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Court: Employees May Collect Attorney Fees in Private Settlement

March 12, 2019
 
The Massachusetts Supreme Judicial Court (SJC) ruled recently that an employer may have to pay attorney’s fees to employees who obtain a private settlement in cases that involve non-payment of wages.
 
The original lawsuit in the case involved two employees suing their former employer for $28,000 in unpaid wages. The dispute was ultimately settled through the court’s mediation program for $20,500.
 
There was no question that the employees prevailed because the settlement lead to a payout. The real question in the case was whether the employees, whose claim resulted in a favorable settlement without going before a judge, “prevailed” in their suit so that the employer would have to pay attorney’s fees and costs under the Massachusetts wage act. 
 
Prior to this SJC decision, there were two possible fee payment models that could be applied in wage cases. Under the “judicial approval” model, which the company argued should be used, the employees had to have a judicial imprimatur (i.e. judicial sign-off) of the private settlement to prove that they prevailed and were entitled to attorney fees. 
 
Under the other option, the so-called “catalyst” test, if the plaintiff’s lawsuit was a necessary and important factor in causing the defendant (i.e. employer) to grant a material portion of the requested relief, a settlement agreement, even without any judicial involvement, may qualify the plaintiff as a prevailing party for purposes of collecting attorney’s fees.  
 
The “judicial approval” payment model is more typical in the federal courts but had been previously rejected by the SJC.  In this case though, the employer argued that the courts should revive the prevailing party standard and require the approval of a judge in order to award a fee.  
 
After considering the issue, the SJC explicitly rejected the judicial approval test and ruled that the catalyst test applies to Wage Act claims in Massachusetts, assuming that the plaintiff’s lawsuit was a “necessary and important” factor in the adoption of the settlement agreement. 
 
Note that the original lawsuit claimed $28,000 in unpaid wages (which could be tripled under the statute) but the final settlement was for $20,500, significantly less than the original claim or the potential treble damages amount. This means that in exploring options on how to respond to a non-payment of wages lawsuit, an employer should consider negotiating to try to reduce the amount in any non-payment of wage claim.   
 
Members may call the AIM Employer Hotline at 800-470-6277 with questions about this or any other HR-related issue.
 
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