As class actions continue to plague employers in California, one
area that is often overlooked is expense reimbursement. The
California Labor Code makes clear that employers must indemnify
employees for all necessary expenditures or losses incurred as a
direct consequence of discharging their duties, or obedience to the
directions of the employer. This is so even if the duty is
unlawful, unless the employee, at the time of obeying the
directions, believed them to be unlawful.
The statute defines "necessary expenditures or losses"
to include "all reasonable costs...." The intent of this
law is to prevent employers from passing their operating expenses
on to their employees.
The kinds of reimbursements included in this employer obligation
extend to expenditures incurred by employees during the normal
course of their personal life, which nonetheless may incidentally
include necessary contributions at work. Employers may directly
reimburse for such expenses or provide reimbursement through
enhanced salaries or commission rates as long as the part designed
to reimburse expenses is specifically identifiable so that
employees can determine whether the increased compensation is
sufficient to fully reimburse the employee for "all expenses
actually and necessarily incurred."
There are obstacles for obtaining releases from employees. The
Labor Code prohibits waiver of an employee's right to
reimbursement. It therefore becomes vital that you have a carefully
drafted reimbursement policy.
Cell Phone Usage
Many employees use personal items for a business purpose. If you
require your employee to use a cell phone for business purposes,
you must reimburse the employee for a portion of the expense
incurred for the cell phone usage, whether or not the
employee's plan has unlimited minutes.
A recent opinion held that the amount owed by the employer would
be "a reasonable percentage of their cell phone bills."
(Cochran v. Schwan's Home Service, Inc.). In that case, the
question was whether reimbursement of reasonable expenses were
always required for mandatory cell phone usage, or whether required
only if the employee incurred an extra expense that would not have
been incurred but for the employment.
The court ruled that reimbursement was always required;
otherwise, the employer would experience a windfall "because
it would be passing its operating expenses onto the employee."
The court further ruled that it was irrelevant whether the cell
phone bill was paid by a third party.
To establish liability, employees need only show that 1) they were
required to use the personal cell phone for work-related calls; 2)
they were not reimbursed for such usage; and 3) the extent of the
damages incurred for the non-reimbursed phone usage. Unfortunately,
an employer faces potential barriers in defending the extent of
damages incurred. For example, the court noted that employers are
not permitted to delve into the details of cell phone plans or the
private lives of employees in defending what reimbursement was
actually necessary or reasonable.
Other Big Ticket Items
Contributions required of employees may go well beyond the
mandatory use of a cell phone. A recent federal class action
involving state law, Trosper v. Stryker Corporation et al.,
was filed on behalf of sales representatives who, according to
their complaint, frequently worked from home and incurred expenses
for use of their vehicles, mobile phones, fax machines, landlines,
office space, offices supplies, Internet storage, and for Internet
access. The sales representatives also incurred expenses for
entertainment, dining with clients, and other travel expenses (air
fare, lodging, and local transportation) they claimed.
The employer allegedly did not have a uniform or well-defined
expense reimbursement policy. The employee contended that he and
his coworkers were not reimbursed for expenses during the class
period unless "explicitly authorized" by the employer.
The employer contended that reimbursement was achieved through
increased commissions, although the employee denied knowledge of
this arrangement.
The court certified the class, finding that there was a common
issue whether the employer had a uniform policy
ofnot reimbursing for such expenses necessarily incurred, or
whether the alleged policy of reimbursing the expenses through
increased commissions adequately apportioned the amount attributed
to such expenses so that it could be determined whether the sales
representatives were fully compensated for their
expenditures.
Lessons For Employers
Our advice? Take proactive measures to monitor the reimbursement
process. Make sure that all expenses are fully reimbursed, whether
the method for reimbursement is by monthly allowance, increased
wages, or direct reimbursement for actual costs.
Create written policies regarding reimbursement, which include the
methods of reimbursement and define a procedure whereby employees
can submit evidence challenging the amount allocated to expense
reimbursement as insufficient to fully compensate the employee for
his or her actual expenses. Remember that, upon a proper showing
that additional reimbursement is warranted, you are required to
supplement any partial reimbursement to achieve full reimbursement
of such expenses.
Inform employees of any equipment or tools that the company
furnishes. This will defeat any reasonable expectation by the
employee to acquire or use them on the job. For example, if hand
tools are routinely required on a job, the applicable Wage Order
requires that these items must be furnished and maintained by the
employer unless the employee is paid at least twice the minimum
wage (currently $9.00 x 2 = $18.00) for performing the work. The
policies also should identify which expenses are subject to
reimbursement and which are not. This should put employees on
notice when expenses are incurred.
In drafting such policies, rely on legal counsel, in part because
some categories of reimbursement cannot reasonably be excluded when
considering the nature of the work. For example, an employer hiring
outside sales representatives covering a large service area cannot
reasonably advise the sales representatives that they will not be
reimbursed for travel involved in meeting with customers.
But an employer can define in its policies the types of approved
travel, specify standardized vehicle types for mileage
reimbursement rates for use of a personal vehicle, determine
approved lodging rates, and fix levels of reimbursement for other
standardized equipment required for the job. Drawing the lines in
the sand for what expenses are "necessarily" and
"reasonably" incurred, would prevent employees from
seeking reimbursement for use of luxury automobiles, first-class
air travel, or incurring expenses for extravagant food or
lodging.
In short, a well-written expense reimbursement policy drafted on
advice of legal counsel can go far to define what expenses will
reasonably be reimbursed, help prevent expensive class litigation,
and keep your accounts well-funded for reimbursing an
employee's necessary business expenses.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
