Perfect compliance with the California Labor Code, California Wage Orders and the Fair Labor Standards Act, is a constant challenge for every employer. An innocent and seemingly minor error can result in significant potential liability if the error affects a class of employees. Class litigation has been aggressively pursued by plaintiffs’ lawyers, who can recover large fee awards under Labor Code Section 218.5, a prevailing party fee award statute. Until this week, a prevailing party fee award was also theoretically available to an employer who successfully defended a claim for unpaid wages.
Responding to a California Supreme Court opinion last year in Kirby v. Immoos Fire Protection District, in which the court endorsed the view that Section 218.5 was a two-way prevailing party fee-shifting provision that allows a successful employer to also recover attorneys’ fees, the California Legislature acted quickly to amend Section 218.5 to all but eliminate the possibility that an employer who successfully defends against a claim for unpaid wages may recover attorneys’ fees. The Legislature eliminated this possibility by amending Section 218.5 to provide an employer may only recover attorneys’ fees if the employer can also prove that the employee or employees brought the court action “in bad faith.” Governor Brown signed the bill this week and it becomes effective January 1, 2014. Obviously, this new standard will be almost impossible to meet and will apply to only a very small fraction of the cases filed. The change to Section 218.5 does not apply to a prevailing employee or group of employees. Under the revised language, employees remain entitled to recover attorneys’ fees if they prevail on their claim for unpaid wages.
Monitoring and enforcing compliance with wage and hour rules is a challenging and time-consuming task. However, wage and hour class claims continue to be filed against employers at an alarming rate. These suits are expensive and difficult to defend. While a claim by a single employee is cheaper and easier to resolve, an individual employee claim often has a ripple effect through the employer’s workforce. An investment in monitoring and enforcing compliance with the wage and hour rules is a prudent investment for employers.