Labor Code Section 218.5

By Jennifer Nutter

Until recently, California retail employers could leverage the threat that employees suing them for nonpayment of wages (including sales commissions), fringe benefits, or health and welfare or pension fund contributions would have to pay the employer’s attorneys’ fees in the event that the claim was unsuccessful.  Labor Code Section 218.5 provided that the court “shall” award the “prevailing party” its attorneys’ fees in such cases (assuming a request was made at the beginning of the suit).

It had long been argued by attorneys representing employees in these types of cases that Section 218.5 should be interpreted to mean that a prevailing employer would only be entitled to its fees if the employee’s suit was found to be frivolous, unreasonable, or without foundation – a standard announced in Christiansburg Garment Co. v. EEOC (1978) 434 U.S. 412 in connection with Title VII discrimination claims and later applied to claims brought under California’s Fair Employment and Housing Act (FEHA) as well.  However, both Title VII and FEHA give courts discretion to award a prevailing party its attorneys’ fees, whereas Section 218.5, on its face, made the award unconditional if the suit was successfully defended.

On August 26, 2013, Governor Jerry Brown put an end to the uncertainty by signing SB 462 into law.  The bill amended Section 218.5 to provide that a prevailing employer is only entitled to recover its attorneys’ fees for defending an employee’s lawsuit for nonpayment of wages, fringe benefits, or health and welfare or pension fund contributions, if it can show that the action was brought in “bad faith.”

It remains to be seen how this new standard will be interpreted by the courts, but because the policy considerations of not chilling meritorious suits brought by employees against their employers are the same as in Title VII and FEHA cases, it is likely to be a similarly high bar.