On December 31, 2020, the Oregon Supreme Court reversed the Oregon Court of Appeals’ decision in Mathis v. St. Helens Auto Center, Inc. and concluded that the “reasonable” attorney fee award permitted under ORS 652.200 cannot be categorically limited where a defendant’s offer of judgment exceeds plaintiff’s ultimate recovery at trial.  Practically speaking, therefore, employers should remain on high alert (perhaps more than ever) for notices of unpaid wages and take appropriate steps to resolve such claims within 12 days of receiving the notice, in order to curb exponentially-growing attorney fee exposure.

Underlying Facts

Plaintiff worked for defendant for several years before defendant ultimately terminated his employment.  After his termination, plaintiff filed a lawsuit for unpaid wages.  The case was assigned to mandatory court ordered arbitration.  Prior to the arbitration hearing, defendant made an offer of judgment of $2,000.00, exclusive of attorney fees and costs.  The arbitrator ultimately found that defendant had failed to timely pay plaintiff less than $1,400.00 in unpaid wages and penalty wages. Plaintiff sought $62,500.00 in attorney fees.  The arbitrator, however, and later the trial court, limited the attorney fee award to $6,310.00 based on ORCP 54 E, since the offer of judgment that plaintiff had previously rejected exceeded what ultimately was awarded to plaintiff at arbitration.  Both the arbitrator and the trial court understood ORCP 54 E to encourage plaintiffs to accept reasonable settlement offers in the form of offers of judgment to prevent the parties from driving up unnecessary attorney fees.  The Oregon Court of Appeals affirmed the trial court’s $6,310.00 attorney fee award.

Oregon Supreme Court’s Decision   

Plaintiff appealed to the Oregon Supreme Court.  At issue was whether ORS 652.200, which permits an employee who succeeds in an action to recover unpaid wages to also seek reasonable attorney fees, could be reconciled with ORCP 54 E(3), which limits a plaintiff’s claims to attorney fees to fees incurred up to the date the offer of judgment was made if the offer of judgment exceeds the ultimate award granted at trial. 

In a 5-2 decision, the Oregon Supreme Court reversed the Court of Appeals’ and trial court’s decision.  The Oregon Supreme Court held that the need to limit an employee’s attorney fees where they unreasonably reject a good faith offer or tender should be addressed on a case-by-case basis, and that the “reasonable” attorney fee provision of ORS 652.200 could not be per se limited through ORCP 54 E(3).  Importantly, both the majority and dissenting opinions noted that a defendant’s reasonable settlement offer can still limit, or even cut off, the amount of attorney fees awarded.

Practical Effect

While employers that had been willing to make reasonable settlement offers via offers of judgment have in the past appeared to be in a position to cut off a plaintiff’s attorney fees, the Oregon Supreme Court’s Mathis decision weakens that position, but not entirely.  Courts still will be required to consider the “objective reasonableness” and “diligence of the parties in pursuing settlement of the dispute” when awarding attorney fees, for example.  Employers will have the opportunity to engage in settlement negotiations that, if unsuccessful, could significantly limit their exposure after trial.  Furthermore, employers can, and should, continue to argue that alleged attorney fees in substantial excess of the eventual recovery should be reined in when the employer made a fair and reasonable offer of compromise early on.

The Mathis decision clarifies the potential exposure that results from an employer’s failure to pay all wages due, even if the amount is small.  The case thus behooves employers to act swiftly upon receipt of an employee’s notice that they have not paid all wages owed.  Alleged violation of Oregon’s wage statutes pose a significant risk to employers in light of the ballooning attorney fees and penalty wages that are automatically triggered when an employer receives notice of a wage claim.  To avoid and limit such exposure as much as possible, employers should promptly consult with experienced employment counsel.