How plaintiffs use Section 998 offers to compromise in employment discrimination cases

The practice of serving private clients in civil litigation is certainly results oriented. In order to best serve our clients, we strive to be effective. On the practical side, we must also be efficient. The balance between these twin goals of effectiveness and efficiency should be kept in mind at all times. As much as we wish otherwise, no one has infinite time or resources.

A specific practical question has arisen more recently as to whether a plaintiff in a civil employment litigation matter involving claims of violation of the Fair Employment and Housing Act (FEHA) should bother serving a Code of Civil Procedure §998 offer to compromise. As a matter of law, Government Code §12965(c)(6) permits a prevailing plaintiff in a FEHA matter to recover "reasonable attorney's fees and costs, including expert witness fees." Given the state of the law on the issue, serving an offer to compromise might not seem particularly effective or efficient for a plaintiff's counsel.

However, in looking deeper into the fantastically practical uses for an offer to compromise, it still remains an important tool for plaintiffs in FEHA litigation matters for several reasons. It is also significant that a plaintiff is not limited to a single offer to compromise. Strategic reasons exist for employing offers to compromise during litigation of a matter. These include (1) countering an early offer to compromise from defense; (2) establishing a base-line for calculation of pre-judgment interest early, and ultimately (3) formalizing settlement demands in case post-judgment law and motion is needed.

1. Countering early efforts by a defendant to limit future recovery of attorneys' fees

An offer to compromise served early in the litigation by a plaintiff can be used to try to effectively counter or negate a strategic offer to compromise served by the defendant. The tactic of defense seeking to deprive a plaintiff of recovery of reasonable attorneys' fees in a FEHA action has returned following the recent decision in Simers v. Los Angeles Times Commc'ns LLC, (2024) 104 Cal. App. 5th 940.

In Simers the Court of Appeal addressed the question left open in Huerta v. Kava Holdings, Inc. (2018) 29 Cal. App. 5th 74 as to whether an offer to compromise could be used as a basis to reduce or deny a prevailing plaintiff reasonable attorneys' fees if they failed to obtain a more favorable result at trial. The court in Simers determined that an offer to compromise could be used by a defendant to limit the recovery of post-offer attorneys' fees. See Simers, 104 Cal.App.5^th at 951-952.

Based on this updated position of the law, a plaintiff should consider effective use of an early offer to compromise including language in the offer specifically stating that it is inclusive of attorneys' fees. If a plaintiff serves a reasonable demand to resolve the matter early with such language, and it is not accepted by a defendant, it then allows for an argument that attorneys' fees should be included in the final determination whether the plaintiff obtained a better result. See, e.g., Simers, 104 Cal.App.5^th at 951. The court in Simers acknowledged that "Code of Civil Procedure §998 "expressly requires the court to exclude postoffer costs in determining whether the plaintiff has obtained a more favorable judgment than the offer."  Id. (emphasis added)

Code of Civil Procedure §998(2)(A) generally states that "[i]n determining whether the plaintiff obtains a more favorable judgment, the court or arbitrator shall exclude the postoffer costs."  However, since offers to compromise are contractual propositions, if the express language states that the postoffer fees and costs will be used to determine if a more favorable result was reached, the court can consider this in awarding fees and costs. See, e.g., Stallman v. Bell, 235 Cal. App. 3d 740, 748-750 (1991); see also Simers, 104 Cal.App.5^th at 952.

Attorneys' fees fall in the category of "costs" for purposes of determining whether a more favorable result was obtained under Code of Civil Procedure §998. It is still recommended to include language explicitly including postoffer costs in a CCP 998 calculation, specify in the offer that postoffer costs (like expert fees and attorneys' fees) will be added to the judgment for comparison, ensuring maximum clarity.

2. Establishing an early baseline for calculating pre-judgment interest

Serving an offer to compromise early can establish a baseline for calculation of pre-judgment interest for the plaintiff. See Civil Code §3291. Section 3291 states:

"If the plaintiff makes an offer pursuant to Section 998 of the Code of Civil Procedure which the defendant does not accept prior to trial or within 30 days, whichever occurs first, and the plaintiff obtains a more favorable judgment, the judgment shall bear interest at the legal rate of 10% per annum calculated from the date of the plaintiff's first offer pursuant to Section 998 of the Code of Civil Procedure which is exceeded by the judgment, and interest shall accrue until the satisfaction of judgment."

If the Plaintiff's matter has a sizeable claim, the pre-Judgment interest ultimately recovered part of the final result can be substantial. 

3. Formally documenting settlement demands

One of the most practical uses for the offer to compromise is to formally document any settlement demand by a plaintiff. Settlement negotiations are often conducted in a privileged setting such as a mediation. See, e.g., Evidence Code §§ 1115-1129; White v. Western Title Ins. Co. (1985), 40 Cal.3d 877. This can lead to disagreement later about plaintiff's actual settlement demands made during the litigation.

Absent any formal offers to compromise served by a plaintiff during the matter, there may be little that can be done if a defendant tries to plead ignorance to plaintiff's settlement demands in a post-judgment setting. Offers to compromise are not confidential and can be relied upon post-judgment to conclusively establish that a plaintiff obtained a more favorable result. This alone makes serving at least one formal offer to compromise advisable during the litigation.

Ultimately, it is rarely an easy road to obtain a favorable result as the plaintiff in a FEHA matter. This makes taking effective steps to ensure maximum recovery of all damages, including attorneys' fees and costs, very prudent in practice.