Those of us who are constantly immersed in the Employment Law environment have witnessed some relatively seismic events in the last several months. Just to list a few, the California Supreme Court's decision in Dynamex1 altered the landscape for classifying independent contractors. The Starbucks 2 decision made it apparent that even small amounts of an employee's work time might need to be accounted for, even when business reality and common sense might suggest a contrary result. The U.S. Supreme Court in is Epic Systems3 ruling clarified the validity of class action waivers in arbitration-agreements. And of course, the #MeToo movement continues to impact employers in both the judicial and legislative arenas.
However, a recent and potentially devastating decision arising our of a rather innocuous employment termination seems to have fallen off the HR radar. For many employers, the recent ruling in Nishiki v. Danko 4 have such a chilling effect on the cost-shifting process as to destroy employers' already shaky faith in the judicial process. The American Rule in litigation is essentially that each party bears the cost of its own attorney, absent a prevailing party contract of fee-shifting statute. The reasoning is that people should be discourage from looking to the court to resolve a reasonable conflict by the fear of having to pay the other side's fees if they lose. The idea is that an inordinate risk of loss would discourage those with legitimate claims from presenting them to the court for resolution.
The American Rule is not an issue in wage claims brought to the court following an administrative decision before the California Division of Labor Standards Enforcement (DLSE). Most employers and employees know that the DLSE frequently serves as a relatively simple and cost-effective means of addressing wage and hour claims. Representation by an attorney is optional and not required, the decision is made by a deputy labor commissioner (who is not an attorney), and fees and costs are not part of any award. While there is undoubtedly an effort to make a correct decision, the occasional legal complexities, along with the rather loose application of evidentiary standards, not to mention an oft-reported employee bias, means that employers frequently must resort to the courts to correct an erroneous administrative decisions. But there is a huge potential risk for employers seeking justice. Under Labor Code § 98.2, if the party seeking review of a ruling is unsuccessful, then that party will pay all costs and reasonable attorneys’ fees incurred by the other party. Here’s the rub – an employee is successful if the court awards any amount greater than zero! That is the case even where there is a reduction in the DLSE award, but the amount awarded the employee “is greater than zero.”
That was the very situation in Nishiki, where a misprinted final payroll check resulted in a claim by the employee for waiting time penalties when the bank would not accept the check. The DLSE awarded penalties of $4,250. The appellate court reduced the penalties to $2,250, but upheld an attorneys’ fee award of $86,160! Let that sink in. The employer successfully reduced the DLSE award, but because it was “greater than zero,” the employer now was on the hook for over $85,000 in fees, along with a yet-to-be-determined amount for the employee’s fees for the appeal. This employer, who was successful by any objective measure, will likely have to pay well over $100,000 to the employee for the privilege of seeing justice done.
What’s the clear message to employers? Seeking justice to correct an administrative decision over a wage dispute could be far more costly than simply paying a relatively small but unjust administrative award.
As I tell my out-of-state employer clients, just consider it another form of California’s “weather tax.”
1 Dynamex Operations West v. Superior Court (2018) 4 Cal.5th 903.
2 Troestar v. Starbucks Corp. (2018) 5 Cal.5th829.
3 Epic Systems Copr. v. Lewis (2018) 138 S.Ct. 1612
4 Nishiki v. Dank Meredith, APC (2018) 25 Cal.App.5th 883.
Stephanie M. Stringer, Hall Griffin, Associate
John A Cone, Jr., Hall Griffin, Of Counsel