages for the services they performed for BPI, the Court of Appeal found that the trial court properly exercised its discretion in denying equitable relief.

Zhang v. Superior Court

If a party moves to compel arbitration in a non-California forum pursuant to a forum-selection clause and seeks to stay related California litigation under Section 1281.4, can the opposing party pre-empt the court’s “competent jurisdiction” requiring a stay of the California litigation by merely invoking Labor Code Section 925? Moreover, can a party to an arbitration agreement circumvent the arbitration agreement’s delegation of all issues to an arbitrator by invoking Labor Code Section 925?

The plaintiff is a former Dentons law firm partner who worked in California. After Dentons removed him from the partnership for diverting money owed to the firm, it initiated arbitration in New York pursuant to a signed arbitration agreement contained within the partnership agreement entered into between the plaintiff and his former firm. The plaintiff then filed suit in California, arguing that he was an employee and that Labor Code Section 925 pre-empted arbitration in New York. Section 925 contains a prohibition against requiring a California employee to adjudicate California claims elsewhere. Dentons sought a stay under Section 1281.4. The trial court granted Denton’s motion for a stay. 

After the Court of Appeal denied the plaintiff’s petition for a writ and the Supreme Court ordered the Court of Appeal to review, the Court of Appeal denied the plaintiff’s petition on the merits, deciding 1) that the stay was properly granted because the partnership agreement delegated to the arbitrator all questions of arbitrability, 2) the New York court was a court of competent jurisdiction because Section 925 did not automatically strip another state’s courts of jurisdiction, and 3) giving effect to the delegation clause comported with the Federal Arbitration Act, because doing so protected the right to enforce negotiated arbitration agreements.

This case is crucial for employers because it may affect who can benefit from Labor Code Section 925 and therefore pre-empt forum-selection clauses.

Sayaka Karitani and Andrew L. Smith are attorneys with Jackson Lewis in Los Angeles. © 2025 Jackson Lewis. All rights reserved. Reposted with permission.