Can An Employer Recover Attorney's Fees for Defending a Claim?

If an employee or ex-employee sues you without any basis whatsoever, can he or she be made to pay your attorney's fees?

This is a question frequently asked by employers, especially employers who have spent sizeable sums of money successfully defending against meritless legal claims by employees or ex-employees. Even though stories about employees winning major judgments against employers make the news, the truth is that far more employees' claims are resolved in favor of employers, often on summary judgment. However, even getting to the point of summary judgment can be an expensive proposition, since usually a number of depositions will be taken and other time-consuming discovery completed. So, what if you prevail on summary judgment? What if it's a slam dunk win for you, clearly recognizing that the employee had no basis for a claim, and clearly vindicating your decisions and practices? Can the employee be made to pay all or part of your legal fees and expenses?

If the employee's claim was under Tennessee state law, as opposed to federal law, then you will almost certainly not be allowed to recover attorney's fees. Under Tennessee law, a successful defendant can only recover attorney's fees if the parties have a contract providing for such fees in the event of litigation, or if there is a specific statute authorizing the court to award the fees. Tennessee's employment discrimination statute, the Tennessee Human Right Act, does not provide for recovery of attorney's fees for a successful defendant, but only for a successful "complainant." Unless you have a contract with the employee providing for such fees, you will not be allowed to recover them. The same is true for "common law" (i.e., non-statutory) employment claims in Tennessee, such as retaliatory discharge for filing a workers' compensation claim, or retaliatory discharge in violation of some other public policy, or a claim of defamation, or wrongful interference with employment, or failing to pay accrued vacation pay, or violating a "contractual" provision in an employee handbook. On the other hand, if an employee sues for wrongful discharge under Tennessee's "whistleblower" statute, Tenn. Code Ann. § 50-1-304, which prohibits firing an employee for refusing to participate in or remain silent about illegal activities, and if it is determined that the employee's lawsuit was frivolous and initiated for an improper purpose, then that statute does allow the employer to recover legal fees.

While recovery of attorney's fees generally is not permitted under Tennessee law, Tennessee's rules of civil case procedure do provide another disincentive for employees who consider making frivolous claims. At the conclusion of a case, a Tennessee judge is permitted to award "discretionary costs" to a prevailing party. These costs do not include attorney's fees, but they can include the defendant's costs of employing expert witnesses for depositions or trials, as well as court reporter costs for depositions or trials. In a case with a ten depositions, including those of competing expert witnesses, these "discretionary costs" could reach upward of $10,000, or even $20,000. The possibility of a discretionary costs award can make an employee or his attorney think twice about continuing to pursue a questionable state-law claim, since most employees have limited means.

Under certain federal discrimination laws, namely Title VII and the Americans with Disabilities Act (ADA), attorney's fees may be awarded to the "prevailing party," whether that party is the plaintiff or the defendant. Under the federal Age Discrimination in Employment Act (ADEA), only prevailing plaintiffs can recover, although at least a few courts have permitted an occasional recovery by a prevailing defendant.

However, before you get your hopes too high, a defendant generally can only recover attorney's fees under these federal statutes if the plaintiff's claim is adjudged frivolous, unreasonable, or without foundation. Literal "bad faith" by the plaintiff is not necessary, although "bad faith" can independently justify an attorney's fee award against a plaintiff. Such "bad faith" includes claims which lack factual or legal basis, or which are pursued for improper purposes, such as to harass, oppress, or delay. In addition, if a plaintiff's lawsuit was not frivolous when it was filed, but if in the course of the lawsuit it became clear that the suit was frivolous, attorney's fees could be assessed for continuing to pursue the frivolous suit.

As a rule of thumb, a prevailing plaintiff in a federal discrimination lawsuit will almost always be permitted at least a partial recovery of attorney's fees against the employer, but a prevailing employer will rarely be awarded fees on account of a frivolous claim. Courts will jealously guard employees' rights and generally fear the "chilling effect" on other employees' rights resulting from such an award. Typically even a losing plaintiff can make some good faith argument in support of his or her position, such that the claims will not be considered frivolous.

Therefore, by far most of the costs of meritless employee claims will continue to be borne by employers. However, in appropriate circumstances, the employer may use the possibility of an attorney's fee award or a discretionary cost award as a disincentive for the employees or their lawyers, and in some cases the employer may even recover its fees.

View all articles by Bob E. Lype