On October 28, 2010, in Carruthers v. Carrier Access Corporation, the Colorado Court of Appeals affirmed a district court’s discretionary award of attorney fees in favor of a prevailing employer in a Colorado Wage Act case.  This is a significant ruling interpreting the 2007 amendments to the Colorado Wage Act, C.R.S. 8-4-101 et seq. (PDF).

When the Colorado Wage Act was amended in 2007, it imposed greater penalties against employers for the non-payment of wages and provided that attorney fee awards were to be discretionary when they were previously mandatory.  Many (myself included) believed that the attorney fee amendments would be interpreted similar to the standard for attorney fee awards under Title VII of the Civil Rights Act of 1964, such that prevailing employees would generally be awarded attorney fees, but prevailing employers could only get them if the employee’s claim was frivolous.  This belief was due, in large part, to the legislative declaration for the amendments which provides:

Section 1. Legislative declaration. (1) The General Assembly hereby finds, determines, and declares that the wage claim statute should be amended to create greater incentives for employers to promptly pay wages and other compensation owed to current and former employees.

(2) The General Assembly intends the change to a discretionary standard for awards of attorney fees and costs to be interpreted consistently with the courts’ interpretation of the attorney fee provisions in the federal Civil Rights Act of 1964, 42 U.S.C. sec. 2000e…

However, the Colorado Court of Appeals in Carruthers first noted that the statute is clear and unambiguous as it states that a court “may” award costs and attorney fees to a prevailing employer or employee.  As such, no review of extrinsic evidence is required to find that an attorney fee award under the Colorado Wage Act is discretionary as to both parties.  Nonetheless, the Court of Appeals performed a legislative history analysis, and noted the revisions to another section of the declaration, Section 3:

(3) Attorney fees awarded against an employee are not intended to impose an excessive financial hardship.

According to the Court of Appeals, the revisions to Section 3 helped to clarify that while there is an intent to treat prevailing employees as presumptively entitled to attorney fee awards and that awards of fees against unsuccessful employees should not impose excessive financial hardship, there is no intent to limit attorney fee awards to prevailing employers only in cases involving frivolous claims.  The Colorado Court of Appeals also noted that no witness at the legislative hearings testified that an employer could only be awarded attorney fees if the employee’s claim was frivolous, and further distinguished wage claims from discrimination claims by explaining that an employee in a discrimination case is acting as a “private attorney general” versus an employee in a wage case who is seeking to recover earned wages or compensation similar to a private contractual claim.

Finally, the Colorado Court of Appeals provided a guideline of factors for courts to consider when awarding discretionary attorney fees to prevailing employers under the Colorado Wage Act:

  1. The scope and history of the litigation;
  2. The ability of the employee to pay an award of fees;
  3. The relative hardship to the employee of an award of fees;
  4. The ability of the employee to absorb the fees it incurred;
  5. Whether an award of fees will deter others from acting in similar circumstances;
  6. The relative merits of the parties’ respective positions in the litigation;
  7. Whether the employee’s claim was frivolous, objectively unreasonable, or groundless;
  8. Whether the employee acted in bad faith;
  9. Whether the unsuccessful claim was based on a good faith attempt to resolve a significant legal question under the Wage Act; and
  10. The significance of the claim under the Wage Act in relation to the entire litigation.

The underlying facts for this case involve the plaintiff, Philip Carruthers, who sued his former employer, Carrier Access Corporation, for $210,000 in unpaid commissions that neither the judge nor the jury found to be supported by the evidence.  After a hearing on attorneys’ fees, the trial court awarded Carrier $94,798.92 in defense fees, which was later reduced to $34,000.  Although the Court of Appeals affirmed an attorneys’ fee award in favor of Carrier, it vacated the $34,000 award and remanded the case back to the district court to issue factual findings in support of a reasonable amount of Carrier’s fees incurred in defending the wage claim.

Bottom Line: This is a favorable case for companies defending wage claims greater than $7,500 as it allows a discretionary attorney fee award under the Colorado Wage Act – a law that otherwise carries with it a big hammer against employers.