Workers Who Sue for Unpaid Wages in California and Attorney’s Fees

California law provides many different ways for workers to recover attorney’s fees in wage and hour Gear-and-Gavel_dark-blueclaims.  Some of these avenues include prevailing on a claim for failure to pay the minimum wage (see Labor Code section 1194), prevailing on a claim for unreimbursed business expenses (see Labor Code 2802), and prevailing under California’s Equal Pay Act.

These fee-shifting statutes are incredibly important in wage and hour cases (among others).  This is because the damages in such cases, while often significant to the worker, are often not enough for an attorney to take the case on a contingency fee basis (whereby the attorney gets a percentage of the amount recovered).  Absent the possibility of a fee shift, many workers who have not been paid the wages they are owed would be unable to find an attorney to help them recover those wages.

One commonly used avenue to recover attorney’s fees in wage and hour actions is California Labor Code section 218.5(a), which provides in part as follows:

In any action brought for the nonpayment of wages…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.

Significantly, the language quoted above is mandatory (“shall”) as opposed to permissive (“may”).  As a result, attorney’s fee awards in unpaid wages claims often dwarf the plaintiff’s actual recovery.

Prior to 2014, section 218.5(a) was a completely two-way statute, meaning that it did not distinguish between prevailing employers and prevailing employees.  As a result, if a worker brought a claim for unpaid wages and lost, the employer could recover its attorney’s fees.  This threat was a strong disincentive for workers to sue, because if they lost they would be facing a judgment against them of tens if not hundreds of thousands of dollars.

Fortunately, an amendment to section 218.5, effective January 1, 2014, provides as follows:

[I]f the prevailing party in the court action is not an employee, attorney’s fees and costs shall be awarded pursuant to [section 218.5] only if the court finds that the employee brought the court action in bad faith.

This amendment was hugely beneficial to workers.  As long as their claims for unpaid wages are not brought in bad faith (meaning that there is a reasonable, good faith dispute regarding their claims), they do not have to worry about getting hit with the employer’s attorney’s fees if they lose.

Two recent appellate decisions have resolved some of the lingering questions regarding section 218.5.

First, in USS-POSCO Industries v. Case (2016) 244 Cal.App.4th 19, the court addressed the question of whether the amendment to section 218.5 applied to actions that were pending before January 1, 2014.  The court held that California courts have long treated legislation affecting the recovery of attorney’s fees as applying to actions pending at the time of enactment.  (This is different than federal courts, which have refused to apply the new version of section 218.5 to cases pending as of January 1, 2014.)  Thus, in California state courts, the new version of section 218.5 applies to actions that were pending at the time of enactment.  In other words, to recover attorneys’ fees in actions for unpaid wages, employers will need to show that the claims are brought in bad faith.

At the same time, employers that prevail on claims for unpaid wages may be able to recover their court costs, even if the plaintiff prevailed on other claims.  See Sharif v. Mehusa, Inc. (2015) 241 Cal.App.4th 185.  To unpack this a bit, under California Code of Civil Procedure section 1032(4), which provides for the recovery of court costs by a prevailing party, there is normally only one prevailing party.  Thus, if the plaintiff wins on only one of his or her claims, the plaintiff is still likely to recover his or her costs and the defendant is unlikely to be able to do so.

However, section 218.5 provides a separate avenue to recover costs.  Thus, if an employer prevails on a claim for unpaid wages, but loses on other claims, the employer can still recover costs if it can show that the employee filed its claim for unpaid wages in bad faith.

For these reasons, the news for workers on section 218.5 is mixed.  But the recent amendments allowing employers to recover their attorney’s fees only in the case of bad faith will protect workers in the event that they sue and lose.