AUGUST 2007

JUDICIAL UPDATES

Attorney’s Fees Under Labor Code Section 218.5 in Claims for Non-Payment of Wages are Available to Both Exempt and Non-Exempt Employees

In On-Line Power, Inc. v. Mazur 149 Cal.App.4th 1079, the Second District Court of Appeal provided greater clarity regarding the application of California’s statutory settlement offer procedure to employment lawsuits and the applicability of California’s wage penalties to exempt, executive employees.

Mazur was On-Line Power’s (OLP) Vice President of Sales and Marketing and employed under a written employment contract. He was paid a salary of $180,000 a year. Mazur counter-claimed for unpaid wages after OLP filed a misappropriation of trade secrets complaint against him. Mazur alleged that he was paid less than his full salary, although there was evidence that OLP, with Mazur’s agreement, had paid some portion of his salary to an outside consulting business operated by Mazur.

After Mazur obtained summary judgment of the trade secret claim against him, OLP served a statutory offer to compromise Mazur’s counter-claim pursuant to California Code of Civil Procedure (“C.C.P.”) section 998. The statutory offer (“998 Offer”) agreed to pay $25,000 to Mazur in exchange for a dismissal with prejudice of the wage counter-claim. The 998 Offer was silent as to the payment of costs or attorney’s fees.

On the trial date, Mazur accepted the 998 Offer on the record. The judge then inquired as to whether there was agreement on the payment of costs and fees. Mazur announced that he would file a request for a prevailing party determination and recovery of fees and costs from OLP. OLP stated that it was its intention that the 998 Offer’s payment of $25,000 included costs and fees and that, if Mazur understood it differently, the 998 Offer was withdrawn. The Court rejected the withdrawal agreement, finding that the 998 offer had been accepted by Mazur “on the record” and that a written acceptance was not required (regardless of the Offer’s terms stating it must be accepted in writing). Mazur then filed a motion for a determination that he was the prevailing party and entitled to a recovery of his attorney’s fees and costs.

When he heard Mazur’s motion, the trial court determined that uniform California law held that a 998 Offer’s silence on the issue of recovery of costs and fees allowed a party to seek fees and costs in addition to the statutory settlement payment. Therefore, the trial court ruled that Mazur was entitled to seek recovery of his attorney’s fees. However, the trial court then denied Mazur his attorney’s fees under Labor Code section 218.5; that statute authorizes the recovery of attorney’s fees and costs to a prevailing party in an action for nonpayment of wages. The trial court held that Section 218.5 was intended only to provide protection to nonexempt employees, not to exempt executive employees.

The appellate court affirmed in part and reversed in part the trial court’s decision. The Second District Court of Appeal agreed with the trial court that, where a 998 Offer is silent on the recovery of attorney’s fees and costs, a party entitled by statute or contract to recover attorney’s fees and costs may seek an award of both. The appellate court remanded the case, ordering the trial court to make a determination as to whether Mazur was the “prevailing party” based upon the settlement and, if so, what amount of fees he was entitled to recover. However, the appellate court disagreed with the trial court’s interpretation of Section 218.5. It held that Section 218.5 applied to both exempt and nonexempt employees and that nothing in the statutory language suggested otherwise. Therefore, Mazur was entitled to recover his fees if he was determined to be the “prevailing party”. Again, the appellate court remanded the case to the trial court to make the prevailing party determination based upon whether Mazur’s recovery of $25,000 by settlement made him a prevailing party or whether OLP was the prevailing party because it obtained a dismissal with prejudice pursuant to the terms of the 998
Offer.

The lesson of the OLP case is two fold. First, parties extending statutory settlement offers or demands must include clear language in the offer or demand clarifying whether or not each party will bear their own attorney’s fees and costs. Failure to provide clear language will result in an opposing party being able to accept the demand or offer, and then seek an additional recovery, if available, of statutory or contractual attorney’s fees and costs. Second, Labor Code section 218.5’s award of attorney’s fees in claims for nonpayment of wages applies equally to exempt and nonexempt employees. Therefore, California employers must be equally attentive to the full payment of wages for both exempt and nonexempt employees to avoid wage penalties and liability for attorney’s fees. (California Court of Appeal case number B189251.)

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