In Minnesota, as in most U.S. jurisdictions, a party to a lawsuit is responsible for paying that party’s own attorney’s fees and related expenses, regardless of the outcome. This is called the American Rule, the counterpart to the English Rule which provides that a court may award attorneys’ fees to a prevailing party in an action as a “necessary appendage” to the judgment. (See 3 W. Blackstone, Commentaries on the Laws of England 399 (1768)).
There are many statutes at both the state and federal levels that include fee-shifting provisions that provide full or partial exceptions to the American Rule. Common examples in the employment context include fee-shifting provisions for prevailing plaintiffs in discrimination, whistleblower and wage recovery cases.
Unless in cases otherwise prohibited by law, the parties to a contract can create their own exception to the American Rule by including a fee-shifting clause in the agreement that provides that the prevailing party is entitled to receive from the other party its reasonable attorneys’ fees and costs. These contractual fee-shifting provisions can result in a tremendous amount of leverage in a contract dispute for one or both parties, depending on the circumstances.
For employers side, a fee-shifting provision can be a strong disincentive to an employee who may be thinking of bringing a frivolous or nuisance claim against an employer or former employer. Unlike cases where the American Rule would apply, the employee no longer has nothing to lose by bringing a claim. With the cost of litigation rising to unprecedented levels, most individual employees can’t afford the risk of losing if they have the possibility if no the likelihood of a six-figure fee award staring at them.
Many agreements provide only for fee-shifting if the employer is the prevailing party. This most often is the case in non-disclosure and non-compete agreements which by design are set up to protect is the employer’s trade secrets, goodwill or other legitimate business interests. In such cases, fee-shifting is a just remedy to be imposed against an employee or ex-employee who engages in manifestly unfair competition against his or her employer.
However, many of these agreements offer no cover for employees who win those cases, as happens fairly often. If the employee defends and loses, they pay not only their own attorneys’ fees, but the employer’s as well. If they defend and win, they still are liable for all of their own attorneys fees. Many times, the chance of losing deters a former employee from challenging even the most onerous of non-compete restrictions.
Some employers will negotiate the fee-shifting provisions with candidates in the employment negotiation process; others will not. It never hurts a candidate to ask for the revision or removal of a unilateral fee-shifting provision that only advantages the employer. If the employer says, “take it or leave it,” the candidate has a decision to make. Regardless of the decision, both parties learn something in the process.