BILL ANALYSIS Ó
SB 462
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Date of Hearing: July 2, 2013
ASSEMBLY COMMITTEE ON JUDICIARY
Bob Wieckowski, Chair
SB 462 (Monning) - As Introduced: February 21, 2013
SENATE VOTE : 26-9
SUBJECT : Employment: compensation
KEY ISSUE : SHOULD THE STANDARD BY WHICH EMPLOYERS RECOVER
ATTORNEY'S FEES AGAINST EMPLOYEES BE CLARIFIED REGARDING CERTAIN
TYPES OF WAGE CLAIMS?
FISCAL EFFECT : As currently in print this bill is keyed
non-fiscal.
SYNOPSIS
When an employee prevails in a claim for minimum wages or
overtime, the employee is entitled to recover the cost of his or
her attorney's fees. If the employee does not prevail in these
claims, he or she is not obligated to pay the employer's
attorney's fees. By contrast, when an employee files an action
to recover other types of wages pursuant to Labor Code section
218.5 - straight-time wages above the minimum wage and
contractually agreed-upon or bargained-for wages - or related
claims for fringe benefits, or health and welfare or pension
fund contributions, the law provides that attorney's fees may be
recovered by the prevailing party, whether it is the employee or
the employer. This exposure to attorney's fees liability is
rare in employment law, and advocates for employees argue that
the risk of being forced to pay an employer's attorney's fees
simply because the employee does not prevail substantially
deters employees from bringing potentially valid claims because
the expense would be crippling for most employees. This bill
would retain the right of employers to recover attorney's fees
when they prevail, but would require evidence that the
employee's action was brought in bad faith. A similar standard
obtains in employment discrimination cases. Employer groups
argue in opposition that the bill will severely limit an
employer's ability to recover its attorney's fees for defending
litigation that lacked merit, and could create more frivolous
litigation.
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SUMMARY : Clarifies the standard for recovery of attorney's fees
for prevailing parties in certain wage cases. Specifically,
this bill :
1)Provides that if the prevailing party in an action pursuant to
Labor Code section 218.5 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.
2)Clarifies that the above attorney's fee provision does not
apply to any cause of action for which attorney's fees are
recoverable under Labor Code Section 1194.
EXISTING LAW :
1)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.)
2)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.)
COMMENTS : The author states that the purpose of the bill is to
"clarify current law and to allow workers to assert their right
to bring a court action for unpaid wages or financial benefits
without fear of paying the employer's attorneys' fees if they
ultimately do not prevail."
The sponsor, California Employment Lawyers Association (CELA),
further argues that the current 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,
CELA asserts that exposure to attorney's fees racked repels
plaintiffs (and attorneys) from bringing these types of claims.
In support of this bill, the California Labor Federation states
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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."
Unusually Among Labor Code Provisions, Employers In Certain Wage
Cases May Collect Attorney's Fees From An Employee When The
Employee's Suit Is Unsuccessful. According to the author, under
federal law and the law in all but three states, workers are
protected from the danger of liability for the employer's
attorneys' fees in actions regarding unpaid wages. However,
employees are liable for the employer's attorney's fees if they
do not prevail in claims under section 218.5. Not only is this
provision anomalous among other states and federal wage claim
statutes, the author argues, it also is one of only two
provisions in the California Labor Code that provides attorneys'
fees for a prevailing defendant. Most provisions of the Labor
Code allow only a prevailing employee to recover attorneys'
fees.
Current law regarding recovery of attorney's fees in wage
litigation appears to be inconsistent. When an employee files
an action to recover minimum wages or overtime pursuant to Labor
Code Section 1194, only a prevailing employee is entitled to
recover reasonable attorney's fees and costs of suit. If the
employee's claim is not successful, the employee is not required
to pay the attorney's fees of the prevailing employer. In other
words, the fee-shifting statute is one-way, in the direction of
the prevailing employee.
By contrast, when an employee files an action to recover other
types of wages pursuant to Section 218.5 - i.e., straight-time
wages above the minimum wage and contractually agreed-upon or
bargained-for wages - or related claims for fringe benefits, or
health and welfare or pension fund contributions, the law
provides that attorney's fees may be recovered by the prevailing
party, whether it is the employee or the employer. In other
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words, the fee-shifting statute is two-way. Supporters argue
that the prospect of being forced to pay substantial legal fees,
potentially many times higher than the amount of the employee's
unpaid wages, is a significant deterrent to asserting what may
be valid claims, causing considerable under-enforcement of the
law.
This Bill Does Not Eliminate The Ability of Employer's To
Recover Attorney's Fees When The Employer Prevails, But
Specifies That The Plaintiff's Action Must Be In Bad Faith,
Similar To Other State and Federal Employment Laws In Order To
Avoid Chilling Employees From Pursuing Apparently Valid Claims.
While section 218.5 permits the recovery of attorney's fees by
the prevailing party, it does not expressly state the standard
for awarding fees, and no court has directly interpreted the
attorney's fees standard under section 218.5. A recent
California Supreme Court decision left the question open, giving
rise to the need for this bill. (See Kirby v. Immoos Fire
Protection, Inc. (2012) 53 Cal.4th 1244, 274.)
