BILL ANALYSIS Ó SENATE JUDICIARY COMMITTEE Senator Noreen Evans, Chair 2013-2014 Regular Session SB 462 (Monning) As Introduced Hearing Date: April 23, 2013 Fiscal: No Urgency: No TW SUBJECT Employment: Compensation DESCRIPTION Existing law provides an award of attorney's fees and costs to the prevailing party in an action brought for nonpayment of wages, fringe benefits, or health and welfare or pension fund contributions. This bill would add to this provision that if the prevailing party is not an employee, the court shall only award attorney's fees and costs if the court finds that the employee brought the court action in bad faith. BACKGROUND Existing law provides that, when an employee files an action recover minimum wages or overtime, the employee who prevails in the action is entitled to recover reasonable attorney's fees and costs of suit. (Lab. Code Sec. 1194.) On the other hand, if an employee files an action to recover wages, fringe benefits, or health and welfare or pension fund contributions, the court shall award reasonable attorney's fees and costs to the prevailing party, as specified. (Lab. Code Sec. 218.5.) "Wages" under this statute are defined as straight-time wages above the minimum wage and contractually agreed-upon or bargained-for wages." (Earley v. Superior Court (2000) 79 Cal.App.4th 1420, 1430.) This bill would revise the existing two-way fee shifting provision, where either party is authorized by statute to an award of attorney's fees and costs, and provide that the non-employee prevailing party (presumably the defendant (more) SB 462 (Monning) Page 2 of ? employer) could only be awarded attorney's fees and costs upon a judicial finding that the employee brought the action in bad faith. CHANGES TO EXISTING LAW Existing law provides that in any action brought for the nonpayment of wages, fringe benefits, or health and welfare or pension fund contributions, the court shall award reasonable attorney's fees and costs to the prevailing party if any party to the action requests attorney's fees and costs upon the initiation of the action. This section shall not apply to an action brought by the Labor Commissioner, to a surety issuing a bond, as specified, or to an action to enforce a mechanics lien. (Lab. Code Sec. 218.5.) Existing law states that the above provision does not apply to any action for which attorney's fees are recoverable under Labor Code Section 1194, which applies to minimum wage and overtime claims. (Lab. Code Sec. 218.5.) This bill would add, for purposes of the above attorney-fee provision, if the prevailing party in the court action is not an employee, attorney's fees and costs shall be awarded only if the court finds that the employee brought the court action in bad faith. This bill would also clarify that the above attorney-fee provision does not apply to any cause of action for which attorney's fees are recoverable under Labor Code Section 1194. COMMENT 1. Stated need for the bill The author writes: [The Fair] Employment and Housing Act allows for reasonable attorney's fees to a "prevailing party," (see Cal[.] Gov[.] Code [Sec.] 12965(b)) but this standard has been interpreted by the courts to mean that a prevailing defendant can be awarded attorney's fees only if the suit is objectively "frivolous, unreasonable or without foundation." (See Cummings v. Benco Building Services (1992) 11 Cal.App.4th 1383. ) No court has directly interpreted the attorney's fees standard under [Labor Code] Section 218.5. In fact, the SB 462 (Monning) Page 3 of ? question was left open, leading to even more confusion for courts and workers alike, in a recent California Supreme Court decision, Kirby v. Immoos Fire Protection, Inc. (2012) 53 Cal.4th 1244, 274 . Not only is this provision anomalous among all other state and federal wage claim statutes, but it also is one of only two provisions in the California Labor Code that provides attorney's fees for a prevailing defendant. Most provisions of the Labor Code allow only a prevailing employee to recover attorney's fees. SB 462 would provide clarification making the award of attorney's fees and costs where the prevailing party is not an employee contingent on a finding by the court that the employee brought the court action in bad faith. 