An Employer Litigation Tool Arising From Remote Workplaces

The pandemic opened Pandora's box for many employers including having employees work remotely.  Remote work has created a plethora of management issues including communications for employees working different schedules over various time zones, technology and security challenges for the home office, dress code for zoom calls, and a myriad of legal considerations such as time keeping from the home rather than from the office, enforceability of non-compete agreements, reimbursing employees for costs associated with home as the office, 1099 misclassification, unemployment compensation, workers' compensation, licensure requirements, and unexpected state and local taxes to name a few.  As Gen Z has begun to supplant Boomers in the workplace, Zoomers need to be given flexibility in their job or bouncing to the next job is a harsh reality.  As a result, many employers are providing employees with the option to work remotely as an employment benefit of the post-pandemic world.

While working from home has created many legal challenges, if an employee chooses to work from home in another state a long lost litigation tactic might be available to employers.  If an employee or ex-employee is working in a state other than California and chooses to sue their employer, the employer may avail itself of the undertaking requirement in California Code of Civil Procedure § 1030.  In a typical employment lawsuit, the employee hires an attorney on a contingency fee arrangement so risks nothing if she is not successful, and if she loses the lawsuit, makes it difficult to recover any costs or attorneys’ fees the employer might be entitled to as a result of defending itself.  Section 1030 requires an employee to put up a bond to cover potential fees and costs the employer might be able to recover.

Section 1030 was enacted to require a nonresident plaintiff to file a cost bond (‘undertaking”) to secure costs in light of the difficulty of enforcing a judgment for costs against an out-of-state person who is not within the court’s jurisdiction.  Shannon v. Sims Service Center, Inc., 164 Cal. App. 3d 907, 913 (1985).  The statute therefore acts to prevent out-of-state residents from filing frivolous lawsuits against California residents.  See  Alshafie v. Lallande, 171 Cal. App. 4th 421, 428 (2009).  Although undertaking statutes dates back to the nineteenth century, this tool is often overlooked.

The requirements of section 1030 are twofold:  (1) the plaintiff must reside out of state or be a foreign corporation (organized under another state law), and (2) the defendant must establish that there is a reasonable possibility that it eventually will obtain judgment.  If a defendant can meet these thresholds, then the court shall require the plaintiff to post an undertaking in an amount sufficient to secure an award of costs and attorney fees that may be awarded.  For corporate liability, even if a corporation is headquartered or has assets located in California, it still could be considered a foreign corporation if it is organized under another state’s law.  As for the second element, the standard is significantly less than that for summary judgment.  See Rosales v. County of San Diego, 2020 WL 5408939 at *2 (S.D. Cal. 2020)(Section 1030(b)’s reasonable possibility standard is relatively low). 

Even if the plaintiff has a possibility of winning the case, so long as the defendant also has a possibility of winning the case, it could require the plaintiff to post a bond.  See Johnson v. Altamirano, 418 F. Supp. 3d 530, 564 (S.D. Cal. 2019)(reasonable possibility standard is relatively low, but it is not so low as to be non-existent; to satisfy the requirements of section 1030, a defendant must demonstrate a reasonable possibility of success on each of plaintiff's claims—if a defendant does not show a reasonable possibility of defeating even one of a plaintiff's claims, the court must deny the motion).  If granted, now the plaintiff actually has to put up some money, and the failure to post a bond can lead to dismissal of the entire case as was the result in the Shannon case.

If the defendant can meet the two threshold requirements, then it must submit a declaration that describes the nature and amount of costs and attorneys’ fees that have been incurred and are expected to be incurred in the future for this particular matter.  If the court grants an undertaking, the plaintiff has thirty days to post the bond after service of the court’s order.  Failure to post the undertaking results in dismissal of the case.

It should be noted, however, that if a plaintiff is truly indigent, then the court has discretion to relieve such a plaintiff from posting an undertaking.  To avail oneself of this exception, a plaintiff must either evidence that they have attempted to obtain the required undertaking and failed, or offer evidence that it is unable to furnish an undertaking.

The timing of the motion for an undertaking is important.  If the motion is filed within 30 days of the summons being served, the court has discretion to stay the litigation until either 10 days after plaintiff posts an undertaking, or 10 days after the defendant’s motion is denied.  This stay can be used as leverage in settlement negotiations and the effect of a motion for an undertaking might even force a plaintiff to rethink whether litigation is even desirous because of the expense of posting an undertaking.  Because of the power of this procedure, employers should consider using this mechanism to help deter litigation when dealing with out of state employees.

This AALRR presentation is intended for informational purposes only and should not be relied upon in reaching a conclusion in a particular area of law. Applicability of the legal principles discussed may differ substantially in individual situations. Receipt of this or any other AALRR presentation does not create an attorney-client relationship. The Firm is not responsible for inadvertent errors that may occur in the publishing process.      © 2023 Atkinson, Andelson, Loya, Ruud & Romo

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