The Supreme Judicial Court in the recent case of Ferman v. Sturgis Cleaners, Inc. addressed a limited but important question under state law: when an employee brings a claim for violation of the Wage Act or similar statutes and then settles the claim before trial, can the court award attorney’s fees to the employee? This is a common situation because wage cases, like any other civil cases, typically are resolved one way or another before going all the way to trial. The SJC held that, in contrast to federal law, a plaintiff who obtains a favorable settlement is a prevailing party under state law, and therefore can seek attorney’s fees. There are unique aspects of the Wage Act that make settlements especially common, such as mandatory treble damages, but the provision requiring an award of attorney’s fees to prevailing plaintiffs works the same under other employment-related and civil rights statutes. Thus, this decision is likely to be applicable beyond the specific context of the Wage Act.
In Ferman, the plaintiffs sued their employer for alleged unpaid wage and overtime violations, and after engaging in mediation, agreed to settle the case for $20,500, but allowed the court to decide whether, and how much, the plaintiffs should be awarded for attorney’s fees. In the end, a judge awarded fees in the amount of $16,153 out of the nearly $40,000 the plaintiffs sought. The defendant employer argued that the SJC should reverse the fee award, applying the approach required by the Supreme Court for federal law, as articulated in the Buckhannon case. Under the federal approach, a plaintiff is only a “prevailing party” entitled to a fee award if the court approves a settlement and orders the defendant to change its behavior. This often does not happen when private cases (and particularly employment cases) settle because the parties typically want to keep the terms and conditions of settlement private and avoid having continued court involvement. For instance, in Ferman, all that appeared on the public court docket to document the settlement was a stipulation to dismiss the case. Under the Buckhannon approach, then, a private settlement usually does not make a plaintiff a “prevailing party” under federal law.
However, the SJC rejected this approach and instead adopted the “catalyst” test, by which “if the plaintiff’s lawsuit is a necessary and important factor in causing the defendant 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 fee-shifting purposes.” Under the catalyst test, a settlement that gets the plaintiff a material amount of relief, as opposed to a frivolous or unmeritorious claim that the defendant settles to avoid the nuisance of litigation, will entitle the plaintiff to a reasonable award of attorney’s fees. The SJC cited the purpose of the wage laws, and similar fee-shifting statutes like the Massachusetts Civil Rights Act and the Consumer Protection act, Chapter 93A, to enlist private attorneys to help enforce public values even when the dollar amounts involved can sometimes be small, in rejecting Buckhannon and accepting the catalyst test as the only viable alternative.
Rather than assuming that they can avoid an award of attorney’s fees by settling anytime before trial, employers now must factor in attorney’s fees at all stages of litigation in these types of cases. And based on the broad language in the decision and the references to other fee-shifting statutes, this development is likely to apply to a range of state statutes that provide for awards of attorney’s fees. However, in my experience settlement agreements for such claims usually address and incorporate awards of attorney’s fees – it has already been part of the negotiation. Indeed, it can make it easier for both parties to know ahead of time how much will be paid for attorney’s fees rather than leave it up to a judge to award an amount that might be more or less than what either party expects. But for parties that did not or cannot agree on an amount for attorney’s fees, it is useful to know that they can turn to the court for a decision. This case is a small but important development; it changes the background assumptions for employment lawyers and increases the ability and willingness of lawyers to take on the types of claims that the Legislature intended to promote through its wage and hour and antidiscrimination statutes. It is also important for legal advocacy organizations to be able to take on what may be small-dollar claims to vindicate important principles, with the certainty that they will be able to seek a fee award from the court.