Pursuant to a new law signed into effect by Governor Jerry Brown in late August, employers that prevail in suits alleging nonpayment of wages, benefits, or pension contributions must show bad faith before they can recover attorney’s fees and costs in the state of California.
Existing law allowed a court to award “reasonable attorney’s fees and costs” to the prevailing party upon request at the initiation of the action. Now, Labor Code Section 218.5, which applies to actions for nonpayment of wages, fringe benefits, or health and welfare or pension fund contributions, requires a higher standard for employers.
S.B. 462, which passed both the state Assembly and House by significant majorities, does not set a similar standard for employees in such suits. According to Sen. Bill Monning (D-Carmel), the bill’s sponsor, the law “corrects an historic injustice that allowed employers to collect attorney’s fees if they prevailed in a wage claim case, [and the] impact of this policy was to discourage and deter workers from pursuing wages they had rightfully earned.”
Sen. Monning also said state law on the issue was unclear in the wake of a 2012 decision from the California Supreme Court in Kirby v. Immoos Fire Protection Inc., 53 Cal.4th 1244. The Kirby case involved the issue of meal and rest break claims where the employer prevailed. But the court said the claims did not fall within the scope of “nonpayment of other wages” and therefore denied an award of attorney’s fees to the employer, which Sen. Monning argued left open the standard for attorney’s fees in such actions. He also pointed to the Fair Employment and Housing Act, which requires that a suit be “objectively frivolous, unreasonable, or without foundation” in order for a defendant employer to recover attorney’s fees. S.B. 462 would therefore align the two standards, he said.
The new law had the backing of the California Employment Lawyers Association, which claimed that the prior ability of employers to seek attorney’s fees had a chilling effect on plaintiffs considering wage claims. Because the amount available to a plaintiff may be small, the group argued that fear of losing and having to pay a former employer scared many employees from protecting their rights.
Opponents – such as the California Chamber of Commerce, the California Grocers Association, and the California Manufacturers & Technology Association – countered that the bill would result in frivolous litigation and would disrupt the balance of a two-sided attorney’s fees provision. Bad faith is also a difficult standard to prove, the groups argued.
The law will take effect January 1, 2014.
To read the new law, click here.
Why it matters: Practically speaking, the new law will make it extremely difficult for employers to recover attorney’s fees despite successfully fending off an employee’s wage suit. The term “bad faith” is not defined in the statute, and how courts will interpret it remains to be seen, but employers hoping to recover attorney’s fees likely face an uphill battle to establish that an employee’s suit was frivolous or unreasonable.