This bill would clarify the existing two-way fee shifting
provision of section 218.5 by expressly providing that where the
prevailing party is a non-employee (e.g., the employer), fees
are to be awarded upon a judicial finding that the employee
brought the action in bad faith. The reason for a higher
standard of course is that wage laws reflect a fundamental
policy of the state, the vindication of which is largely left to
employees. The premise of this bill is that the great expense
and unpredictability of exposure to attorney's fees liability is
likely to chill the pursuit of potentially valid claims by
employees of limited means, contrary to the important policy
objectives of the statutory scheme. In support of this
argument, the California Employment Lawyers Association points
to Harris v. Investor's Business Daily, Inc. (2006) 138
Cal.App.4th 28 where the employers sought $2.5 million in
attorney's fees.
The Fair Employment and Housing Act (FEHA) is similar. Under
the FEHA, where the statute likewise permits recovery of
attorney's fees by both prevailing employees and prevailing
employers, and is also silent on the standard for awarding fees,
courts have held that recovery of fees by employers is subject
to a higher standard than it is for employees.
It appears likely that if a court were to rule on the standard
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for recovery of attorney's fees by a prevailing employer under
section 218.5 it would come to the same conclusion as under the
FEHA because the dynamics of these cases and the policy
rationales are largely the same. The reason for allowing
employees to recover attorney's fees is to make it easier for a
plaintiff of limited means to bring a meritorious suit to
vindicate a statutory policy of great importance. Thus, a
prevailing plaintiff under the FEHA is ordinarily entitled to
recover attorney's fees unless special circumstances would
render such an award unjust. The courts have ruled that these
equitable considerations are entirely absent, however, in the
case of a prevailing defendant. While prevailing employers may
recover fees, the standard for such an award is higher. A
prevailing defendant in a FEHA action may recover attorney fees
only when the plaintiff's action was frivolous, unreasonable,
without foundation, or brought in bad faith. (See Chavez v.
City of Los Angeles (2010) 47 Cal.4th 970, 985; Cummings v.
Benco Building Services, 11 Cal. App. 4th 1383, 1387 (1992).)
Federal law is the same. (See Christiansburg Garment Co. v.
EEOC (1978) 434 U.S. 412.)
The Bill's Proposed Clarification Of The Standard For Employer
Recovery Of Attorney's Fees Against Employees Is Also Consistent
With The Purpose Of The Statute And Comparable Laws . The author
explains that section 218.5 was enacted to encourage workers to
enforce their rights under the Labor Code. According to the
author, the bill enacting section 218.5 was "intended to cover
the cost of obtaining wages and benefits from recalcitrant or
slow paying employers." (Asm. Comm., SB 2570, as amended Jun
17, 1986.) According to the author, "the Legislature explicitly
included the word frivolous' in describing how employers would
be able to recover attorney's fees under 218.5. Thus, the most
reasonable construction of section 218.5 is that the two-way fee
provision should apply only when employers defeat frivolous
claims. It should not apply when employers defeat non-frivolous
claims where the litigation efforts of the employee simply come
up short. This interpretation of section 218.5 would align the
statute with the state and federal civil rights and employment
statutes, which allow for two-way fee shifting in favor of the
employer only in exceptional circumstances in which the
plaintiff's claims are brought in bad faith."
In addition, it should be noted that the Legislature reviewed
the attorney's fees issue when it codified the court's holding
in Earley v. Los Angeles County (2000) 79 Cal.App.4th 1420,
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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) 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 provides
a one-way attorney's fees award only in favor of the prevailing
plaintiff. As such, supporters argue, the Legislature
reaffirmed its intent to limit employee attorney-fee liability
for minimum wage and overtime claims. (See SB 2570 (Lockyer,
Ch. 1211, Stats. 1986).)
Clarification of Attorney's Fee Provision Under Labor Code
Section 1194. 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.
ARGUMENTS IN OPPOSITION : A coalition of business groups lead by
the California Chamber of Commerce argues that this bill
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"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."
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
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."
REGISTERED SUPPORT / OPPOSITION :
Support
California Employment Lawyers Association (sponsor)
California Conference Board of Amalgamated Transit Union
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California Conference of Machinists
California Federation of Teachers, American Federation of
Teachers
California Immigrant Policy Center
California Labor Federation, AFL-CIO
California Nurses Association
California Rural Legal Assistance Foundation, Inc.
California Teamsters Public Affairs Council
Engineers and Scientists of California, International
Federation of Professional & Technical Engineers Local 20
International Longshore and Warehouse Union
Professional and Technical Engineers, International Federation
of Professional & Technical Engineers Local 21
United Food and Commercial Workers Western States Council
UNITE-HERE
Utility Workers Union of America, Local 132
Wage Justice Center
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
California Special Districts Association
Camarillo Chamber of Commerce
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
Greater Fresno Chamber of Commerce
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Marin Builders Association
National Federation of Independent Business
Oxnard Chamber of Commerce
Plumbing-Heating-Cooling Contractors Association of California
Rancho Cordova Chamber of Commerce
Redondo Beach Chamber of Commerce
Santa Clara Chamber of Commerce and Convention-Visitors Bureau
Simi Valley Chamber of Commerce
Southwest California Legislative Council
Tulare Chamber of Commerce
Valley Industry and Commerce Association
Western Electrical Contractors Association
Analysis Prepared by : Kevin G. Baker / JUD. / (916) 319-2334