California Supreme Court Strikes a Blow for Rationality in Awarding Attorneys Fees under FEHA
The Goldstein Law Firm
February 2010 Newsletter
“California Supreme Court Strikes a Blow for Rationality in Awarding Attorneys Fees under FEHA; Layoffs: Five Suggestions to Avoid Costly Legal Claims; and Fourteen Basic Defenses to Wrongful Termination, Discrimination and/or Retaliation Lawsuits”
By: Charles H. Goldstein, Esq.
The Goldstein Law Firm
1. “Game Changer”: The California Supreme Court Changes the Rules for Legal Fees and Costs in Discrimination Cases
Any Employer who has be sued for discrimination or for wage and hour violations knows that even when the employee suffers and is awarded relatively minor damages; the Employer could still be faced with having to pay hundreds of thousands of dollars in legal fees to the employee’s lawyer. This is because under the anti discrimination and wage and hour laws an attorney who successfully prosecutes a Fair Employment Housing Act (“FEHA”) claim or wage and hour claim is entitled to “reasonable attorneys’ fees and costs. The right to have an award of attorneys’ fees in practice does not go both ways. An employer who is successful in defeating an employee’s claim usually will not be awarded attorneys fees.
The fear of a high award of attorneys’ fees to the employee’s lawyer is exploited by lawyers for employees as a means to extract settlements from Employers that are much higher than the actual damages suffered by the employee. Employee lawyers often make the threat directly to the Employer, or to their attorney or through a mediator, that if the Employer goes to trial and their client recovers even a dollar of damages – the Employer will have to pay them hundreds of thousands of dollars in attorneys’ fees. This threat appeared to be supported by the state of the law until January 14, 2010 when the California Supreme Court decided the case of Chavez v. City of Los Angeles.
In the Chavez case, Chavez brought a claim of discrimination under FEHA and managed to be awarded only $11,500.00 at trial. Chavez then sought an award of attorneys’ fees under FEHA totaling $870,935.50. The trial court used its discretion to deny the employee’s attorneys fee award under California Code of Civil Procedure (“CCP”) section 1033. The trial court’s ground for denying the attorneys’ fee award was that the case could have been brought as a limited jurisdiction case since the damages awarded were less than $25,000.00. The trial court further concluded that because the case could have been brought as a limited jurisdiction case, but was instead brought as an unlimited case, CCP section 1033, subsection (a) applied. CCP Section 1033(a) states: “costs or any portion of claimed costs shall be determined by the court in its discretion”. Attorneys fees are within the definition of costs. Therefore, the trial court rejected the attorneys’ fee request even though under FEHA an employee who prevails in a discrimination/harassment case is entitled to an award of reasonable attorneys fees, unless special circumstances render a fee award unjust. On appeal, the Court of Appeal reversed the trial court and concluded that CCP Section 1033 did not apply to FEHA cases.
The California Supreme Court reversed the decision of the Court of Appeals and held that CCP Section 1033 does apply to FEHA cases and gives trial court judges’ discretion to deny attorneys’ fees to a plaintiff who prevails on a FEHA claim, but recovers an amount that could have been recovered in a limited civil case. The Supreme Court held that in exercising that discretion, the trial court must give due consideration to the policies and objectives of FEHA in general and its attorneys’ fee provision in particular. The Supreme Court noted the Plaintiff’s minimal success and grossly inflated attorneys’ fee request in finding that the trial court did not abuse its discretion in denying the plaintiff’s attorneys fee award. (Emphasis added.)
The Significance of Chavez for Employers
The Chavez case has major significance for Employers because it can be used to reasonably settle cases where there are little, if any, actual damages and the major threat to the Employer proceeding to trial is the threat of an exorbitant award of attorneys fees to the employee’s attorney. Essentially, when used properly, the Chavez case can assist in the realistic settlement of cases where the employee has minimal actual damages. These cases include cases where there are minimal actual damages because either the employee did not mitigate their damages by actively seeking employment after they were terminated or in cases where the employee quickly secured employment after termination and still sued their former employer for discrimination and/or harassment. This case can also be used in other employment cases, such as wage and hour cases, where the unpaid wages are minimal and where the case could have been brought as a limited jurisdiction case, but was filed as an unlimited jurisdiction case in Superior Court.