2. Limiting an employer defendant's award of attorney's fees and costs Existing law, Labor Code Section 218.5, provides an award of attorney's fees and costs to the prevailing party in an action brought for nonpayment of wages (other than minimum wage and overtime), fringe benefits, or health and welfare or pension fund contributions. "Wages" under this statute are defined as straight-time wages above the minimum wage and contractually agreed-upon or bargained-for wages." (Earley v. Superior Court (2000) 79 Cal.App.4th 1420, 1430.) This bill would add to this provision that a non-employee prevailing party (presumably the employer) could only be awarded attorney's fees and costs only if the court finds that the employee brought the court action in bad faith. a. Stated confusion over existing two-way attorney fee provision The author argues that existing law is unclear as to the standard for awarding attorney's fees in these types of actions since another attorney fee provision (under the Fair Employment and Housing Act (FEHA)) requires the suit to be objectively frivolous, unreasonable, or without foundation for an award of attorney's fees to a defendant employer. The author further asserts that a recent court case, Kirby v. Immoos Fire Protection, Inc. (2012) 53 Cal.4th 1244, left open the attorney fee standard for these types of actions. SB 462 (Monning) Page 4 of ? In Kirby, the court analyzed whether meal and rest break claims fell within the scope of nonpayment of other wages under Labor Code Section 218.5 to determine whether the prevailing employer defendant could be awarded attorney's fees. The Kirby court found that the claim did not involve Labor Code Section 218.5 wages, so the court denied an award of attorney's fees to the prevailing defendant employer because the two-way fee-shifting statute did not apply. As for the attorney fee issue raised by the author regarding Cummings v. Benco Building Services (1992) 11 Cal.App.4th 1383, the FEHA statute at issue (Gov. Code Sec. 12965(b)) provides for judicial discretion and analysis of the standard necessary for a party to be awarded attorney's fees. Importantly, the FEHA provision is entirely separate from the various attorney fee provisions contained in the Labor Code and, therefore, does not relate to the Labor Code Section at issue in this bill. b. Chilling effect on wage claims The sponsor, California Employment Lawyers Association (CELA), further argues that the two-way fee shifting provision in Labor Code Section 218.5 has a chilling effect on contractual wage claims. Although these claims may be relatively small (as noted by this Committee when this statute was added to the Labor Code), CELA asserts that the attorney's fees racked up by employers as the case goes up and down the court system repels plaintiffs (and attorneys) from bringing these types of claims (that are typically filed with other claims, such as for overtime, breach of contract, and breach of fiduciary duty). In support of this argument, CELA points to the attorney's fee award in Harris v. Investor's Business Daily, Inc. (2006) 138 Cal.App.4th 28, which reversed the trial court's order sustaining a demurrer on several of the plaintiffs' claims. The Harris plaintiffs made claims against their employers for federal Fair Labor Standards Act violations, overtime pay, unlawful commission deductions, and waiting penalties. CELA asserts that the trial court initially awarded the defendants over $500,000 in attorney's fees and costs based on Labor Code Section 281.5, however, eventually the employers sought $2.5 million in attorney's fees. It is unclear whether this amount reflects attorney's fees requested only in litigating claims under Labor Code Section 281.5. Incidentally, none of the claims asserted by plaintiffs were noted by the Court of Appeal as Labor Code Section 281.5 claims. SB 462 (Monning) Page 5 of ? CELA further asserts that many times, plaintiff attorneys do not bring claims under Labor Code Section 281.5 but instead file wage claims for minimum wage and overtime because an unsuccessful plaintiff employee would not be liable for the defendant employer's attorney's fees. Notably, a recent court decision in Plancich v. United Parcel Service, Inc. (2011) 198 Cal.App.4th 308 held that, although Labor Code Section 1194 (minimum wage and overtime claims) provides a one-way fee-shifting award to the prevailing plaintiff, it does not expressly exclude an award of defendant attorney's fees. The court, citing Code of Civil Procedure Section 1032, which requires express statutory language exempting a prevailing party from recovering costs, awarded the defendant its attorney's fees and costs because Section 1194 has no express exemption against an award of attorney's fees and costs to a prevailing defendant. As asserted by CELA, plaintiff attorneys primarily limit their wage claims to Labor Code Section 1194, rather than claiming Labor Code Section 218.5 claims due to the two-way fee shifting liability. In light of the Plancich two-way fee-shifting holding, this bill may encourage plaintiff attorneys to file all wage claims under Labor Code Section 218.5 in order to avoid a potential award of attorney's fees to the defendant. In this regard, this bill would expressly limit the defendant's attorney's fees to only those prevailing employers