Remote-Work Expenses And Labor Code Section 2802

I recently published a short article in the California Labor & Employment Law Review that addresses an employer’s obligations to reimburse employees for expenses they incur while working remotely (i.e. away from the office).  Common types of remote-work expenses include monthly minute and data plans for cell phones, home internet, and purchases of various equipment.

You may access the article by clicking on the following link: 2802 Article.   It was reprinted with permission of the State Bar of California and the California Labor & Employment Law Review.  I have also copied and pasted the text of an earlier draft of the article below.  If you would like to discuss your particular situation or this post more generally, then please contact Sebastian Miller.

When must Remote-Work Expenses be Reimbursed under Labor Code § 2802?

Remote work is a fact of life for many exempt employees.  Employers expect them to be reachable by phone and email on short notice and often ask that they use a computer to perform work late at night and on weekends.  Employees must have cell phones with data plans, home internet access and a laptop or similar device in order to meet these demands.  This article addresses when and to what extent Labor Code § 2802 requires that employees be reimbursed for these sorts of remote-work expenses.

Elements of a Claim for Remote-Work Reimbursement under Labor Code § 2802

In relevant part, Labor Code § 2802 requires an employer to “indemnify his or her employee for all necessary expenditures or losses incurred by the employee in direct consequence of the discharge of his or her duties.”  An employer generally satisfies this obligation by either reimbursing a given expense or providing the employee with the equipment necessary to ensure she does not incur it in the first place.[i]  In Gattuso v. Harte-Hanks Shoppers, Inc., the California Supreme Court confirmed that the purpose of this statute is to “prevent employers from passing their operating expenses onto their employees.”[ii]

But, when has an employer passed an operating expense onto an employee?  When the following elements are met: “(1) the employee made expenditures or incurred losses; (2) the expenditures or losses were incurred in direct consequence of the employee’s discharge of his or her duties, or obedience to the directions of the employer; and (3) the expenditures or losses were necessary.”[iii]

Expenses Incurred in “Direct Consequence” of an Employee Discharging Job Duties

For most remote work, an employee will have little difficulty satisfying the first and second elements set forth above.  For example, the employee may show that she regularly received calls and responded to emails outside of normal business hours using her smart phone.  She might also prove that she regularly complied with weekend requests to quickly edit and re-send documents using her home internet connection.  In these instances, the phone bill and/or archived email will provide clear, documentary evidence that the employee incurred expenses “within the course and scope of employment.”[iv]

Furthermore, the recent Court of Appeal decision in Cochran v.  Schwan’s Home Serv. ensures that employers cannot avoid liability by claiming that the employee incurred no marginal cost in performing the remote work.[v]  The decision in Cochran arose from the appeal of a trial court’s order denying class certification to a 1,500-member class that sought reimbursement for using personal cell phones to perform job duties.  The trial court concluded that the class could not show commonality and this conclusion was based, primarily, on its belief that following individual issues would have to be resolved before the class members could establish that the employer was liable under 2802:

  • whether the employee was motivated to purchase a different cell phone or minute plan because she anticipated working remotely;
  • whether the employee directly paid the cell phone expenses or if they were paid by another person under a “family plan” or similar arrangement; and
  • whether a common cell-phone plan or payment method existed among the class.[vi]

In other words, the trial court interpreted Labor Code § 2802 to require that the employee show that she incurred some marginal cost as a result of the employer’s remote work requirement (i.e. she purchased more minutes for her cell phone) before the employer would be liable under the statute.  The Court of Appeal rejected this sort of “but for” causation test.  It ruled that an expense is “in direct consequence” of the employee’s duties and reimbursable under the statute even if it was initially incurred for reasons wholly-unrelated to the employer’s directions.[vii]

The Court of Appeal reasoned that limiting expense reimbursement to marginal costs would allow an employer to get something for nothing (in this case, an employee who is available to take calls remotely).  So adopting the trial court’s view would permit precisely what the statute is designed to prevent—having the employee bear operating expenses that the employer would otherwise have needed to incur in order to ensure the employee’s remote.

Hence, an employee’s fixed-cost, remote-work expenses must be reimbursed even if, irrespective of her employer’s demands, the employee still would have incurred the expense; by, for example, purchasing a personal cell phone, paying for data and minute plans, or supplying a home with internet access.  Furthermore, questions concerning the amount of reimbursement the employer owes go to damages, not liability, and therefore do not preclude class certification.[viii]

Recent Cases Concerning Whether Remote Work was a “Necessary Expenditure”

Assuming that an employee’s remote work both benefits her employer and is actually related to the employee’s job, then the reasoning in Cochran leaves employers with very few bases to argue a given expense was not “in consequence of the employee’s duties.”  Accordingly, employers defending remote-work 2802 claims may now argue that the expenses should not be reimbursed because they were incurred for the employee’s convenience and not for the benefit of her employer.

