Employers May Only Recover Attorney’s Fees and Costs in Certain Actions If They Can Demonstrate that the Plaintiff Brought the Action in Bad Faith (SB 462)

Employers May Only Recover Attorney's Fees and Costs in Certain Actions if They Can Show the Employee Acted in Bad Faith

Employers May Only Recover Attorney’s Fees and Costs in Certain Actions if They Can Show the Employee Acted in Bad Faith

by Jennifer A. Grady, Esq.

After January 1, 2014, employers will only be able to recover reasonable attorney’s fees and costs if they are the prevailing party in a court action brought by current or former employees for the nonpayment of wages, fringe benefits, or health and welfare or pension fund contributions if  they can demonstrate that the employee brought the action in bad faith.  In order to make this recovery, either party must have requested attorney’s fees and costs at the initiation of the action.

Senate Bill 462, which amends Labor Code § 218.5, does not permit employers to recover attorney’s fees and costs on cases for failure to pay minimum wage or overtime.  In such cases, California Labor Code § 1194(a) provides that in a civil action, an employee, but not the employer, is entitled to recover the unpaid balance of the full amount of the unpaid minimum wage or overtime compensation, including interest thereon, reasonable attorney’s fees, and costs of suit.

Senate Bill 462 was signed into law by California Governor Jerry Brown on August 26, 2013.  The new provisions of this law will take effect on January 1, 2014.

According to the bill’s sponsor, Senator Bill Monning (D-Carmel), the law “corrects an historic injustice that allowed employers to collect attorney’s fees if they prevailed in a wage claim case, [and the] impact of this policy was to discourage and deter workers from pursuing wages they had rightfully earned.”  The California Employment Lawyers Association supported the bill, claiming that the prior ability of employers to seek attorney’s fees had a chilling effect on plaintiffs considering wage claims. They argued that because the amount available to a plaintiff may be small, employees may fail to bring legitimate actions against their employers due to the fear of losing a lawsuit and having to pay a former employer’s attorney’s fees and costs if they lost.

A coalition of employer groups, including the California Manufacturers & Technology Association, California Grocers Association, and the California Chamber of Commerce, opposed this bill, arguing that it, “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’s fee provision that will incentivize further meritless wage and hour litigation.”  They also argued that, ‘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…”

What does this mean for employers?  It will now be extremely difficult for employers to recover attorney’s fees and costs, even if they successfully defend against an employee’s wage suit.  Not only is the term “bad faith” not defined in the statute, but employers hoping to recover attorney’s fees and costs will face an increased burden by having to convince court that employee’s lawsuit was frivolous or unreasonable.

To discuss how your business may be impacted by the new laws that go into effect on January 1, 2014, schedule a complimentary 15-minute consultation with The Grady Firm‘s employment advising attorneys by calling (323) 450-9010.  For more information, visit http://www.gradyfirm.com.

Disclaimer: this material is provided for informational purposes only, and should not be construed as legal, financial, tax, or accounting advice.  It should not, and cannot, be used for the purpose of avoiding U.S. federal, state, or local tax penalties.   Please consult a licensed attorney to discuss buy-out options, and a licensed insurance representative before making any insurance purchases.

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About gradyfirm

The Grady Firm attorneys specialize in helping businesses grow and succeed through employment, business, immigration, and intellectual property law advising for clients in California. In addition, we help foreign entrepreneurs establish a US presence and obtain the appropriate visas for their owners and employees. WE PROVIDE THE FOLLOWING BUSINESS SOLUTIONS: BUSINESS ADVISING: Business formation, contract drafting, coaching/advising, succession planning, lease review, and contract negotiation. EMPLOYMENT LAW: We teach employers how to become compliant with California employment law, draft Employee Handbooks, and providing sexual harassment training. We also help resolve disputes between employers and employees regarding wage and hour, discrimination, and harassment issues. IMMIGRATION: We help build business work forces and reunite families by preparing visa, Green Card, and citizenship applications based on family relations, employment, and investment. INTELLECTUAL PROPERTY: trademarks, copyright The Grady Firm has offices in Beverly Hills and San Diego, California; and serves clients remotely from across the globe. Our attorneys are licensed to practice immigration law in all 50 states. Learn more about us at www.gradyfirm.com.

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