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  
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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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