who prove the plaintiff's bad faith in bringing the claim. In support of this bill, the California Labor Federation states that "California is one of only three states with a 'prevailing party' standard where a worker may unconditionally be liable for the employer's attorney's fees in a wage claim action. Given the realities of wage and hour litigation for a worker, this rule is unfair. A worker may have a totally legitimate wage claim, but lack access to the records needed to prove it. In the underground economy, where workers are often paid 'off the books' and in cash, records are few and far between and proving what an employer did or did not do is nearly impossible. Workers in those kinds of jobs should not be saddled with the employer's attorney's fees simply because they were not able to prevail." c. History of fee shifting provisions The Legislature reviewed the attorney's fees issue when it SB 462 (Monning) Page 6 of ? codified the court's holding in Earley v. Los Angeles County (2000) 79 Cal.App.4th 1420, which held that the two-way attorney's fees provision under Labor Code Section 218.5 does not apply to minimum wage and overtime claims brought under Labor Code Section 1194. AB 2509 (Steinberg, Ch. 876, Stats. 2000), among other things, amended Labor Code Section 218.5 to provide that the two-way attorney's fees provisions do not apply to Labor Code Section 1194 wage claims, which only provides a one-way attorney's fees award in favor of the prevailing plaintiff. As such, the Legislature reaffirmed its intent to limit employee attorney-fee liability for minimum wage and overtime claims, yet it continued the two-way fee shifting provision for Labor Code Section 281.5 claims that had been in statute since it was enacted in 1986. (See SB 2570 (Lockyer, Ch. 1211, Stats. 1986).) d. Other attorney's fees provisions in contracts and statute This bill would provide that, for straight-time wages above the minimum wage and contractually agreed-upon or bargained-for wages, fringe benefits, or health and welfare or pension fund contributions, the court shall only award attorney's fees and costs to the prevailing non-employee party if the party can prove the plaintiff brought the action in bad faith. Existing law provides that in any action on a contract, where the contract specifically provides that attorney's fees and costs, which are incurred to enforce that contract, shall be awarded either to one of the parties or to the prevailing party, then the party who is determined to be the party prevailing on the contract, whether he or she is the party specified in the contract or not, shall be entitled to reasonable attorney's fees in addition to other costs. (Civ. Code Sec. 1717(a).) Because this bill would restrict an employer's award of attorney's fees if it prevailed in an action for contractually agreed-upon wages, fringe benefits, or health and welfare or pension fund contributions, this bill could alter the contracting parties' agreement on attorney's fees awards and would create uncertainty for the contracting parties. Notably, a provision in any such contract that provides for a waiver of attorney's fees is void. (Id.) Staff notes that while it is important to uphold contracts to provide certainty for all parties, as a matter of public policy, employment contracts that contain attorney's fee SB 462 (Monning) Page 7 of ? provisions which favor the employer over the employee could potentially chill wage claims. It is that chilling effect which this bill attempts to address. 3. Clarifying non-application of statute to cause of action under other wage claim statute Existing law provides that the two-way fee shifting provisions under Labor Code Section 218.5 do not apply to any action for which attorney's fees are recoverable under Section 1194. This bill would clarify that these provisions do not apply to any cause of action for which attorney's fees are recoverable under Section 1194. In doing so, this bill would codify the court's holding in Aleman v. Airtouch Cellular (2012) 209 Cal.App.4th 556. In its reversal of the trial court's determination that both of the employee's causes of action, one for reporting time and one for split shift pay, were Labor Code Section 218.5 claims, the Aleman court held that only the reporting time claim was a Labor Code Section 218.5 claim, while the split shift pay claim was a Labor Code Section 1194 claim. (Id. at pp. 582-583.) For purposes of determining the amount of attorney's fees awardable to the defendant employer, the court analyzed whether the phrase "any action" in Labor Code Section 218.5 meant "any civil action in which attorney fees are recoverable under section 1194, or whether 'any action' simply means any cause of action." (Id. at pp. 583-584; emphasis in original.) The court determined that the Legislature intended to prevent an employee, who files a Section 1194 claim in the same action as a Section 218.5 claim, from being unjustly subject to adverse fees awards while another employee, who files one action for a Section 1194 claim and separate action for a Section 218.5 claim, would only be subject to adverse fees awards on the Section 218.5 claim. Accordingly, the court held that the phrase "any action" means "any cause of action." This bill would codify this holding. 