A jury awarded a former newspaper columnist $1.25 million for his demotion in a discrimination case, the exact amount his employer had offered under Code of Civil Procedure section 998 before that trial. Because the verdict wasn’t better than the offer, he couldn’t recover fees and costs incurred after it, and the Court of Appeal affirmed in 2024. That’s why a 998 offer matters in a FEHA case. It rarely shifts the employer’s own costs, but it can cap the employee’s fee claim.
What is a section 998 offer?
A written offer to let judgment be entered on stated terms, with cost consequences for the side that turns it down. Under Code of Civil Procedure section 998(b), any party may serve one “Not less than 10 days prior to commencement of trial or arbitration.” The offer has to include a way for the other side to accept it in writing, and an acceptance has to be signed by counsel or by a party who has no lawyer.
The offer doesn’t stay open forever. If it isn’t accepted before trial or within 30 days, whichever comes first, “it shall be deemed withdrawn, and cannot be given in evidence upon the trial or arbitration,” according to subdivision (b)(2). A rejected offer isn’t an admission, and the jury never hears about it.
The statute applies in arbitration as well as in court. For employers whose cases are in arbitration under an employment agreement, the same timing and cost rules apply to the award.
What happens if the employee rejects the offer and does worse?
Two things, in an ordinary civil case. Under section 998(c)(1), “the plaintiff shall not recover their postoffer costs and shall pay the defendant’s costs from the time of the offer.” The court may also order the plaintiff to pay the defendant’s postoffer expert witness fees.
In a FEHA case, only the first consequence usually survives. The Fair Employment and Housing Act limits what a winning employer can collect, and it names section 998 expressly. In Huerta v. Kava Holdings, Inc. (2018) 29 Cal.App.5th 74, a hotel won a defense verdict against a fired server, and the trial court awarded it $50,000 in costs and expert fees under section 998 even though it found the case wasn’t frivolous. The Court of Appeal reversed that award. The current text of Government Code section 12965(c)(6) provides that “notwithstanding Section 998 of the Code of Civil Procedure, a prevailing defendant shall not be awarded fees and costs” unless the court finds the case was frivolous, unreasonable, or groundless.
The other consequence is the one employers can use. A FEHA plaintiff who wins ordinarily recovers attorney fees, and Code of Civil Procedure section 1033.5(a)(10) treats “Attorney’s fees, when authorized by any of the following” contract, statute, or law as costs. So when the employee rejects a valid offer and the judgment isn’t better, the fees incurred after the offer can be cut off.
How did that play out in the Simers case?
It cut off the fees for a full trial. In Simers v. Los Angeles Times Communications LLC, a published 2024 decision in a FEHA case on its third trial, the newspaper served a 998 offer of $1.25 million shortly before that trial on damages. The jury returned $1.25 million.
The plaintiff asked for more than $15.5 million in fees. The trial court awarded $3,264,906 and ruled that the plaintiff “may only recover attorney fees and costs incurred before December 7, 2021,” the date of the offer, according to the opinion. The Court of Appeal affirmed.
The plaintiff argued he’d have recovered fees for a fee motion if he’d accepted, so those fees should be added to the verdict when comparing it to the offer. The court rejected that, noting that “section 998 expressly requires the court to exclude postoffer costs in determining whether the plaintiff has obtained a more favorable judgment than the offer,” according to Simers. The newspaper’s “offer of $1.25 million plus preoffer fees and costs was no different from what the statute itself requires,” the court wrote.
How does the court compare the offer to the result?
By leaving out postoffer costs and fees on the employee’s side. Section 998(c)(2)(A) states “In determining whether the plaintiff obtains a more favorable judgment, the court or arbitrator shall exclude the postoffer costs.” The comparison is the judgment plus preoffer fees and costs against what the offer would have paid.
That’s why the wording of the offer matters in a fee-shifting case. An offer that names a cash amount and separately provides for the employee’s reasonable preoffer fees and costs, set by the court if the parties can’t agree, lines up with the statute’s own comparison. An offer that lumps everything into one number forces the court to estimate how much of it was fees, and that’s an argument the employee will make.
The timing matters for the same reason. Fees in an employment case often rise sharply in the months before trial. An offer served after the key depositions but before expert work and trial preparation can cut off a large share of the fees, if the verdict comes in at or below it.
| Situation | Effect | Source |
|---|---|---|
| Employee accepts | Judgment is entered on the offer’s terms | CCP § 998(b)(1) |
| Employee rejects and wins less in a FEHA case | Employee’s postoffer fees and costs are cut off | CCP § 998(c)(1); Simers (2024) |
| Employee rejects and loses a nonfrivolous FEHA case | Employer still can’t recover its own costs or fees | Gov. Code § 12965(c)(6); Huerta |
| Employer rejects the employee’s offer and does worse | Court may award the employee’s postoffer expert fees | CCP § 998(d) |
| Offer’s terms can’t be valued when made | No cost shifting | Gorobets (2026) |
What makes a 998 offer invalid?
