Labor Code Trumps Section 998: A Big Win for California Workers in Chavez v. California Collision, LLC (2024) 107 Cal.App.5th 298

By Eugene Lee |

California workers who sue their employers for unpaid wages just got a major boost in the courts. In a groundbreaking decision, the California Court of Appeal confirmed in Chavez v. California Collision, LLC (2024) 107 Cal.App.5th 298 that employees cannot be punished with court costs just because they rejected a settlement offer and went on to win less money at trial—if their claims fall under key Labor Code provisions.

This is a powerful affirmation of worker rights and a warning to employers: the California Labor Code provides strong and specific protections that override general rules about cost-shifting in lawsuits.

What Happened in Chavez v. California Collision?

Three workers sued their former employer, California Collision LLC, for a host of wage-and-hour violations, including:

  • Misclassification as independent contractors
  • Unpaid overtime and missed meal/rest breaks
  • Inaccurate wage statements
  • Waiting time penalties

Two of the employees settled before trial. The third—Mr. Zarate—went to trial and won, but he recovered less than the amount the employer had offered him to settle earlier. Based on that, the trial court penalized him by using Code of Civil Procedure § 998 to award over $54,000 in costs against Zarate and in favor of the employer, nearly wiping out his modest recovery.

Zarate appealed. The Court of Appeal reversed the cost award, holding that Labor Code sections 1194 and 218.5 control, and they do not allow employers to recover costs unless the worker brought the case in bad faith, which wasn’t the case here.

Why This Case Matters for Workers

Here’s what this decision confirms:

1. Labor Code Sections 1194 and 218.5 Preempt Section 998

If you sue for unpaid minimum wage or overtime (Labor Code § 1194) or unpaid wages generally (Labor Code § 218.5), the Labor Code controls whether costs can be awarded—not Code of Civil Procedure § 998. That means:

  • Employers can’t recover costs from you just because you rejected a settlement offer and later got a lower award at trial.
  • You don’t lose your right to recover attorney fees and costs just because you didn’t beat a 998 offer (unless the court finds you acted in bad faith, which is rare and hard to prove).

2. Section 998 Doesn’t Trump Worker Protection Laws

Section 998 is a general statute designed to encourage settlements by penalizing parties who “gamble” and don’t do better at trial. But the Labor Code has strong public policy goals—to make sure workers can sue for unpaid wages without fear of being financially punished if they don’t win big.

The court said plainly: “The one-way cost-shifting rules in the Labor Code override Section 998.” This builds on and strengthens earlier decisions like Cruz v. Fusion Buffet, Inc. (2020) 57 Cal.App.5th 221.

3. This Protects Workers Who Take the Risk to Enforce Their Rights

Many wage theft cases involve relatively modest amounts. If workers faced the risk of massive cost penalties for going to trial—even when they win—very few would take the risk. This decision removes a dangerous disincentive for low-wage workers to stand up for themselves in court.

What Employees Should Know Going Forward

If you’re thinking about suing your employer for unpaid wages, missed breaks, or misclassification, you should know:

  • You cannot be hit with the employer’s court costs simply for losing or winning less than a settlement offer, as long as your claims fall under Labor Code §§ 1194 or 218.5.
  • You can still recover your attorney’s fees and court costs if you prevail—even on modest claims.
  • Employers cannot use Section 998 offers as a weapon to scare you away from trial, unless they can show you acted in bad faith.

Conclusion

Chavez v. California Collision LLC sends a clear message: California’s worker protection laws are not optional, and employers can’t sidestep them by relying on general civil procedure rules.

For workers pursuing wage claims, this ruling offers renewed confidence that the courts will respect the Labor Code’s intent to level the playing field for low wage earners.

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