Court of Appeal Holds Attorney's Fees Are Not Recoverable For Claims For Meal Or Rest Period Violations

Not every cloud has a silver lining, but some do, and the California Court of Appeal's decision today in Thomas McGann v. United Parcel Service, Inc., contains a terrific silver lining for employers. Thomas McGann was employed by United Parcel Service, Inc., ("UPS") for a number of years and worked as an On Road Supervisor. UPS classified Mr. McGann as an exempt employee and therefore did not pay Mr. McGann premium pay (i.e., overtime pay) for hours worked in excess of eight hours in a workday.

Mr. McGann filed suit against UPS alleging six causes of action: (1) failure to pay overtime pursuant to Labor Code sections 510 and 1194, (2) failure to provide meal periods and rest periods pursuant to Labor Code section 226.7, (3) failure to provide compliance wage statements pursuant to Labor Code sections 226 and 226.3, (4) common law conversion premised on the theory Mr. McGann had a property interest in the premium pay he alleged UPS owed to him but failed to pay to him, (5) injunctive and other equitable relief, and (6) unfair competition pursuant to Business and Professions Code section 17200, et seq. 

UPS prevailed on all six of Mr. McGann's causes of action, and the trial court made an award of attorney's fees and costs in favor of UPS.  Mr. McGann appealed the award of attorney's fees and costs.

On appeal, in a somewhat paradoxical decision, the court reversed the trial court's award of attorney's fees in favor of UPS and affirmed the trial's court's award of costs to UPS. The Court of Appeal held UPS was not entitled to an award of prevailing party attorney's fees because Labor Code section 1194 permits only an award of attorney's fees to an employee who prevails on a claim for alleged unpaid minimum wages or overtime compensation and does not permit an award of prevailing party attorney's fees to an employer that defeats such a claim. The Court of Appeal held, also, that there was no basis for the trial court to award prevailing party attorney's fees to UPS as to Mr. McGann's other claims because no statute permits such an award.

The Court of Appeal's decision to affirm the award of costs to UPS is good news for employers, but it is not the silver lining alluded to above. The silver lining alluded to above is the court's holding the prevailing party attorney's fees provisions of Labor Code section 218.5 do not apply to claims for additional compensation under Labor Code 226.7 for an employer's alleged failure to provide required meal periods and/or rest periods. In Murphy v. Kenneth Cole Productions, Inc. (2007) 40 Cal.4th 1094, the California Supreme Court held the additional compensation to be awarded to employees under Labor Code section 226.7 when an employer fails to provide required meal periods and/or rest periods is more akin to a wage than a penalty and was therefore subject to a three-year statute of limitations and not the one-year statute of limitations applicable to statutory penalties. Based on that decision, it was widely believed that the prevailing party attorney's fees provisions of Labor Code section 218.5 for claims for unpaid wages other than minimum wages or overtime wages applied to claims for additional compensation under Labor Code section 226.7 for meal and/or rest period violations. However, in today's decision, the Court of Appeal held the additional compensation payable under Labor Code section 226.7 is more like a wage than a penalty for purposes of determining which statute of limitations applies to such claims, as the Supreme Court held in Murphy, but not sufficiently like a wage to be subject to the prevailing party attorney's fees provisions of Labor Code section 218.5. 

This is a terrific silver lining for employers. It means employees who are determined to be the prevailing parties on claims for an employer's failure to provide required meal periods and/or rest periods are likewise not entitled to an award of attorney's fees based on such claims and such claims are very, very commonly asserted in wage and hour class action lawsuits. But there is more. Because the Court of Appeal held the additional compensation payable under Labor Code section 226.7 is not sufficiently like a wage to be subject to the prevailing party attorney's fees provisions of Labor Code section 218.5, it follows that claims for such non-wage additional compensation cannot be the basis for an award of "waiting time" penalties under Labor Code section 203 because section 203 provides for an award of "waiting time" penalties only when there has been a "willful" failure to pay wages due and owing at the time of termination. 

Given the amount of the attorney's fees award at state (approximately $100,000) and other considerations, we doubt UPS will petition the California Supreme Court for review of today's decision, and it is not immediately clear that there would be a viable basis for Mr. McGann to petition for review of today's decision. The more likely risk to today's decision would be a request by the plaintiff's bar or by labor unions to depublish the decision so it becomes unciteable. We will monitor this issue and will report any further significant developments. 

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