California’s legislature and courts have acted to curb an employer’s ability to recover its fees and costs when it prevails in a lawsuit brought under California’s Fair Employment and Housing Act (“FEHA”, Government Code § 12940 et seq.), even if the plaintiff employee rejected the employer’s Code of Civil Procedure Section 998 offer to compromise.

A section 998 offer is a procedure that defendants often use to encourage settlement before trial. In essence, if the plaintiff rejects the defendant’s settlement offer and fails to secure a more favorable award at trial, the plaintiff may not recover his or her post-offer fees and costs. The plaintiff must also pay the defendant’s post-offer costs, which may include fees for the defendant’s attorneys and expert witnesses.

SB 1300, effective January 1, 2019, is one of several laws signed by Governor Brown in response to the #MeToo movement that expands protections for California employees who pursue good-faith harassment claims. SB 1300 contains several amendments to FEHA, including a new limitation on a prevailing employer’s ability to obtain fees and costs in a FEHA action. SB 1300 amends Government Code Section 12965(b) to state that in FEHA actions, “the court, in its discretion, may award to the prevailing party . . . reasonable attorney’s fees and costs, including expert witness fees, except that, notwithstanding Section 998 of the Code of Civil Procedure, a prevailing defendant shall not be awarded fees and costs unless the court finds the action was frivolous, unreasonable, or groundless when brought, or the plaintiff continued to litigate after it clearly became so.” (Emphasis added)

While SB 1300 takes effect on January 1, 2019, the California Court of Appeal recently held that even in cases that predate the application of SB 1300, a prevailing employer in a non-frivolous FEHA action may not recover its post-offer fees and costs, even if the plaintiff rejected a prior section 998 offer. In Huerta v. Kava Holdings, Inc., 29 Cal. App. 5th 74 (2018), the employee sued his employer for harassment under FEHA. Shortly before trial, the employer served the employee with a section 998 offer to compromise. The employee rejected the offer and went to trial, where the jury found in the employer’s favor. The trial court, while not awarding post-offer attorney’s fees because the action was not frivolous, awarded the employer its post-offer costs and expert witness fees. However, the Court of Appeal held that because the employee’s lawsuit was not frivolous, the employer could not recover any fees and costs, regardless of the section 998 offer. The Court first acknowledged that per SB 1300, “effective January 1, 2019, section 998 will have no application to costs and attorney and expert witness fees” in non-frivolous FEHA actions. The court then analyzed the Code of Civil Procedure and concluded that “[f]or litigation that predates the application of the amended version of section 12965(b), we hold section 998 does not apply to nonfrivolous FEHA actions.”

While a Plaintiff’s rejection of a section 998 offer may still preclude his or her ability to collect post-offer fees and costs, prevailing employers in FEHA actions will not be able to recover their fees and costs unless the court determines the employee’s action was “frivolous.”