Often the threat of the plaintiff’s potential ability to recover attorney’s fees is greater than the actual damages that they can prove.  This can be frustrating for employers defending wage and hour claims, in both the individual and class action context.  Indeed, an employer must understand the potential damages and exposure of fees they may have to pay if a case proceeds to trial or arbitration, as well as the potential to recover fees against the plaintiff.  This Friday’s Five addresses common attorney’s fees issues facing employers in wage and hour litigation.

1. When are attorney’s fees recoverable in wage and hour cases?  And can a defendant recover fees if they prevail? 

 Attorney’s fees in wage-and-hour cases are covered by two sections of the Labor Code:  sections 218.5 and 1194.  Aleman v. AirTouch Cell., 209 Cal. App. 4th 556, 579 (2012).  “Sections 218.5 and 1194 cover similar, though functionally exclusive subjects.”  Id.  Section 218.5 covers, among other things, claims “for the nonpayment of wages,” except those claims subject to Section 1194.  Section 1194, in turn, covers claims for failure to pay minimum wage or overtime.  Fees are assessed on a claim-by-claim basis.  Id. at 584.

Section 218.5 allows for “two-way” fee shifting – i.e., to the prevailing party, whether employee or employer – while Section 1194 only permits a prevailing employee to recover fees.  Kirby v. Immoos Fire Protection, Inc., 53 Cal.4th 1244, 1248 (2012).  For an employer to recover fees under Section 218.5, the claim must have been made in “bad faith.”  Cal. Lab. Code § 218.5(a).

 2. Attorney’s fees are not available to plaintiff for prevailing on missed meal or rest break claims.

 In Kirby, the California Supreme Court considered the issue of whether a can a party recover fees and costs under Labor Code, section 218.5 or 1194 when it prevails only on a claim for meal or rest break premium pay.  The court determined that neither of these sections allow for fees, and neither party can recover fees based on a claim only for premium pay.  Id. at 1251-59.

First, the court held that by its plain terms, section 1194 applies only to claims within the usual meaning of minimum wage and overtime – i.e., failure to pay the minimum wage or overtime compensation set by statute.  Id. at 1251-55.

Second, the court found section 218.5 inapplicable because it only applies to claims for “nonpayment of wages.”  Id. at 1255-57.  The court noted that the basis of a section 226.7 claim is the failure to provide meal or rest breaks, rather than the non-payment of wages.  Id. at 1256-57 (“Nonpayment of wages is not the gravamen of a 226.7 violation.  Instead . . . section 226.7 defines a legal violation solely by reference to an employer’s obligation to provide meal and rest breaks.”)  Accordingly, while premium pay owed for missed meal or rest breaks is measured in terms of an hour’s pay, and deemed a “wage” for other purposes (such as the statute of limitations) this is only the statutory remedy.  Id.  The injury is not a failure to provide premium pay, but the failure to provide breaks, and therefore a prevailing plaintiff is not entitled to attorney’s fees under these provisions.

3. An employee cannot recover attorney’s fees for successfully winning waiting time penalties under Labor Code section 203. 

 In Ling v. P.F. Chang’s China Bistro, Inc., 245 Cal. App. 4th 1242, 1260-61 (2016), the court considered the issue where a plaintiff arbitrated her claims before JAMS and the arbitrator rejected plaintiffs’ primary theory of misclassification.  Id. at 1248-49.  Instead, the arbitrator awarded plaintiff $1,038 in break premium for her nine-week training period, which “received little attention at the hearing,” was raised by plaintiff only in post-hearing briefing, and where it was largely undisputed that the plaintiff was entitled to breaks.  Id. at 1248.  The arbitrator awarded $7,688 in waiting time penalties under section 203Id.

Among many other issues on appeal, the plaintiff claimed that the arbitrator erred in failing to award her attorneys fees on her successful claim under Labor Code section 203.  The Court of Appeal disagreed.  It noted that employee could not “transmute” a claim for missed breaks into one for unpaid wages by bringing a derivative claim for waiting time penalties.  Id. at 1261.  Just as under Kirby, while waiting time penalties are measured in wages, those penalties are—as Section 203 states expressly—“penalties” and not wages.  Accordingly, the court found that waiting time penalties should not have been awarded.  Id.  More importantly, however, the court further concluded that no fees could be awarded, because the waiting time claim was “purely derivative” of a claim for meal break premium pay.  Because the underlying claim did not involve a failure to pay earned wages, the court held that the waiting time claim did not either, so could not support a claim for fees on either side.  (Id. [“Because a section 203 claim is purely derivative of ‘an action for the wages from which the penalties arise,’ it cannot be the basis of a fee award when the underlying claim is not an action for wages.”])

