Court of Appeal: Meals and Breaks are Penalties for Attorneys Fees Law

Did you know the Labor Code permits employers to recover attorney's fees when the employer wins certain wage claims?  It's true.

Labor Code section 218.5 contains a reciprocal fee recovery provision in favor of the "prevailing party" in certain wage disputes. Section 218.5 states, in relevant part: "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. . . . [¶] This section does not apply to any action for which attorney’s fees are recoverable under Section 1194."

 In light of the last sentence, claims involving "overtime" are not subject to this fee statute, but rather section 1194.  That is a "one way" fee provision that precludes employers from recovering fees even when they win claims for unpaid overtime.  Thus, the Court of Appeal decided that UPS could not recover attorney's fees when it won a lawsuit by a single plaintiff challenging his exemption.

But what if the complaint alleges unpaid overtime AND other wage claims.  The Court of Appeal decided that fees MAY be recovered by employers relating to the non-overtime-related claims.  But then things got weird.

In United Parcel Service Wage and Hour Cases, the court dealt with Thomas McGann's individual claim, which not only involved overtime, but also meals and breaks.  UPS sought its fees when it prevailed on the meal and break portion of the case. 

Section 218.5 applies only to "wage" claims.  Rather than award UPS the fees, the Court of Appeal held that meal and rest period penalties are penalties for purposes of the attorneys' fees statute permitting employers to recover attorney's fees for unsuccessful suits to recover wages.  But wait. I thought the California Supreme Court said that meal period penalties were wages for the purposes of the statute of limitations.  You're right.  The Supreme Court did so in the Murphy v. Kenneth Cole case, discussed here.

But the Court of Appeal decided that Murphy does not apply because it did not address attorney's fees, but rather which statute of limitations should apply.

UPS contends Murphy establishes that an action for recovery of the statutory remedies for missed meal and rest breaks is a claim for “nonpayment of wages” within the meaning of Labor Code section 218.5. UPS offers no analysis to support its contention that Murphy, which decided a statute of limitations question under the Code of Civil Procedure, should control or guide our analysis of the Labor Code attorney fees provisions. We are not persuaded that extending the holding in Murphy to the discreet fee issue presented here is appropriate or in keeping with our duty to construe statutes regulating the conditions of employment liberally, “with an eye to protecting employees.” (Murphy, supra, 40 Cal.4th at p. 1111; accord, Ramirez v. Yosemite Water Co. (1999) 20 Cal.4th 785, 794.)

Recognizing that the statutory remedy for denial of breaks -- payment of one additional hour of regular pay for each day a break is denied -- was susceptible to an interpretation as a wage and also as a penalty, the Supreme Court in Murphy found the remedy provided in Labor Code section 226.7 was primarily intended “to compensate employees for their injuries” occasioned by missed breaks and was, therefore, akin to a wage for purposes of assigning the appropriate statute of limitations. (Murphy, supra, 40 Cal.4th at p. 1111.) The court therefore gave employees the benefit of the three-year statute of limitations. However, nothing in the Murphy opinion suggests the court intended its decision to permit a prevailing employer-defendant in a section 226.7 action to recover attorney fees from the unsuccessful employee. To so find would undermine the Supreme Court‟s heavy reliance in its analysis on the principle that statutes governing working conditions must be liberally construed in favor of employees.

So, the court instead decided that section 218.5 permits employers to recover attorney's fees when wage claims are based on contractual wages, such as unpaid bonuses, rather than wages - such as meal period penalties- that are required by statute. I guess vacation pay disputes won't result in awards of attorneys' fees either now?
 
Sorry - but if Murphy held that meal periods are subject to the limitations period applicable to wages not penalties, then Murphy said that meal and break penalties are wages. Since 218.5 applies to "wages" and not just "contractual-based wages" the court giveth something to the statute, and taketh away from employers.
 
The case is United Parcel Services Wage and Hour Cases, and the opinion is here.