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Think Beating a Settlement Offer Protects You? California’s Surprising Ruling Says Otherwise In Wage And Hour Context
Dec 16, 2024

Think Beating a Settlement Offer Protects You? California’s Surprising Ruling Says Otherwise In Wage And Hour Context

Topics: Court Decisions, Wage & Hour Issues

California employers may not be able to recover the costs of a lawsuit from prevailing employees in certain types of wage claims, even if they obtained a more favorable result after trial than their statutory offer to compromise pursuant to Code of Civil Procedure section 998 (section 998 offers). In Jorge Chavez v. California Collision, LLC, the California Court of Appeal reversed the trial court’s decision to award costs to the defendants for beating their section 998 offer. The Court held that section 998 was superseded by the Labor Code, which precludes an award of costs to an employer in wage claims where the employee prevails, regardless of whether the employer beats its section 998 offer.

In Jorge Chavez v. California Collision, LLC, plaintiffs Samuel Zarate, Jorge Chavez, and Aldo Isas sued California Collision and its owner, George Osorio, for various wage and hour claims. Before trial, defendants made section 998 offers to each plaintiff. Chavez and Isas accepted their 998 offers, so only Zarate proceeded to trial. Although Zarate prevailed on two causes of action at trial, the jury awarded him damages ($21,061) lower than the defendants’ section 998 offer ($38,750). Because section 998 offers shift certain costs to the party failing to achieve a more favorable result than the settlement offer, the trial court awarded costs to the defendants and against Zarate under section 998. While awarding Zarate attorneys’ fees and costs (limited to those incurred before the date of the first section 998 offer by operation of that statute), the trial court slashed Zarate’s requested amount significantly due to unsatisfactory proof of reasonable hours worked. Zarate appealed.

The Court of Appeal held that the trial court erred in awarding costs to the defendants under section 998, due to contrary provisions in Labor Code sections 1194 and 218.5. Specifically, Labor Code section 1194 allows a prevailing employee in an unpaid minimum wage and overtime suit to recover costs but makes no mention of an employer being able to recover costs. Similarly, Labor Code section 218.5 permits a prevailing employer to recover costs in suits for unpaid wages only if the court finds the employee brought the action in bad faith. There was no finding of bad faith in this case. The Court noted that these Labor Code provisions superseded section 998’s cost-shifting provisions while highlighting the strong public policy interest in supporting employees’ ability to pursue wage claims without fear of incurring substantial costs. As Zarate prevailed on some wage claims, the Court reversed the trial court’s order awarding costs to the defendants under section 998.

This decision is surprising in limiting the applicability of a 998 offer based on policy reasons, and potentially encourages unreasonable behavior where plaintiffs reject reasonable settlement offers. This decision will likely discourage California employers from making reasonable 998 offers in hopes of shifting costs onto plaintiffs when these offers are unreasonably rejected, which will further burden California’s impacted court system. However, this decision appears to be an exception and its application should be limited to the facts and claims at issue. California employers should work with their counsel to minimize the risk of potential wage claims, especially in light of this decision which makes it difficult for employers to recover costs.

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For over 25 years, CDF has distinguished itself as one of the top employment, labor and immigration firms in California, representing employers in single-plaintiff and class action lawsuits and advising employers on related legal compliance and risk avoidance. We cover the state, with five locations from Sacramento to San Diego.

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San Diego Associate Attorney. Taylor has experience defending employers of all sizes in employment-related claims regarding wrongful termination, discrimination, harassment, retaliation, COVID-19 compliance, and employment-related tort and contract claims. Taylor also has experience defending management in wage and hour class actions and PAGA representative actions. Taylor is a member of the Lawyers Club of San Diego and received her Juris Doctor from the University of San Diego School of Law, where she was a member of the Student Bar Association, Employment and Labor Law Society, Business Law Society, and Women’s Law Caucus.
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