4. Which party is entitled to fees is the verdict a split decision and the plaintiff does not win all of their claims? 

Where neither party secures a “complete, unqualified victory” on all claims, “it is within the discretion of the trial court to determine which party prevailed . . . or whether, on balance, neither party prevailed sufficiently to justify an award of attorney fees.”  (See Scott Co. of California v. Blount, Inc. (1999) 20 Cal.4th 1103, 1109.)  In exercising this discretion, the court is to “compare the relief awarded . . . with the parties’ demands on those same claims and their litigation objectives as disclosed by the pleadings, trial briefs, opening statements, and similar sources.”  (Hsu v. Abbara (1995) 9 Cal. 4th 863, 876.)  This rule applies where both parties effectively win on some claims but not others, including the Labor Code context.  (On-Line Power, Inc. v. Mazur (2007) 149 Cal.App.4th 1079, 1087 [noting that where plaintiff brought action for breach of contract and Labor Code violations, and settled for $25,000 pursuant to statutory offer, it was the type of case where the court had discretion to determine the prevailing party].)

5. Plaintiff’s attorney’s fees may be recovered for expense reimbursement claims under Labor Code section 2802.

Labor Code section 2802 provides that employers must pay for and reimburse employees for “all necessary expenditures or losses incurred by the employee in direct consequence” of the employee’s job. Therefore, items like mileage reimbursement, even personal cell phone expenses, or other out-of-pocket expenditures employees make while performing their job must be reimbursed by the employer. Labor Code section 2802(c) provides that the employee is entitled to “attorney’s fees incurred by the employee enforcing the rights granted by this section.”

Yesterday, Governor Brown signed into law SB 462 which amends Labor Code section 218.5 to only allow employers to recover their attorney’s fees and costs upon a finding by the court that the employee brought the claim in bad faith. This Labor Code section applies to actions for nonpayment of wages, fringe benefits, or health and welfare or pension fund contributions.

Prior to this amendment, Labor Code section 218.5 permitted the employee or the employer to recover their attorney’s fees and costs if they prevailed in the underlying action – and there was no need for the employer to make this harder showing that the employee brought the case in bad faith in order to recover its fees and costs. This amendment now makes it harder for employers to recover attorney’s fees and costs upon prevailing in a case involving unpaid wages.

Laura Young was terminated after closing down a 24-hour service station for several hours, in violation of company policy, sued her employer and her supervisor, Angela Lopez (the station manager), alleging claims of harassment on the basis of mental disability, retaliation, and wrongful termination, among others.

The employer and supervisor won summary judgment, ending the case. Lopez, the supervisor personally sued by plaintiff, filed a motion for attorney fees under Government Code section 12965, contending that Exxon, on behalf of Lopez, incurred substantial attorney fees defending Young’s “unreasonable, frivolous, and meritless claims against Lopez individually.” Lopez sought $18,750 in attorney fees (which comprised ¼ of the total attorney’s fees in the case). The court agreed that plaintiff’s claims against the supervisor were frivolous, which entitled the supervisor reimbursement of attorney’s fees.  However, the trial court only awarded nominal attorney fees of $1.00. The supervisor appealed this ruling, seeking additional attorney’s fees.

In only allowing Lopez to recover $1.00 in attorney’s fees, the trial court noted that an award to Lopez “would actually be an award to Exxon, which does not claim [Young’s] claims against it were frivolous.” The trial court concluded this “does not seem right,” and awarded nominal attorney fees of $1.00.

The appellate court here up held the trial court’s nominal attorney fee award of $1.00. The court stated:

In actions under the FEHA, the court, in its discretion, may award reasonable attorney fees to the prevailing party. (Gov. Code, § 12965, subd. (b).) California courts have followed federal law, and hold that, in exercising its discretion, a trial court should ordinarily award attorney fees to a prevailing plaintiff, unless special circumstances would render an award of fees unjust. A prevailing defendant, however, should be awarded fees under the FEHA only “in the rare case in which the plaintiff’s action was frivolous, unreasonable, or without foundation.” (Rosenman v. Christensen, Miller, Fink, Jacobs, Glaser, Weil & Shapiro (2001) 91 Cal.App.4th 859, 864 (Rosenman).) Rosenman cites the high court’s observation that the strong equitable considerations supporting an attorney fee award to a prevailing plaintiff – including that fees are being awarded against a violator of federal law, and that the federal policy being vindicated by the plaintiff is of the highest priority – are not present in the case of a prevailing defendant. (Id. at p. 865, citing Christiansburg Garment Co. v. EEOC (1978) 434 U.S. 412, 418-419 (Christiansburg).)

The appellate court approved that the trial court has discretion to set the amount of attorney’s fees recoverable to a prevailing defendant, providing the following four reasons:

  1. That the Rosenman case sets the standard by which to measure the exercise of the trial court’s discretion in awarding attorney fees to a prevailing defendant in an FEHA case: namely, only in the “rare case” in which the plaintiff’s action was frivolous, unreasonable or without foundation.
  2. As Exxon argued, there are many cases in which the courts have awarded attorney fees to prevailing parties who, like Lopez, are not actually liable for or have not incurred or paid fees. But in all those cases, the attorney fee award actually benefits the prevailing party or an entity which has provided the services and would otherwise not be compensated for them.
  3. There was no evidence that Exxon incurred fees on Lopez’s behalf that it would not have incurred had Lopez not been named as a defendant.
  4. As the Rosenman case instructs, the trial courts should “make findings as to the plaintiff’s ability to pay attorney fees, and how large the award should be in light of the plaintiff’s financial situation.”

The case, Young v. Exxon Mobil Corporation, can be downloaded from the court’s website here.