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In the last five years, California has seen a dramatic increase in the number of employment-related class action litigation cases, especially as they pertain to reimbursement of employees' business-related expenses. In fact, in the last two years, California courts have held that employees must be reimbursed for the expenses associated with: the purchase and maintenance of their uniforms, apparel and accessories; maintenance of their own tools or equipment required to complete their work; and, travel required to make daily bank deposits, moving inventory between stores, attending meetings, etc. Now, in a recent appellate court ruling, employers were given another painful reminder on just how far they are required to go to reimburse employee expenses.

The long-standing rule pertaining to employee reimbursements is set forth in California Labor Code Section 2802, which provides: "An employer shall 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, or of his or her obedience to the directions of the employer, even though unlawful, unless the employee, at the time of obeying the directions, believed them to be unlawful." This means that, if an employee incurs costs associated with his/her employment, the employer is required to reimburse those expenses. If an employer fails to timely reimburse the employee, the Code allows the employee to recover: (1) all unreimbursed expenses; (2) interest on the unpaid sums; and, (3) attorneys' fees and costs associated with collecting those sums (Labor Code §2802(c)).

In August 2014, a Court of Appeal handed down an unprecedented decision dealing with an employer's obligation to reimburse its employees for the business use of their personal cell phones. The case boiled down to one central issue (quoted from the case):

Does an employer always have to reimburse an employee for the reasonable expense of the mandatory use of a personal cell phone, or is the reimbursement obligation limited to the situation in which the employee incurred an extra expense that he or she would not have otherwise incurred absent the job? The answer is that reimbursement is always required. Otherwise, the employer would receive a windfall because it would be passing its operating expenses onto the employee. Thus, to be in compliance with section 2802, the employer must pay some reasonable percentage of the employee's cell phone bill.

Cochran v. Schwan's Home Service __ Cal. App. 4th ___ (August 12, 2014)

The court continued by saying: "[t]o show liability under section 2802, an employee need only show that he or she was required to use a personal cell phone to make work-related calls, and he or she was not reimbursed" [emphasis added]. In other words, the employee is not required to show that he incurred any expenses above-and-beyond those associated with having a personal cell phone plan in the first place, or that they increased their plan to accommodate their business-use of the phone.

The court did not make any distinction as to the employment scenarios when this reimbursement requirement would be triggered. As it stands, regardless of what the employees' job duties may be (this could include a retail clerk or warehouse manager), and irrespective of where the employee is working (traveling sales v. inside sales), if an employee simply uses his or her personal cell phone for "business-related purposes" a reimbursement obligation arises. The court did "limit" the application of this rule to those employees required by the employer to carry a phone. Therefore, it is possible that the occasional or sporadic phone call for business by an employee not mandated to carry a phone would not generate liability.

There is currently no bright line on what a reasonable reimbursement would be for an employee's business use of a personal cell phone. The court has vaguely suggested reimbursement at a "reasonable percentage" of the employee's monthly cell phone plan expenses as a guideline. This contrasts with the specific guidelines the Division of Labor Standard Enforcement ("DLSE" or "Labor Commissioner") has provided for reimbursement for the use of an employee's personal vehicle for business-related travel. In that situation the DLSE has strongly suggested employers use the IRS standard mileage rate for all miles traveled for business (currently 55.5 cents per mile). This "suggestion" provides a simple standard for employers to ensure compliance, contrary to the court's "reasonable percentage" metric for all cell phone usage, which is quite subjective, and open to interpretation . . . and thus ripe for the next wave of litigation!

Following the decision in Cochran, the common practice of having employees using their personal electronic devices for business use must be re-evaluated, and businesses must analyze whether the cost of a "reasonable" reimbursement exceeds the costs associated with providing technology to employees directly (thus, eliminating the risks associated with unpaid reimbursements). Needless to say, with the employee-reimbursement landscape expanding, it is important for California employers to speak with competent employment law counsel on a regular basis to ensure that they remain in compliance with the newest laws.