BILL ANALYSIS Ó Senate Appropriations Committee Fiscal Summary Senator Kevin de León, Chair SB 462 (Monning) - Employment: compensation. Amended: April 15, 2013 Policy Vote: Judiciary 5-2 Urgency: No Mandate: No Hearing Date: May 6, 2013 Consultant: Jolie Onodera This bill meets the criteria for referral to the Suspense File. Bill Summary: SB 462 would revise the existing two-way fee shifting provision under Labor Code § 218.5, where either party is authorized by statute to an award of attorney's fees and costs, and provide that the non-employee prevailing party (the defendant employer) could only be awarded attorney's fees and costs upon a judicial finding that the employee brought the action in bad faith. Fiscal Impact: To the extent the provisions of this bill remove existing barriers for employees seeking to pursue wage claims, potential ongoing increased costs to the courts for increased civil filings. For every 500 additional limited civil filings (less than 10 filings per county annually), annual costs to the courts are estimated at $230,000 (General Fund*). To the extent a state agency acts as employer, there could be potential future lost recovery of attorneys' fees and costs that a state agency otherwise could have been awarded. Given the vast range of attorney's fees and costs specific to any one case, the potential impact of a single suit in which a state agency is the prevailing party could range from minor to very substantial. *Trial Court Trust Fund Background: Under current law, when an employee files an action to recover minimum wages or overtime, the employee who prevails in the action is entitled to recover reasonable attorney's fees and costs of the suit. (LC § 1194) Alternatively, if an employee files an action to recover wages, fringe benefits, or health and welfare or pension fund contributions, the court is required to award reasonable attorney's fees and costs to the prevailing party, as specified. (LC § 218.5.) "Wages" under this statute are defined as straight-time wages above the minimum wage and SB 462 (Monning) Page 1 contractually agreed-upon or bargained-for wages." Proposed Law: This bill would revise the existing two-way fee shifting provision under LC § 218.5, where either party is authorized by statute to an award of attorney's fees and costs, and provide that the non-employee prevailing party (likely the defendant employer) could only be awarded attorney's fees and costs upon a judicial finding that the employee brought the action in bad faith. Related Legislation: AB 2509 (Steinberg) Chapter 876/2000 revised statutes relating to the administrative and civil enforcement of wage and hour laws including wage collection and enforcement procedures before the Labor Commissioner. Provided that the two-way attorney's fees provisions do not apply to minimum wage and overtime wage claims under LC § 1194. SB 2570 (Lockyer) Chapter 1211/1986, among other things, established the two-way fee shifting provision in LC § 218.5. Staff Comments: The proposed amendment to LC § 218.5 would change the two-way prevailing party attorney's fees provision for actions involving straight time wages above the minimum wage and contractually agreed-upon or bargained for wages, such that an employer would only be awarded attorney's fees as a prevailing party upon on a finding that the employee brought the action in bad faith. This does not apply to minimum wage and overtime claims which are subject to a separate one-way attorney fee provision under LC § 1194. Local governmental employers would be exempt from this proposed change to statute, as LC § 220 provides, as follows: "220. (a) Sections 201.3, 201.5, 201.7, 203.1, 203.5, 204, 204a, 204b, 204c, 204.1, 205, and 205.5 do not apply to the payment of wages of employees directly employed by the State of California. Except as provided in subdivision (b), all other employment is subject to these provisions. (b) Sections 200 to 211, inclusive, and Sections 215 to 219, inclusive, do not apply to the payment of wages of employees directly employed by any county, incorporated city, or town or other municipal corporation. All other employments are subject to these provisions." SB 462 (Monning) Page 2 As LC § 220 expressly exempts certain local public employment from the application of Sections 215 to 219, inclusive, and specifically subjects all other employments to those provisions, the application of LC § 218.5 is presumed to include state employment. In addition, staff notes that AB 2410 (Machado) Chapter 885/2000 amended LC § 220 to remove an exemption for the state that existed at the time. Although the provisions of this bill could potentially impact state agencies acting as employer, it is assumed that the Regents of the University of California would be exempt, as they are constitutionally immune (Goldbaum v. Regents of the University of California (2011) 191 Cal.App.4th 703) 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 could create uncertainty for the contracting parties. To the extent the provisions of this bill affect state agencies as an employer in actions brought for the nonpayment of wages, fringe benefits, or health and welfare or pension fund contributions, it could make it more difficult for the state to get an award of attorney's fees, resulting in increased costs (General Fund) to the state. The estimated fiscal impact would be dependent upon the frequency of suits in which state employers have been involved for the nonpayment of wages, have prevailed in such actions, and have pursued awards of attorney's fees. At the time of this analysis, it was undetermined how many suits involving the state acting as employer to date would have been affected under the provisions of this bill. Given the range of attorney's fees and costs unique to any one case, the potential impact of a single suit in which the state agency was the prevailing party could range from minor to very substantial. Although claims filed under LC under LC § 1194 for minimum wage and overtime costs are provided a one-way fee-shifting award to the prevailing plaintiff, a recent court decision in Plancich v. United Parcel Service, Inc. (2011) 198 Cal.App.4th 308 held that it does not expressly exclude an award of defendant attorney's fees. The court cited Code of Civil Procedure § 1032, which requires express statutory language exempting a prevailing party from recovering costs. Because LC § 1194 has no express SB 462 (Monning) Page 3 exemption against an award of attorney's fees to a prevailing defendant, the court awarded the defendant its attorney's fees and costs. Of note from the Senate Judiciary Committee analysis of this measure: "As asserted by CELA [California Employment Lawyers Association], plaintiff attorneys primarily limit their wage claims to LC § 1194, rather than claiming LC § 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 LC § 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." To the extent the provisions of this bill result in an increase in court filings due to the removal of existing barriers for employees to pursue wage claims, there would be an impact to existing court workload. For every 500 additional limited civil filings (less than 10 filings per county annually) resulting from the provisions of this bill, annual costs to the courts are estimated at $230,000.