What happens when an employee makes a claim for unpaid wages, and wins?  The employee, as the prevailing party, has a statutory right to recover the attorney’s fees reasonably incurred in achieving the victory.

What happens when an employee makes a claim for unpaid wages (other than minimum wage or overtime)[1] and loses?  The employer, as prevailing party, could also recover its attorney’s fees reasonably incurred in defending against the meritless claim.  That’s about to change.

Effective January 1, 2014, Labor Code § 218.5 will provide that a prevailing employer can recover its defense costs only if it proves to the court that the employee brought the action “in bad faith.”  “In bad faith” is not defined in the statute, but it will probably mean something like “the claim was brought with knowledge that it was baseless or with intent to harm the employer.”

Governor Brown signed the legislation, SB 462, making this change on August 26, 2013.  The bill’s author, Sen. Bill Monning, D-Carmel, stated that this amendment corrects “an historic injustice” and “brings California into conformity with the overwhelming majority of states in the country.”  Many employers, however, see nothing unjust in being allowed to recoup expenses they have laid out in response to an employee’s unfounded claims. 

The amendment was prompted by a 2012 California Supreme Court ruling holding that a prevailing employer in a meal-rest penalties case could not recover attorneys’ fees because such penalties are not “wages” and the Labor Code statutes permit fee recovery only in actions involving wages. Kirby v. Immoos Fire Protection, 53 Cal. 4th 1244 (2012).  Although there was no applicable fee-shifting statute in Kirby, the case implied that if the claims had involved wages instead of penalties, an award of attorneys’ fees to the prevailing employer would have been appropriate.  The reaction from SB 462′s sponsor — the California Employment Lawyers Association — was to try to protect plaintiff employees from that eventuality by requiring successful employers to prove bad faith. 

Workplace Solution:   Employers hoping to recover attorney’s fees for successfully fending off non-minimum wage and non-OT claims for wages or benefits must prove that the claiming employee or former employee was a bad actor.  This new law makes it even more important to have good policies and practices in place to avoid facing wage claims in the first place.