Indemnity: Labor Code § 2802 Does Not Require An Employer To Reimburse Employee For Attorney’s Fees In Successfully Defensing Employer Claims

 

Court of Appeal Also Determines Corporations Code section 317 Mandatory Indemnification Provisions Do Not Apply to LLCs.

     Justice Ikola, in a 3-0 decision of our local Fourth District, Division 3, made two important determinations on its behalf in Nicholas Laboratories, LLC v. Chen, Case No. G044105 (4th Dist., Div. 3 Oct. 12, 2011) (certified for publication).

     First, after finding no state or federal decision precisely on point, the appellate court decided that “indemnify” under Labor Code section 2802 usually relating to third-party claims does not extend to an employee being able to obtain reimbursement of fees expended in defending against an employer’s claims. Justice Ikola found that “the more expansive fabric of law” relating to fees (such as the American Rule and other fee-shifting principles) did not condone stretching the reach of section 2802 to employer claims.

     Second, Corporations Code section 317--which mandates indemnification of corporate agents under certain circumstances--did not apply, because an LLC was involved (rather than covered corporations under section 317). Although there are LLC Corporations Code provisions that permit indemnification, nothing in the LLC Act has a analog mandatory indemnification provision.

     Employee must have been unhappy in losing his attempt to obtain reimbursement of almost $90,000 in attorney’s fees, even though the trial and appellate courts saw things the same way.