Terms that can’t be valued when the offer is made. The Supreme Court of California summarized the long-standing test in Gorobets v. Jaguar Land Rover North America, LLC (Aug. 6, 2026, S287946): “a 998 offer is valid for cost-shifting purposes only if its terms are sufficiently certain or specific to permit the offeree and the trial court to assess its value as of the time the offer was made.” And the burden is on the employer. “The rebuffed offeror seeking cost shifting bears the burden of showing its 998 offer was valid, meaning it was sufficiently certain,” according to the opinion.
Gorobets also settled a drafting question. The Court of Appeal had held that a 998 offer giving the offeree a choice between two sets of terms was invalid. The Supreme Court disagreed and held that such an offer can be valid if it lays out the alternatives so the offeree can tell them apart, and if at least one set of terms can be valued. The court then compares the result to the “highest value, valid alternative proposed,” according to Gorobets. Gorobets was a lemon law case, but its test for a valid offer applies to section 998 offers in employment suits too.
For employers, the practical risk is in the non-cash terms. Confidentiality provisions, a broad release of claims never pleaded, or terms about future employment all make an offer harder to value. None of them is automatically fatal, but each gives the employee an argument that the offer was too uncertain to count. The safer course is often a plain cash offer under the statute, with the other terms negotiated separately.
Can the employee use a 998 offer against the employer?
Yes, and it carries its own risk. If an employee’s offer is rejected and the employer “fails to obtain a more favorable judgment or award,” the court may order the employer to pay the employee’s postoffer expert witness fees, under section 998(d). In a FEHA case, a winning employee can usually recover expert fees already, so the added exposure is smaller there than in a case without a fee statute.
An employee’s offer still deserves a real evaluation. It shows what the other side thinks the case is worth, and it often comes at a point where the employer’s own fees are about to rise. Letting it lapse without a written assessment is a mistake. The firm’s post on responding to an employee demand letter covers the earlier stage of the same valuation.
Before serving or answering a 998 offer
- Keep the litigation hold in place for the personnel file, payroll and timekeeping data, the decision documents, and emails and texts among the managers involved, since valuation depends on them.
- Calendar the trial or arbitration date and the 30-day window, and check whether an arbitration agreement applies and whether the employment practices liability (EPLI) carrier has to consent to any offer.
- Identify who at the company must approve the amount, and keep any decisions about a current employee’s job on their ordinary course so nothing looks like retaliation.
- Pull the damages records, including pay history, the employee’s later earnings, and a current estimate of the employee’s preoffer fees, so the offer can be measured against a realistic outcome.
- Get legal advice on the wording before the offer is served or an employee’s offer is answered, since a term that can’t be valued can undo the whole effort.
The firm’s post on EPLI claim tenders covers insurer consent and notice. More on California employment defense is on the firm’s employment defense page.
Section 998 questions employers ask
When is the best time to serve a 998 offer?
When the company knows enough to value the case, and before the most expensive phase begins. An early offer cuts off more fees but may undervalue the claim. A later offer is better informed but cuts off less. The offers don’t have to be one-time events. In Gorobets, the Supreme Court noted that “Section 998 permits a party to make a subsequent offer after a previous one has been rejected.”
Can the jury learn that the employee turned down our offer?
No. Under section 998(b)(2), an offer that isn’t accepted is deemed withdrawn and can’t be given in evidence at trial or in arbitration. It matters only after the verdict, when the court decides fees and costs.
Does a 998 offer work if the case is in arbitration?
Yes. The statute refers to both trial and arbitration, and it applies to an arbitration award the same way it applies to a judgment. The offer has to be served at least 10 days before the arbitration hearing begins, and the arbitrator applies the cost rules when deciding fees and costs.
If the employee loses, will the 998 offer let us recover our costs?
Usually not in a FEHA case. The statute bars a prevailing employer’s fees and costs unless the case was frivolous, unreasonable, or groundless, and it says that applies notwithstanding section 998. The offer’s main value in a FEHA case is the cutoff of the employee’s postoffer fees if the employee wins less than the offer.
If your company is weighing a 998 offer
If your company is defending an employment lawsuit headed toward trial or arbitration, the timing and wording of a section 998 offer can decide how much of the employee’s fee claim is real. Rosenberger + Kawabata represents employers defending employment lawsuits and claims through its business litigation practice, including claims involving statutory attorney fees and settlement offers. Contact Rosenberger + Kawabata online for a confidential consultation, or call (310) 894-6921.
Sources
The statutes are Code of Civil Procedure section 998, Code of Civil Procedure section 1033.5, and Government Code section 12965. The cases are Gorobets v. Jaguar Land Rover North America, LLC (Aug. 6, 2026, S287946), Simers v. Los Angeles Times Communications LLC (2024, B323715), and Huerta v. Kava Holdings, Inc. (2018) 29 Cal.App.5th 74.
This post is general information about California and federal employment law as of November 7, 2026. It is not legal advice, and reading it does not create an attorney-client relationship. Employment statutes, regulations, and court decisions change often, and the outcome of any claim depends on its facts. Past results do not guarantee future outcomes.