Under existing California law, an employee who prevails on his/her claims against an employer for non-payment of wages is entitled to recover his/her attorneys’ fees in addition to the unpaid wages owed. But the same is not true for an employer who prevails. Under existing California law, an employer is not entitled to recover its attorneys’ fees even if that employer prevails in the action, unless the trial court also finds that the employee brought his/her wage claims “in bad faith.” See Cal. Lab. Code §218.5.
Thus, an employer in California has an additional hurdle to jump if it wants to recover its attorneys’ fees in a wage dispute — not only must the employer be the “prevailing party” on the wage claim, but it must then convince the trial court that the employee’s claims were brought “in bad faith” within the meaning of Labor Code §218.5.
But what happens when the employer and employee are parties to an employment agreement that purports to remove this additional hurdle? For example, what if the employer and employee sign an employment contract that contains this all-too-common boilerplate language, “In any action or proceeding arising out of or related to this employment contract, the prevailing party in that action is entitled to his/her/its attorneys’ fees.” If an action is brought for the non-payment of wages due under that contract, if the employer is the “prevailing party,” does the employer get its attorneys’ fees as the contract says? Or, does Labor Code §218.5 “trump” (no pun intended) that contractual language and require the employer to still prove that the employee’s claims were brought “in bad faith” as well?
Last week, the California Court of Appeal answered this question in Dane-Elec Corp. v. Bodokh. The Court held that, to the extent the underlying contract and the claim for non-payment of wages are “inextricably intertwined,” Labor Code §218.5 prohibits as a matter of law an award of attorneys’ fees to an non-employee “prevailing party.” In other words, an employer may not recover attorneys’ fees after successfully defending a wage claim where that wage claim “overlaps or is inextricably intertwined with” the breach of contract claim, unless that employer also obtains a finding that the wage claim was initiated in “bad faith” as required by Labor Code §218.5.
So now we know: clever lawyering in contracts cannot defeat the fee-shifting rule, and the important public policy that supports it, contained in Labor Code §218.5. That statute defeats any conflicting language in an employment contract that purports to put employers and employees on equal footing when it comes to being awarded attorneys’ fees in wage disputes.