Labor Code section 218.5 controls contractual attorney fee provisions when wage and contract claims are intertwined

This is a little nugget for the wage & hour set. In a matter of first impression, the Court of Appeal (Fourth Appellate District, Division Three), in Dane-Elec Corp. v. Bodokh (May 24, 2019) considered the effect of Labor Code section 218.5 on a prevailing party employer’s right to recover contract-based attorney fees from an employee where the employer successfully defended against a wage claim, found not to have been brought in bad faith, when the wage claim was inextricably intertwined with a contract claim for which the employer would otherwise be contractually entitled to recover attorney fees.

The Court described Labor Code section 218.5 as follows:

Labor Code section 218.5 is a fee-shifting statute in actions for nonpayment of wages. The first sentence of section 218.5(a) states: “In any action brought for the nonpayment of wages, fringe benefits, or health and welfare or pension fund contributions, 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.”There is a significant limitation if the prevailing party is not an employee. The second sentence of section 218.5 (a) states: “However, if the prevailing party in the court action is not an employee, attorney’s fees and costs shall be awarded pursuant to this section only if the court finds that the employee brought the court action in bad faith.”

Slip op., at 15. The issue in the case arose because the wage claim and a contract claim were inexplicably intertwined. The Court resolved the question after looking at apportionment rules and the purpose of similar fee-shifting statutes, such as the Cartwright Act. The Court observed that while section 218.5 isn’t exactly a one-way fee shifting statute, the bad faith requirement effectively renders it a one-way fee-shifting statute that favors employees.

It's still possible to waive enforcement of arbitration agreements according to Nunez v. Nevell Group, Inc.

Other than the minor surprise I now experience when any motion to compel arbitration is denied, such agreements having achieved a status as super-contracts with super powers, the decision in Nunez v. Nevell Group, Inc. (pub. ord. May 28, 2019) isn’t too surprising. In Nunez, the Court of Appeal (Fourth Appellate District, Division Three) affirmed the trial court’s denial of a motion to compel arbitration on the basis of waiver, delay, and prejudice.

The Court covers two topics in its discussion of waiver that might be of use to others. First, the Court examines the idea of waiver generally. Second, the Court examines the “clear and unmistakable” standard that asks whether a CBA clearly and unmistakably waives the right to a judicial forum for the particular type of claim in question. Keep in mind that, as the Court here observed, federal and California state courts may reach slightly different conclusions regarding application of the “clear and unmistakable” waiver standard, since California Courts are not bound by federal court decisions on the subject.

Ninth Circuit considers claim preclusion where WARN Act settlement deficiency was sought from non-settling defendant

Taylor v. Sturgell, 553 U.S. 880 (2008) was written specifically to torment me. But, since it was issued, I haven’t seen its analysis of res judicata in class cases arise too often. Here, claim preclusion meets a bankruptcy court’s approval of a class settlement against other parties in Wojciechowski v. Kohlberg Ventures (9th Cir. May 9, 2019). The quick summary of the two cases sums it up well.

Wojciechowski filed an adversary class action against the ClearEdge entities in the bankruptcy court. He alleged that the two ClearEdge entities were a “single employer” under the Worker Adjustment and Retraining Notification (“WARN”) Act, 29 U.S.C. §§ 2101–2109, and that the entities violated that act when they fired him and other employees without 60 days’ advance notice. Wojciechowski settled that action. Per the settlement agreement, the class released all claims it had against “(i) Defendants ClearEdge, Power, Inc. and ClearEdge Power, LLC and their respective estates,” and “(ii) each of the Defendants’ current and former shareholders, officers, directors, employees, accountants, attorneys, representatives and other agents, and all of their respective predecessors, successors and assigns, excluding any third parties which may or may not be affiliated with Defendants ClearEdge Power, Inc. and ClearEdge Power LLC, including, but not limited to Kohlberg Ventures LLC.” Kohlberg was not involved in the bankruptcy proceedings or in settlement negotiations. The bankruptcy court approved the settlement agreement and closed the case soon after. The ClearEdge estates paid a portion of the class members’ WARN Act wages and benefits.

Wojciechowski then filed this putative class action. He alleges that Kohlberg, as a “single employer” with the ClearEdge entities, violated the WARN Act when it fired him without advance notice. Wojciechowski seeks “an award for the balance of the Class’[s] WARN Act wages and benefits.” That is, he seeks what the class is owed under the Act less the amount received from the ClearEdge estates.

Slip op., at 4-5. In this instance, the Court had little difficulty concluding that the scope of preclusion was clearly specified in the settlement approved in the first suit before the bankruptcy court. Kohberg argued that it was not a party to the initial settlement and could not be limited by it. The Ninth Circuit quickly rejected that argument, observing that two parties can contract to settle a claim on just about any terms they want, particularly when it is then approved by a court.

The Class Re-Action Podcast is looking for guests!

For reasons unknown to me, we have been hitting the wall of late when trying to find willing victims…errr….guests for our podcast (we, as in my co-host, Linh Hua, and me - Linh makes a heroic effort to find guests, so you are spitting in her face when you ignore her invitation). If you are interested in participating in what is usually (IMO) an entertaining conversation, let one of us know. Unless the high-quality guests step up, I’m going to have to run my mouth for an entire show, all by myself. Nobody wants that. Linh especially.

USC Law turns pathetic, moves to protect snowflakes and endorse heckler's vetoes

I attended USC Law School. When I was there, I don’t recall a lot of compassion for snowflakes troubled by school speakers. That was then. Now, USC takes a bold and decisive step to self-neuter, allowing graduation speaker Jeh Johnson, Former Homeland Security Secretary, to withdraw as a graduation speaker…because some people complained about him. His comment in withdrawing was certainly diplomatic, reportedly saying that “graduations should be free of tension and political controversy.” Noble sentiment. But what it actually does is permit a heckler’s veto over any idea more milquetoast than “You all get a diploma. Yay!”

To the students crying about a former Homeland Security Secretary that, shocker, made some mild efforts to enforce border security and control immigration, drop out now. To the faculty complaining about his work — in an administration not known for its overwhelmingly harsh stance on immigration and border control — find another career, as you are unfit to craft the minds of young people into solid attorneys.

To the Dean of USC Law, grow a pair. You should have told the faculty to stuff it and told the students they were free to be elsewhere on graduation day.

Friday Open Post

So I’m going to try an experiment that will almost certainly fail, but I’m going to do it anyhow to spit into the wind. This is your chance to suggest anything you want in comments. You can propose cases to discuss (I’m still contemplating the Supreme Court’s Lamps Plus decision, so that’s covered on my list already). You can note other legal news of note. Anything (within reason - but I will bend the comment policy quite a bit to allow for far-ranging topics).

Related to comments, I’ve updated this blog to use Disqus for comment functions. I wanted to see if it generates any more community discussion. Probably not, because lawyers, for whatever reason, are resistant to actively engaging with sites like this. What I have yet to figure out is why lawyers do so much on LinkedIn but not blogs. Anyhow, go crazy! Comment! Give you review of Avengers: Endgame in the comments.