To this end, employers can accurately state that their offices were accessible to a given employee on a 24-hour basis.  Those offices contained phones, computers and internet access for employee use.  The employee could have returned to the office to use them.  And, accordingly, remote-work was not “necessary” under the statute.  In the author’s view, perceptive judges will recognize this claim as sophistry and reject it as being inconsistent with applicable case law and the economic realities of an employer’s costs of doing business.

Labor Code § 2802(c) states “all reasonable costs” are “necessary expenditures” subject to reimbursement.  Although few citable decisions have considered whether particular remote-work expenses were reasonable or necessary, the common theme among those that have is that remote-work expenses should be reimbursed when they were reasonable under the circumstances and the employer had some advance knowledge that they would be incurred.  This conclusion is consistent with existing case law that holds an expense must be reimbursed “once an employer knows or has reason to know that the employee has incurred [it.]”[ix]

At least two other decisions use a variant of this “knows or has reason to know” test for whether an expenditure was necessary.  In the first case, Aguilar v. Zep, Inc., an employer was required to reimburse certain outside sales employees for cell-phone and personal-internet expenses because they “were a forseeable and clearly anticipated cost of doing business.”[x]  There, the employer admitted it expected the employees to use personal cell phones and home internet to do business and penalized them if they did not.  Nevertheless, the employer sought summary judgment because the plaintiffs allegedly could not distinguish between expenses allocable to business and personal uses of their cell phones and home internet.  The court rejected this argument finding that some amount of reimbursement was required but the precise amount went to the issue of damages, not liability.

The second case, Lindell v. Synthes USA, arose in a slightly different context than Aguilar.  Whereas Aguilar involved employees, the plaintiffs in Lindell were independent contractors who were paid exclusively with commissions and were not reimbursed for any of their costs (including travel, maintaining their own phone, and internet connections).  In opposing class certification, Synthes claimed that variances in the amount and circumstances of certain expenses required individual inquiries into whether an expense was reasonable and necessary.  The court brushed this argument to the side, recommended class certification and formulated the following broad test for a reimbursement obligation:

“Under Plaintiff’s theory that Synthes does not reimburse any expenses, liability attaches for the entire Expense Class if Plaintiff can show Expense Class members all incurred a type or category of expenses, e.g., phone, automobile or home office. Once the category of expenses is established, the degree or amount to which these expenses were incurred concern damages, not liability.”[xi]

Why Remote Work Necessarily Allows an Employer to Pass on Operating Expenses

Requiring that an expense be foreseeable also conforms to the underlying purpose of Labor Code § 2802—precluding employers from passing their operating expenses onto employees.  Many employers, far from being blind to occasional remote work, are aware that it happens and benefit from it in two related respects.

First, allowing employees to work remotely should increase the pool of qualified candidates for a given position.  Employers who prohibit remote work and require employees to return to the office at all hours of the day and night in order to perform a given task will almost certainly draw candidates from a narrower geographic area than those that permit remote work.    Beyond attracting candidates who would otherwise not apply due to their long commutes, an option to work remotely also attracts candidates who, for one reason or another, are unwilling to spend long hours inside an employer’s office but will agree to be available to work from home as needed on short notice.

Academic literature has confirmed that applicants prefer jobs that offer the option of working remotely.[xii]  And basic economic theory suggests that if remote work does increase the supply of qualified candidates for a given position, then this larger pool of qualified candidates reduces the amount of compensation the employer must offer to fill it.[xiii]

Beyond increasing the underlying supply of candidates, permitting remote work may allow employers to avoid having to pay “relocation allowances” to certain candidates who relatively far away from their office.  The requirement that all employees return to their office on short notice in order to respond to urgent requests makes, in the author’s experience, any job marginally less attractive.  Candidates who an employer sought to subject to this requirement would expect to receive a relocation allowance sufficient to enable the candidate to live near their office.  Indeed, a fight over an employer’s promise that an employee will be permitted to frequently work remotely following an initial period during which the employee received a relocation allowance has already played out in federal court.[xiv]

Similarly, if employers really expected employees to do all their work from their office, then one would expect them to provide employment agreements stipulating that the employee live within a certain distance from her place of work.  But few employment agreements contain any “location” or “relocation” clause.  This strongly suggests that employers expect their employees to engage in remote work, at least in part because it obviates the need to pay relocation expenses and/or offer increased compensation to employees whose residences are not already near the employer’s office.

