New Law Limits Attorneys’ Fees in Wage and Hour Cases

In many, if not most, wage and hour cases (e.g., unpaid overtime, minimum wage, commissions, bonuses, etc.), the employer can pay more in attorneys’ fees than what is allegedly owed in unpaid wages.  Under the “American System,” each side bears the cost of their own attorneys unless the contract or statute under which the lawsuit proceeds provides for recovery of attorneys’ fees.  In the employment law field, some statutes allow the prevailing party to recover their attorneys fees.  Other statutes only allow the prevailing employee to recover attorneys’ fees.

The legislature uses one-sided attorneys’ fee provisions (i.e., only the employe can recover attorneys’ fees) to make it easier for employees to hire attorneys because the employee typically has less money than the employer, and the employee will need to hire an attorney on a contingency-fee basis.  By allowing the employee to recover attorneys’ fees, an attorney may be willing to handle “lower value” cases knowing she or he will recover her or his attorneys’ fees at the end of the litigation.  This creates an incentive for attorneys to take cases that are otherwise not economically feasible to prosecute.

In an unpaid wage claim there are two different statutes that apply depending on whether the claim is for overtime/minimum or wages other than overtime/minimum wage.  Under Labor Code section 1194.2, in any claim for the recovery of unpaid minimum wage or overtime, only the employee can recover his/her attorneys’ fees.  The employer cannot recover its attorneys’ fees even if it proves it paid the employee correctly.

Under Labor Code section 218.5, in any other claim for wages or benefits not covered by Labor Code section 1194.2 (e.g., non-overtime/minimum wage claims), the prevailing party is entitled to attorneys’ fees.  This means that if an employee sues the employer for unpaid commissions or bonuses and loses, the employee is responsible for the employer’s attorneys’ fees.

Thanks to a new law signed by Governor Brown, the employer will soon be able to recover its attorneys’ fees under Labor Code section 218.5 “only if the court finds that the employee brought the court action in bad faith.”  Proving “bad faith” is a very high standard.

There is no exigency clause, so the amendment will take effect January 1, 2014.

If you have a question about payroll practices, contact an attorney familiar with California’s wage and hour laws.