Recent Developments In An Employer’s Reimbursement Obligations

Do you use your personal cell phone to take work-related calls or send work-related emails?  Do you sometimes work remotely using your personal computer and/or internet access from your home?  If your employer knows that you have incurred these costs then California law likely requires that you be reimbursed for them.

Background And Pro-Employee Developments In Aguilar, Lindell, Cochran

Section 2802 of the California Labor Code requires an employer to indemnify its employees for “all necessary expenditures or losses incurred by that employee in direct consequence of the discharge of his or her duties.” The purpose of the statute is “to prevent employers from passing their operating expenses onto their employees.” Gattuso v. Harte-Hanks Shoppers, Inc., 42 Cal.4th 554, 562 (2007).

Previous litigation applied Section 2802 to require that employers provide reimbursements for the cost of uniforms, travel expenses and legal fees for employees who were sued as a result of their employment. But it is now clear that 2802 applies to a much broader universe of items.

In August, a court wrote that the employer’s duty under 2802 extends to any employee-paid expenses that “were a foreseeable and clearly anticipated cost of doing business.” Aguilar v. Zep, Inc., Case No. 13-cv-00563 WHO (N.D. Cal. August 27, 2014). Another court stated that all an employee is required to do to establish liability is to demonstrate “expenses, in any amount and to any degree, are reasonable and necessary to conducting [the employer’s] business.” Lindell v. Synthes USA, Case No. 11-cv-02053-LJO-BAM (E.D. Cal. March 4, 2014). Indeed, the leading recent case on 2802 confirmed that an employee must be reimbursed even if the costs at issue were fixed and the employee would have incurred them irrespective of the needs of her employer. Cochran v. Schwan’s Home Service, Inc., Court of Appeal of the State of California, Second Appellate District, Divisions Two, Case No. B247160 (August 12, 2014).

Current Test For Duty To Reimburse

To see the importance of the ruling in Cochran, consider an employee who purchases a smart phone or a computer or pays monthly fees for a minute plan, a data plan, or home internet access. Under Cochran, an employer cannot defend a 2802 action related to use of a cell phone on the basis that the employee would have bought a cell phone even if she was not required to use it for work. Instead the employer must pay some reasonable percentage of the employee’s bill even if the fact that she used it for work did not cause any marginal increase in the amount of the bill.

So any 2802 claim will now be analyzed under the following simple framework. First, were the claimed expenses reasonable and necessary to conducting the employer’s business? If they were, then “liability attaches” and “it does not matter if the telephone was used for [the employer’s] business 99% or 1% of the time.” Some reimbursement is required and the issue is just how much of the cost the employer should bear.

Common Expenses

Many non-exempt employees are required to be available on short notice to do the following:

  • Take a work-related phone call
  • Respond to a work-related email
  • Use a computer to edit a document or similar material.

To satisfy these expectations, an employee needs to own a smart phone and pay for monthly minute and data plans. The employee also must own a computer and pay for internet access so she can manipulate word documents, excel files and so forth. The cases cited above make clear that the employee must be reimbursed for some percentage of the costs she incurred to provide her own internet access, computer, smart phone, etc. To hold otherwise would allow the employer to pass its operating costs onto the employee. The amount of the reimbursement will vary and requires a fact finder to allocate some percentage of the cost to the employer’s business and some percentage to the employee’s personal use.

Remedies Available Under Section 2802

A 2802 action is based on an employer’s statutory violation and therefore a three-year statute of limitations applies. Cal. Code Civ. Proc. § 338(a). But the employee may enlarge this period to four years by seeking restitution under California’s unfair competition law—namely return of the operating expenses the employer passed on by failing to provide reimbursement. Cortez v. Purolator Air Filtration Products, 96 Cal.Rptr.2d 518, 528-30 (2000).

Thus, employees are entitled to recover reimbursement for four prior years of expenses. They are also entitled to interest at the legal rate of 10% and attorneys’ fees and costs. Labor Code § 2802(b)-(c). Thus, an employee who was regularly required to work remotely on short notice, take calls from a cell phone and respond to emails using a personal smart phone could recover a significant amount of money in a 2802 action seeking reimbursement for a data plan, a minute plan and home internet access. For example, a fact-finder could conclude that the employer were required to bear half of these costs, which were $200/month, the employee could recover $4,800 over a four-year period and, with interest, that amount could increase by 50% by the time of a judgment.

Furthermore, employees may recover significant additional sums under the California Private Attorneys General Act (“PAGA”) which provides for cumulative civil penalties each time an employer violates a section of the Labor Code. Unless another amount is stated, the civil penalty for each violation of the Labor Code is $200 per pay period. Labor Code § 2699(f)(2). The statute of limitations for a PAGA claim is one year and attorneys’ fees are recoverable. Cal. Code Civ. Proc. § 340(a). 25% of the PAGA penalty is paid to the employee and 75% to the California Labor and Workforce Development Agency. Thus, PAGA could increase an employee’s recover by $1,300 (25% of 5,200).

What Defenses Do Employers Have?

Employers have three basic defenses to an action under Section 2802:

  • The costs the employee incurred were not reasonable;
  • The costs the employee incurred were not necessary to the employer’s business; and
  • The employer discharged its 2802 obligations by paying increased salary or incentive compensation.

The first defense will almost never be a complete one. Rather, an argument against the “reasonableness” of expenses will generally seek to decrease the denominator of the equation not eliminate it altogether. For example, an employer might argue that spending $1,000 on a cell phone was not reasonable. But the remedy will not be to deny reimbursement, just to decrease the amount to, say, $250.

The second defense is stronger. An employer might assert it did not expect or require employees to work remotely or respond to emails or calls while they were outside the office. This will generally present a factual question and is the sort of argument an employer will attempt to offer to defeat class certification. An employer might also assert that it expected employees to return to the office to perform all of their work and, therefore, home office and other remote-work expenses were not “necessary” but rather for the employee’s convenience. In most instances, this argument will fail since it could effectively require the employee to live in their office. This claim is not credible since it is unlikely to appear in any written policy, given that few employees would agree to employment on those terms.

The third defense can, in some instances, be a complete one but it is also laden with risk. In Gattuso, the California Supreme Court held that an employer can satisfy its 2802 obligation by providing enhanced compensation to employees. But, “the employer must provide some method or formula to identify the amount of the combined employee compensation payment that is intended to provide expense reimbursement.” Id. at 482. Thus, if the employer has not communicated this method to employees ahead of time and stated it is intended to satisfy the 2802 obligation, the employer has little chance of proving the defense.

In addition, making the argument that enhanced pay was provided exposes the employer to additional damages of $100 per pay period under Labor Code § 226. Id. at 483. Damages under section 226 are set at $100 per pay period, up to a maximum of $4,000. If the employer violates section 226, then the employee may assert a separate claim under PAGA as well. Accordingly, asserting “enhanced compensation” as a defense could backfire and result in increased liability and, therefore, many employers will hesitate to pursue it.

Legal Assistance

If you have not been reimbursed for expenses your employer required you to incur, please contact Sebastian Miller Law.

Disclaimer: All materials have been prepared for general information purposes only to permit you to learn more about Sebastian Miller Law, P.C, its services and experience.  The information presented is not legal advice, is not to be acted on as such, may not be current and is subject to change without notice.

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