Questions Remain about the Amount of Reimbursement Required for a Given Expense

No published decision has provided definitive guidance concerning the amount that must be paid to reimburse any particular remote-work expense.  Cochran, citing the differences in cell phone plans and work related scenarios, stated only that “some reasonable percentage” of the expense must be reimbursed but it left that calculation to the trial court.[xv]  Lindell also punted: if “liability is established (the required use of a phone that was never reimbursed or indemnified), it does not matter if the telephone was used for [the employer’s] business 99% or 1% of the time.”[xvi]  So did Aguilar: differences between class members with respect to “what it would have cost to make other arrangements to meet these company-imposed obligations or exactly what percentage of their cell phone and internet use was for personal rather than business use” are insufficient to deny class certification.[xvii]

However, the cases do suggest courts will consider two different standards.  One approach is to require the employer to bear all expenses up to a given floor.  Aguilar described this threshold as the employer’s cost to make other arrangements.

To this end, the court would ask what it would have cost the employer to provide the employee with the ability to work remotely to the employer’s satisfaction.  For example, the employer would pay for the least expensive home internet plan sufficient to satisfy the employer’s periodic demands.  Any expenses above this amount (i.e. faster internet or a larger data plan) were not “necessary” and therefore the employer was not liable for them.

The alternative approach is allocating the total expense incurred by the employee between personal and work-related usage.  For example, if an employee used 1,000 cell phone minutes in a month and 250 of those minutes were to make calls for their employer and the other 750 were personal, then the employer would be required to reimburse 25% of the total cell phone bill (assuming the total amount of the bill was “reasonable”).

Although this allocation method is intuitive in certain respects, is quickly becomes quite complicated in both the single-plaintiff and the class-action contexts.  For instance, in order to arrive at a denominator for the allocation method, a fact-finder must account for the cell phone and internet plans different employees actually use which may vary widely in price and reasonableness.  In addition, the allocation method requires individualized determinations with respect to the numerator of the reimbursement calculation (i.e. the amount of each employee’s monthly usage for work-related tasks).

Furthermore, unlike the floor method, allocating an expense between usages also does not tether the amount of the reimbursement to any particular operating expense avoided by the employer.  Requiring the employer to pay a reimbursement equal to the cost it would have needed to incur in order to enable employees to effectively work while away from the office not only conforms with the statute’s underlying purpose it also allows for more uniformity in calculating the amount of reimbursement.  In particular, the parties can reference historical pricing data concerning minimally sufficient phone and internet services.  Though there may be disagreements concerning the sufficiency or availability of a given alternative, the issue will likely be resolved on a class-wide resolution once it is settled.

Rules of Thumb Regarding Class Certification for Remote-Work Reimbursement

Like remote work itself, class actions concerning remote-work reimbursement are relatively nascent.  To date, the cases have generally concerned cell phone usage.  But, we do know a few things.  First, individualized damages do not defeat certification.[xviii]

Second, notwithstanding individualized issues about whether particular expenses were necessary, common questions will almost certainly predominate where “there is a commonly applicable expense reimbursement, common duties among putative class members, and expenses common to the class.”[xix]  The issue is murkier when there is no written policy but performing remote work it is a de facto requirement for many employees.

Third, the existence of different practices among managers with respect to expense reimbursement is not a basis to refuse certification when it is undisputed that the employer’s generally applicable policy was not to provide reimbursement.[xx]  Whether courts will extend this holding and find that variances among the frequency and types of remote work do not defeat certification is an open question.

Last, common questions may not predominate when the employer provided employees with a remote-work set up but employees still incurred remote-work expenses because what the employer provided was allegedly inadequate.  So certification may not be appropriate if, for example, the employer provided an antiquated laptop computer but some employees still bought their own device because what the employer provided them was not sufficient to allow them to work effectively.

