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WHAT’S GOOD FOR THE GOOSE IS NO LONGER GOOD FOR THE GANDER – ATTORNEYS’ FEES AWARDS IN EMPLOYMENT-RELATED CASES

The State of California hasn't been accused of being "business friendly" in a very long time. Governor Brown now carries on this long tradition of business un-friendly activities, with the signing of SB 462 on August 28, 2013, which limits California business owners from recovery of attorneys' fees spent in the successful defense of wage and hour lawsuits, even though plaintiffs in such cases will still be entitled to recover their attorneys' fees if they are successful. Now, in order to recover the tens (or even hundreds) of thousands of dollars expended in defense of these frivolous claims, an employer must prove by a preponderance of the evidence that the plaintiff/employee brought the case in "bad faith" - a nearly impossible burden to sustain by legal standards.

For years, plaintiffs' attorneys have used the prevailing attorneys' fees provisions as a sword against employers, when negotiating settlements prior to trial. In fact, on many occasions defense attorneys have been told by opposing counsel: "My client may only recover a few thousand dollars, but if we are able to establish liability, my fees will be over a quarter million dollars, so the employer should pay my client a premium for this risk. If I win, you lose, and if I lose, you still lose!" Although often an empty threat given the lack of financial ability of most plaintiff/former employees, at least the prior law gave employers the legal right to push back on plaintiffs on those cases with little or no chance of recovery. Unfortunately, given the state of employment law in California, the plaintiffs' attorney is absolutely correct, and employers are often leveraged into paying more money to settle the claims.

The bill, which became effective January 1, 2014, was introduced in response to a 2012 California Supreme Court decision (Kirby v. Immoos Fire Protection) which left open the opportunity for a prevailing defendant-employer to recover its attorneys' fees and costs associated with defending certain wage-and-hour disputes. Prior to the passage of SB 462, if an employee alleged a denial of his prescribed meal and rest periods, and the employer successfully defended against those claims, the employer would (arguably) be entitled to recover all of their fees and costs by obtaining a judgment against the employee bringing the claim.

The legislature felt that such a burden would have a "chilling effect" on potential plaintiffs, discouraging them from bringing claims out of fear they would be burdened with a huge judgment for attorneys' fees if they lost the claim. One of the (many) problems with this rationale is that the plaintiff/employee now has absolutely nothing to lose in bringing frivolous or meritless lawsuits against their employers. Nearly all wage and hour claims are handled by plaintiffs' attorneys on a contingency basis, meaning the employee does not pay one cent in legal fees or costs, unless or until the attorney prevails for them. Additionally, over 95% of all employment-related cases filed in California are settled/resolved, prior to making it to a jury trial. So the only time the "prevailing party fee provision" would apply was in those rare cases when the dispute made it all the way through to jury verdict. Notably, outside of meal and rest period disputes, nearly all other wage and hour claims (including claims for unpaid overtime, misclassification and/or minimum wage claims) already have a unilateral "prevailing plaintiff" attorneys' fees provision – meaning that ONLY the plaintiff can recover fees in one of these actions.

Adding insult to injury is a series of recent court decisions which demonstrate the outlandish and absurd results when "prevailing plaintiff" cases actually proceed through trial. In one such matter, a male employee brought a sexual harassment suit against his female supervisor and his former employer. Plaintiff worked for the defendant-employer for approximately two months, and worked six days during that two month employment period. After two years of litigation, and thirteen days of trial, the jury awarded the plaintiff a total of $550.00 for his emotional distress. The plaintiff's attorneys demanded "prevailing plaintiff" attorneys' fees and costs under the Fair Employment and Housing Act (FEHA) totaling $361,266.68. The request was granted by the trial court, and affirmed by the Court of Appeal. [Froncillo v. Contemporary Services Co.]

In a second case, Muniz v. UPS, Ms. Muniz sued UPS alleging gender discrimination and harassment. The jury found in favor of Ms. Muniz and awarded her $27,280.00. Her attorneys demanded $1,945,726.50 in fees. The trial court cut that demand down, but for an award of less than $28,000.00, the court still awarded attorneys' fees of almost $700,000.00! The 9th Circuit Court of Appeal affirmed the award, saying that "although there was a clear disparity between the damages recovered and the fees awarded, California law did not require the district court to reduce the disparity."

These awards clearly demonstrate how a disgruntled, former employee can wreak havoc on a business. Although the legislature and judiciary show no indication of changing direction on their "pro-employee agenda," businesses can take steps to protect themselves against frivolous claims and litigation. The first step in that process is to hire competent legal counsel with experience in the employment law realm. Knowing the pitfalls, and recognizing risk is essential to prevent your business from being the next cautionary tale involving absurd attorneys' fees awards.

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