Court finds offer to compromise didn't apply to wage claims

Many employers use Code of Civil Procedure Section 998 offers to compromise as a strategic way to shift which party in a lawsuit—the employer or the employee—will be determined the "prevailing party." That's important since the prevailing party can be on the hook for litigation costs. If an employer makes a Section 998 offer to compromise and the employee, having rejected the offer, recovers less than the amount in the offer, the employer may be able to recover postoffer costs, and the employee may be denied his or her own costs.

A Section 998 offer is a strategic tool that must be carefully considered, however, especially in the context of wage and hour claims. Indeed, on August 31, 2021, the California Court of Appeal found invalid a Section 998 offer to compromise that attempted to resolve wage claims in which undisputed wages remained due at the time of the offer.

The decision serves as a reminder to employers faced with wage and hour claims to work with experienced counsel to develop the best strategy to potentially minimize liability.

Unpaid wages admittedly due

The facts in the decision were undisputed. For more than 28 years, the plaintiffs were employed as resident managers of a motel owned by the employer. They each were paid biweekly salaries and annual bonuses. In 2017, the employer advised the employees it was closing the motel for renovations and thus terminating their employment. When they demanded their unpaid wages, the employer paid their biweekly salaries but not the 2017 bonuses, which it didn't dispute were owed.