A number of cases have dealt with this issue in the context of purchases of tools.  Generally, the employer had a policy to provide workers with a variety of equipment but mechanics and similar laborers often, but not always, purchased some tools of their own to supplement the set they were provided.  The general result has been that individualized issues with respect to whether a given employee’s purchase of a tool was “necessary” will predominate.[xxi]

Conclusion

Assuming courts continue to follow the logic of Cochran and employers continue to require remote work but fail to fully reimburse employees for it, we will see many more class actions seeking reimbursement under  Labor Code § 2802.  This article attempted to address some of the key issues but many others remain.  As larger class actions are filed against companies with significant numbers of white-collar employees (e.g. financial firms, technology companies, providers of professional services), we will surely see many cases examine the propriety of certification when an employer’s firm-wide policies are silent on remote work and individual managerial practices vary widely.  How judges rule on cases involving the intersection of these concepts will determine the viability of large class actions under 2802.  But, at least for the time being, the pendulum has swung in favor of employees and class-wide resolutions.  Given that the statute provides for attorneys’ fees and interest, employers would be wise to err on the side of providing sufficient reimbursement.

[i] See, e.g. Grissom v. Vons Companies, Inc., 1 Cal.App.4th 52, fn. 3 (1991) (referring to dictionary definition of “indemnify”).

[ii] 67 Cal.Rptr.3d 468, 473-74 (2007) (internal quotation marks omitted).

[iii] Cassady v. Morgan, Lewis & Bockius LLP 51 Cal Rptr. 3d 527, 534-35 (2006).

[iv] Id.

[v] 228 Cal. App. 4th 1137 (2014).

[vi] Id. at 1141-42.

[vii] Id. at 1140.

[viii] Id. at 1144-45.

[ix] Stuart v. Radioshack Corp., 641 F. Supp. 2d 901, 905 (N.D. Cal. 2009).

[x] Case No. 13-cv-00563 WHO, 2014 WL 4245988 (N.D. Cal. August 27, 2014).

[xi] Case No. 11-cv-02053-LJO-BAM, 2014 WL 841738 (E.D. Cal. March 4, 2014).

[xii] Thompson, Rebecca J., Stephanie C. Payne, and Aaron B. Taylor. “Applicant attraction to flexible work arrangements: Separating the influence of flextime and flexplace.” Journal of Occupational and Organizational Psychology (2014).

[xiii] Furthermore, case law and social science have shown that allowing employees to work remotely may actually save some employers money.  Caire v. Conifer Value Based Care, LLC, 982 F. Supp. 2d 582, 587 (D.Md. 2013) (noting that “Defendant “routinely encouraged and allowed employees to telecommute as a cost-saving measure.”); Van Deusen, F., et al. “Overcoming the implementation gap: How 20 leading companies are making flexibility work.” Boston College Center for Work & Family (2008).  More generally, courts have recognized that due to “the advance of technology in the employment context” remote work is a commonplace and necessary attribute of today’s employment milieu because “the ‘workplace’ is anywhere that an employee can perform her job duties.”  EEOC v. Ford Motor Company, 752 F.2d 634, 641 (6th Cir. 2014).

[xiv] Munson v. Splice Communications, Inc., Case No. 12-cv-05089-JCS 2013 WL 6659454 at *4, 9, 19 (N.D. Cal. December 16, 2013) (Munson claimed that his employer breached an agreement concerning how frequently he would be permitted to work remotely and stated that he would not have accepted the job without that agreement.  Consistent with this claim, Munson was paid a significant relocation allowance for the six-month period of time his ability to work remotely was restricted).

[xv] Id. at 1040. 

[xvi] Id. at *10.

[xvii] Id. at *17.

[xviii] Dalton v. Lee Publications, Inc., Case No. 3:08cv1072-GPC-NLS, 2013 WL 5887872, at * 2 (S.D. Cal. October 31, 2013) (citing Leyva v. Medline Industries, Inc., 716 F.3d 510, 513 (9th Cir. 2013)).

[xix] Hopkins v. Stryker Sales Corp., Case No. 5:11-CV-02786-LHK, 2012 WL 1715091, at * 11 (N.D. Cal. March 14, 2012).

[xx] Trosper v. Stryker Corp., Case No. 13-CV-0607-LHK, 2014 WL 4145448, at *14-15 (N.D. Cal. August 21, 2014).

[xxi] See, Tokoshima v. The Pep Boys, Case No. C-12-4810-CRB, 2014 WL 1677979, at *9-10 (N.D. Cal. April 28, 2014) (collecting cases); but see Arredondo v. Delano Farms Co., Case No. 1:09-cv-01247 MJS, 2014 WL 710945, at *43 (E.D. Cal. February 20, 2014) (certifying tool class when what the employer provided was inadequate).

 

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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