Generally, states follow the American Rule concerning attorney’s fees, where each party is responsible for paying its own fees. On occasion, however, fee-shifting exceptions for prevailing parties are built into state statutes, and one such statute is the Massachusetts Wage Act. Unfortunately, the concept of “prevailing” has never truly been defined in this context, leaving some ambiguity as to just what it means.
On February 19, 2019, the Massachusetts Supreme Judicial Court took a step toward establishing a broad definition of “prevail,” unanimously adopting a fee-shifting standard for employment matters with potentially costly ramifications for employers. In Ferman v. Sturgis Cleaners, Inc., former employees filed Wage Act claims, which were eventually settled for roughly 70% of the initial claim. The plaintiffs asked for attorney’s fees on the ground that they were prevailing parties, and a Superior Court judge agreed. On defendant employer’s appeal, the SJC rejected the notion that a party must have a judgment or court approval to qualify as prevailing for the purposes of fee-shifting. Rather, the SJC held that a Wage Act claimant need only obtain a favorable settlement in order to qualify as a prevailing party.
The Ferman decision has roots in SJC precedent, and it represents another nail in the coffin for defendants seeking to apply a more stringent fee-shifting test to Massachusetts statutes. That stringent test, set forth by the US Supreme Court in a 5-4 decision and advocated for by the Ferman defendants, necessitates either an enforceable judgment or court-ordered consent decree to establish prevailing party status. Buckhannon Bd. & Care Home, Inc. v. West Virginia Dep’t of Health & Human Resources, 532 U.S. 598, 604 (2001).
Rather than adopting the Buckhannon test, the SJC held that the proper test for determining prevailing party status is the less stringent “catalyst test,” which only requires that a plaintiff’s lawsuit play a “necessary and important” role in causing a defendant to pay out a material portion of the requested relief. Effectively tracking Justice Ruth Bader Ginsburg’s Buckhannon dissent in its backing of the catalyst test, the reasoning behind Ferman is two-fold: first, to discourage the non-payment of wages; and second, to incentivize attorneys into taking wage cases, which rarely yield high-figure recoveries. The stated hope of the SJC is that this will provide more realistic access to counsel for those who would not have been able to afford it.
The impact of Ferman’s catalyst test on Massachusetts employers will be felt on both a case-specific and general level. On a specific level, employers will no longer be able to litigate a Wage Act claim to the death, settle that claim right before a judgment is about to enter, and escape paying attorney’s fees. Under the catalyst test, as long as settlement was prompted by the lawsuit and paid out a material sum of the total claim, a plaintiff will be entitled to attorney’s fees as a prevailing party. It may be possible to avoid this expense by, for example, including an express waiver of attorney’s fees in a settlement agreement. Of course, such methods are yet to be tested by post-Ferman courts.
On a more general level, Massachusetts employers should expect to see an uptick in Wage Act claims, both legitimate and frivolous in nature. As the SJC predicts, a lower bar for attorney’s fees recovery will incentivize attorneys to take wage cases, thereby opening affordable legal services to a larger pool of potential plaintiffs. Massachusetts employers, then, must be even more vigilant in their record-keeping and payment practices, so that they may properly distinguish between legitimate and frivolous claims. Going forward, there is added incentive to nip meritorious claims in the bud to keep the meter from running.
Of course, claims are often filed with little to no merit. Ferman expressly carves nuisance settlements out from the catalyst test, so there is protection for employers trying to swiftly extinguish a frivolous claim. The risk, of course, lies in fighting that claim for so long that any eventual settlement goes beyond “nuisance” territory. Employers facing such decisions should engage in a cost-benefit analysis, in which counsel can be of assistance, to determine an efficient and effective defense strategy.