2. Layoffs: Five Suggestions to Avoid Costly Legal Claims
In this severe economic climate, many Employers have reasonable economic reasons for making the tough economic decision to lay off employees. These reasons include a substantial decline and/or loss of business due to the economic downturn; loss of a key account and/or sales territory; and/or a projected budget shortfall due to substantially declining revenues. Other reasons for layoffs include a job function consolidation, significant organizational changes due to outsourcing, and technological innovations.
While it is essential for an Employer to be able to document the reason for layoff, courts and administrative agencies rarely challenge a management decision to reduce an Employer’s workforce. Instead, the challenge comes from individuals or groups of individuals who say: “Why was I laid off and not someone else?” The challenge for public and private sector management is to be able to maintain a productive organization after the layoff. Therefore, you want to keep your best employees and layoff your least productive employees.
Suggestion #1: Have a clear written layoff policy that specifies which factors are to be used by managers when making lay off decisions. Managers and supervisors should be aware of the policy and how to implement the policy.
Suggestion #2: If an Employer uses performance as the determining factor, rather than length of time with the organization, an Employer must have sound documentation to prove that the employee who was laid off was not a better performer than the person who was retained. In certain job classifications it may be easier to demonstrate superior performance. For instance, when laying off sales employees, an Employer can show that the person laid off continuously had lower sales while the employee that was retained had higher sales. The problem is that many classifications of employment do not readily lend themselves to easy productivity comparisons. In those cases, an employee’s superior performance may be related to the fact that they can multi task, while the employee being laid off can only perform a single task, but has been employed for a longer period of time.
Suggested #3: Before you make lay off decisions consider how they will be challenged and determine whether you have documented defenses.
Suggestion #4: Consider alternatives to layoff such as reducing hours and/or moving the person to a lower position.
Suggestion #5: Have the layoff decision independently and objectively reviewed by employment counsel in advance of the implementation. This type of preventive advice is the most cost effective legal counsel that an Employer can receive because in many cases, it dissuades plaintiff’s counsel, from filing costly wrongful termination/ discrimination lawsuits which are often triggered by layoffs.
3. Fourteen Basic Defenses to Wrongful Termination, Discrimination, and/or Retaliation Lawsuits
In my experience, Employers who are aware of these basic defenses will be in a better position to successfully resist and prevail against costly and unnecessary employment claims. The following is a list of these basic defenses:
ü Management’s decision to terminate was for good cause or just cause.
ü Management’s decision to terminate was in accordance with the employer’s rules, policies, and procedures.
ü Management’s decision to terminate was based on legitimate, non-discriminatory business or organizations reasons.
ü Management’s decision to terminate was based on a good faith determination that the employee engaged in the conduct giving rise to the termination following a full and fair investigation.
ü Management conducted a full and fair investigation of the employee’s claim of misconduct by the employer, a manager, supervisor or co-worker, and the employer took appropriate remedial action in response to the employee’s claim.
ü Actions claimed by the employee to be retaliatory were in actuality actions taken by the employer in carrying on the normal course of the employer’s business and were non-discriminatory.
ü The employer did everything reasonably possible to mitigate the effects of any unlawful conduct of its supervisors and the employee still decided to resign.
ü The employee misrepresented material facts regarding their qualifications for employment and they would not have been hired had the employer been aware of the true facts.
ü The employee unreasonably failed to take advantage of employer’s policies and procedures, prior to filing a lawsuit.
ü The employee failed to exhaust his/her administrative remedies and receiving a “right to sue letter” from the DFEH and/or EEOC prior to filing a complaint in state of federal court against employer.
ü The employee was not an otherwise qualified disabled worker and, therefore, the employer did not have an obligation to reasonably accommodate the employee.
ü The employee was not properly released to return to work because his/her treating physician or other health care provider would not certify that the employee could return to work to perform the essential duties of their job without the immediate risk of injury or re-injury to their existing health condition.
ü The employee exhausted all leave, including where appropriate, pregnancy disability leave and family medical leave, did not return to work, and was terminated.
ü All communications and records regarding the termination were disclosed only to persons on a need to know basis; were kept confidential and, most importantly, were truthful.
The Goldstein Law Firm
8912 Burton Way
Beverly Hills, California 90211
Telephone: (310) 553-4746
Facsimile: (310) 282-8070