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.