Arbitration award of attorneys’ fees to prevailing employer was contrary to California public labor policy
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Wednesday, March 30, 2016

Arbitration award of attorneys’ fees to prevailing employer was contrary to California public labor policy

By Ronald Miller, J.D. Although an employer successfully defeated an employee’s dominant contention that she had been wrongly classified as an exempt employee, a California Court of Appeals concluded that an arbitrator exceeded his authority in awarding attorneys’ fees and costs to the employer, which was contrary to California public policy as expressed in California Labor Code Section 1194. The arbitration award directly undermined the employee’s right to pursue an overtime claim without exposure to paying her employer’s attorneys’ fees (Ling v. P.F. Chang’s China Bistro, Inc., March 25, 2016, Grover, A.). The employee worked as a floor manager at a newly opened P.F. Chang restaurant. Her position was classified as exempt under California Industrial Wage Order 5-2001(1)(B)(1), exempting her from overtime compensation and mandated meal periods. The employee sued the restaurant seeking unpaid overtime wages, waiting time penalties, and premium pay for failure to provide meal and rest periods. Because she agreed to arbitration of any employment dispute as a term of employment, the employee’s claim was arbitrated. Arbitrator’s decision. In July 2011, the arbitrator rejected her claim that she was wrongly classified as exempt by the employer. According to arbitrator, the employee was terminated primarily for performance issues because she was unable or unwilling to conform to the employer’s expectations that she manage, not perform hourly functions. But she prevailed in part on her missed meal periods claim based on the first nine weeks of employment, when she attended off-site training. She was compensated $1,038 for missed meal periods during that time, and the arbitrator also awarded her $7,668 in waiting time penalties under Section 203 of the California Labor Code for the missed trainee meal periods. Attorneys’ fees awarded. However, the arbitrator found the employer to be the prevailing party on all but the meal period claim, and awarded the employer over $212,000 in attorneys’ fees under Section 218.5 and over $29,000 in costs under Code of Civil Procedure Section 1032. Determining that he retained “wide equitable discretion to determine which party prevailed based upon the entirety of the claims and defenses,” the arbitrator deemed the employer the prevailing party for successfully defeating the dominant contention in the litigation that the employee had been wrongly classified as an exempt employee. Petition for review. Petitioning a trial court, the employee argued that the arbitrator had exceeded his powers by awarding attorneys’ fees and costs to the employer while at the same time denying her statutory right to attorneys’ fees and costs. Although the employer had defeated her overtime claim, the employee argued that public policy and Section 1194 precluded the employer from recovering any attorneys’ fees. The trial court ruled that it had no authority to disturb the arbitrator’s findings that the employee’s manager position was properly classified as exempt and the employer had prevailed on that central issue. However, the court corrected the award and remanded to the arbitrator. It recognized the public policy imbedded in Section 1194 protecting an employee’s right to bring an overtime claim without facing the prospect of financial ruin. Accordingly, it ruled that the employer was precluded by Section 1194 from recovering attorneys’ fees on her overtime claim or on her missed meal periods claim to the extent the latter was inextricably intertwined with the overtime claim. Further, it ruled that the employee was entitled to attorneys’ fees as the prevailing party on her missed meal periods claim. Both parties appealed. Attorneys’ fees. Following the American rule, each party to a lawsuit in California pays its own attorneys’ fees, absent a statute or an agreement providing otherwise. Two Labor Code sections provide for fee shifting. Section 1194, subdivision (a) provides that an “employee receiving less than the legal minimum wage or the legal overtime compensation applicable to the employee is entitled to recover in a civil action the unpaid balance of the full amount of this minimum wage or overtime compensation, including interest thereon, reasonable attorneys’ fees, and costs of suit.” Because Section 1194 provides only for a successful plaintiff to recover attorneys’ fees and costs, it is a one-way fee shifting statute precluding an employer from collecting fees and costs even if the employer prevails on a minimum wage or overtime claim. Section 218.5 is a two-way fee shifting statute, providing for an award of attorneys’ fees and costs to the prevailing party “[i]n any action brought for the nonpayment of wages, fringe benefits, or health and welfare or pension fund contributions.” Section 218.5 does not apply to an action for which attorneys’ fees are recoverable under Section 1194. In the absence of a specific Labor Code provision, costs are awarded in employment dispute matters under Code of Civil Procedure section 1032. That statute awards costs as a matter of right to a prevailing party “in any action or proceeding.” Arbitration agreements are governed by their own attorneys’ fees and costs provisions. But in employment disputes involving statutory claims, an employee’s statutory rights to attorneys’ fees and costs are not waived or forfeited, but rather are inferred in the arbitration agreement. Public policy. The arbitration award was subject to trial court correction because it contravened an explicit legislative expression of public policy. Because the employee’s missed meal periods claim and overtime claim required identical proof, the attorneys’ fees award for defending the “factually inextricably intertwined” meal periods claim was effectively a fee award for defeating her overtime claim, prohibited by Section 1194. Such an award exceeded the arbitrator’s power because it contravened the explicit legislative declaration of public policy reflected in Section 1194. The arbitration award directly undermined employee’s right to pursue an overtime claim without exposure to paying her employer‘s attorneys’ fees.

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