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)
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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
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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.
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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.
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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
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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
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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
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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
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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.
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