Attorneys’ Fees Provisions
January 20, 2021
By: Colin A. Walker
In the United Sates, generally, each party must pay its own attorneys’ fees. However, that can be changed by contract and prevailing party attorneys’ fees provisions, by which the prevailing party in litigation can recover attorneys’ fees from the other party, are common in executive employment agreements. Apart from any contractual arrangement, many statutes, including employment discrimination and harassment statutes, wage claim laws, and whistleblower laws, provide for recovery of attorneys’ fees by an employee if the employee prevails. Employers usually have to make a higher showing, such as bad faith or similar conduct by the employee, to recover their attorneys’ fees under these laws.
C-Level executives should consider requesting a prevailing party attorneys’ fees provision in their employment agreements. This, of course, is a double-edged blade: if the executive wins, he/she will be able to recover attorneys’ fees from the employer, but if the executive loses, he/she will have to pay the employer’s attorneys’ fees, as well as his/her own. However, without it, an executive may not be able to afford litigation and most executives will not sue unless they are confident they can prove liability.
Not having an attorneys’ fees provision usually favors the employer because most individuals (even C-Level executives) cannot afford to pay attorneys’ fees as well as a company. Without an attorneys’ fees provision, the executive may be in a position where it doesn’t make sense to sue even if success is nearly certain because the amount of attorneys’ fees that would be incurred would equal or exceed the amount of the recovery. This provides the company with great leverage in settlement negotiations. On the other hand, if it is important to the company to be able to recover attorneys’ fees from the executive, it should include an attorneys’ fees provision in the employment agreement.