4. Opposition concerns The Construction Employers' Association, in opposition, argues that "[t]his bill would limit the ability for employers to be awarded attorney's fees and costs in any action of wages, fringe benefits or health and welfare or pension fund contributions unless the court finds that the employee brought the court action in 'bad faith.' As you know, the 'bad faith' standard is SB 462 (Monning) Page 8 of ? very subjective and this measure would make it exceedingly difficult for employers to collect attorney's fees in all but the most egregious court actions. This will likely prompt a flood of costly new litigation because the potential downside for employees is so low." CSAC Excess Insurance Authority also asserts that"[i]f an employer is successful in their efforts to defend against an action, they should equally be entitled to seek recovery of reasonable attorney's fees and costs without first having to satisfy an additional burden of whether an action was in bad faith. Not only does this take away the equal right to employers, but it also desensitizes plaintiffs and their counsel from adequately considering the merits of the intended action prior to filing." A coalition of opposition argues that this bill "undermines the Supreme Court and the clear language of the Labor Code that has been in place since 1986, in order to provide a one-sided attorney fee provision that will incentivize further meritless wage and hour litigation. . . . [Existing law's] two-way attorney's fee shifting provision was recently affirmed by the Supreme Court in Kirby v. Immoos Fire Protection, 53 Cal.4th 1244 (2012). SB 462 alters [Labor Code] section 218.5 and the Court's holding by providing that an employer may only obtain its attorney's fees if the employer can prove the action was brought in bad faith. 'Bad faith' is a difficult standard to prove and will substantially limit an employer's ability to recover its attorney's fees for defending litigation that lacked merit. . . . SB 462 disrupts this balance by limiting an employer's ability to recover its attorney's fees for meritless claims, which could create more frivolous litigation." Support : California Conference Board of Amalgamated Transit Union; California Conference of Machinists; California Federation of Teachers AFT, AFL-CIO; California Immigrant Policy Center; California Labor Federation, AFL-CIO; California Nurses Association; California Rural Legal Assistance Foundation, Inc.; California Teamsters Public Affairs Council; Engineers & Scientists of California, IFPTE Local 20; International Longshore & Warehouse Union; Professional and Technical Engineers, IFPTE Local 21; UNITE-HERE, AFL-CIO; United Food and Commercial Workers Western States Council; Utility Workers Union of America, Local 132; Wage Justice Center SB 462 (Monning) Page 9 of ? Opposition : Acclamation Insurance Management Services; Air Conditioning Trade Association; Allied Managed Care; Associated Builders and Contractors of California; Associated General Contractors; Brea Chamber of Commerce; California Apartment Association; California Chamber of Commerce; California Chapter of American Fence Association; California Fence Contractors' Association; California Framing Contractors Association; California Grocers Association; California Lodging Industry Association; California Manufacturers and Technology Association; California Retailers Association; Construction Employers' Association; CSAC Excess Insurance Authority; Culver City Chamber of Commerce; Engineering Contractors' Association; Flasher Barricade Association; Fullerton Chamber of Commerce; Grater Conejo Valley Chamber of Commerce; Marin Builders Association; National Federation of Independent Business; Plumbing-Heating-Cooling Contractors Association of California; Redondo Beach Chamber of Commerce; Santa Clara Chamber of Commerce and Convention-Visitors Bureau; Simi Valley Chamber of Commerce; Southwest California Legislative Council; Valley Industry and Commerce Association; Western Electrical Contractors Association HISTORY Source : California Employment Lawyers Association Related Pending Legislation : None Known Prior Legislation : AB 2509 (Steinberg, Ch. 876, Stats. 2000) See Comment 2c. SB 2570 (Lockyer, Ch. 1211, Stats. 1986) See Comment 2c. **************