Employers Not Always Responsible For Employee’s Legal Expenses

Employers Not Required To Compensate an Employee Against Whom They Bring An Unsuccessful Lawsuit (Nicholas Laboratories, LLC v. Chen)

A recent California Court of Appeals’ ruling allows employers to bring a claim against their employees without fear of having to pay the employee’s attorney’s fees if the claim is unsuccessful.

Section 2802 of the California Labor Code requires an employer to indemnify its employee for all expenses incurred by the employee in direct consequence of the discharge of their duties.

This section of the Labor Code is generally known to cover claims brought by a third party against an employee for acts arising out of the employee’s course of employment.  However, prior to the recent ruling a question of whether the provision covered charges by the employer against the employee for those same acts remained.

The Court of Appeals holding makes it clear that Section 2802 only covers claims brought by a third party against the employee and does not extend to claims between the employer and the employee.  This decision supports the prevalent view in the country that each side to a lawsuit should pay their own fees unless a specific law or contract says otherwise.

How Does This Affect Your Business?

Employers will not have to indemnify employees for litigation costs if the claim is between the employer and employee and involves acts arising out of the employee’s employment.  Employers will have to indemnify employees for legal expenses arising out of a claim by a third party that is based on the employee’s actions during course of employment.

For more information about claims against employees, please contact us at info@mitzelgroup.com.