The news is littered with stories of executives who use company funds to pay for lavish dinners, family vacations, and entertainment. But employees who are uncertain of their rights or don’t want to rock the boat may hesitate to request reimbursement for the small, everyday expenses they incur while working.
California employees should know that the law grants them a broad right to reimbursement of work-related expenses, with the goal of preventing employers from passing their operating costs on to employees. Gattuso v. Harte-Hanks Shoppers, Inc. 42 Cal. 4th 554, 562 (2007). The California Labor Code provides that “[a]n 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[.]” Cal. Lab. Code § 2802(a). An employee may not waive her right to reimbursement: under California law, any contract or agreement by which an employee purports to waive the right is void. Cal. Lab. Code § 2804.
This post discusses the scope of an employer’s duty to reimburse under California law and its application to common work-related expenses.
Must an Employer Reimburse Expenses Even if the Employee Does Not Request Reimbursement?
California employers have a duty to do their best to make sure their employees are reimbursed for reasonable work-related expenses. An employer that knows or has reason to know that an employee has incurred work-related expenses must reimburse the employee, even if the employee does not request reimbursement. Stuart v. RadioShack Corp., 641 F. Supp. 2d 901, 903 (N.D. Cal. 2009).
Are There Limits on the Amount an Employer Must Reimburse?
There are common-sense limits to the obligation to reimburse. For example, an employer is not required to reimburse expenses that are not work-related, or that are exorbitant. In determining the amount required to reimburse an employee, an employer may consider whether the expenses for which the employee has requested reimbursement were “necessary,” which depends on whether the employee made reasonable choices. Gattuso, 42 Cal. 4th at 568.
Are There Specific Rules Governing the Reimbursement of Common Categories of Expenses?
While the guidepost is always the general rule that an employer is required to reimburse necessary and reasonable work-related expenses, California regulations and case law provide more specific guidance for many common expenses.
Company cars: If an employer provides employees with vehicles, the employer must reimburse the employees for any expenses they incur while using the vehicles in carrying out their job duties. Such expenses may include gas, oil, maintenance, repairs, lease payments, and insurance.
Employees’ Personal Vehicles: If an employee is required to use her personal vehicle for work (other than for a normal commute), California law requires that she be reimbursed for the expense of that use. An employer may reimburse the employee in one of three ways:
- Actual Expense Method. This is the most burdensome method. The actual expenses of using an employee’s personal automobile for business purposes include fuel, maintenance, repairs, insurance, registration, and depreciation. To calculate the reimbursement amount using the actual expense method, therefore, the employee must keep detailed and accurate records of amounts spent in each of these categories. Calculation of depreciation will require information about the automobile’s purchase price and resale value (or lease costs). In addition, the employee must keep records of the information needed to apportion those expenses between business and personal use. This is generally done by separately recording the miles driven for business and personal use. The employee then must submit all of this information to the employer for calculation of the reimbursement amount due. Id. at 568.
- Mileage Method. When an employer uses the mileage reimbursement method to determine the amount of reimbursement for work-required use of an employee’s personal automobile, the employee need only keep a record of the number of miles driven to perform job duties. The employee submits that information to the employer, who then multiplies the work-required miles driven by a predetermined amount that approximates the per-mile cost of owning and operating an automobile. The mileage rate calculated by the federal Internal Revenue Service (IRS) is widely used and accepted by private business employers for calculating reimbursable employee automobile expenses. Id. at 569.
- Lump-sum Method. An employer may use a lump-sum payment to reimburse employees for work-required automobile expenses, provided that the amount paid is sufficient to provide full reimbursement for actual expenses necessarily incurred. Id. at 570. Using this method may make sense if employees’ vehicle usage is predictable. For example, it may make sense for outside salespeople with regular routes.
Whichever method an employer uses, the key is that the employer must reimburse the employee for the actual vehicle expenses that he or she necessarily has incurred. Since any agreement between the employer and the employee about the reimbursement method does not relieve the employer of its statutory obligation to provide full reimbursement, an employee who believes that the method used does not fully cover expenses must be able to challenge the amount. Id. at 571.
Tools and Equipment
As a general matter, the California Industrial Welfare Commission’s wage orders prohibit employers from requiring employees to pay for tools and equipment used when working.
There is a narrow exception for permitting employers to require employees who earn twice the minimum wage to provide hand tools and equipment customary to their trade. According to guidance from the Department of Labor Standards Enforcement, this exception is limited to hand (as opposed to power) tools and personal equipment, such as tool belts or tool boxes. Moreover, such hand tools and equipment must be customarily required in a recognized trade or craft. An employer must indemnify an employee who is required to provide hand tools and equipment if those tools or equipment are damaged or lost in the course and scope of employment.
A second, even narrower, exception applies to hairstylists and beauty salon employees, who may be required to provide their own razors and scissors.
If an employer requires an employee to wear a uniform that is specific to the place of employment, the wage orders require the employer to provide and maintain the uniform, including paying for laundering and repair. For example, an employer may not require its employees to purchase or maintain uniforms bearing the company logo. However, an employer may require its employees to provide uniforms that are not employer-specific, such as a nurse’s scrubs.
Cell Phones and Mobile Devices
When an employer requires its employees to use their personal cell phones for work, California law requires the employer to pay some reasonable percentage of the employees’ cell phone bills. Cochran v. Schwan’s Home Serv., Inc., B247160, 2014 WL 3965240, at *4 (Cal. Ct. App. Aug. 12, 2014). To be entitled to reimbursement, an employee need not have changed her personal cell phone plan or incurred overage charges to accommodate work-related use; the employer’s obligation to reimburse applies even if the employee incurred no extra expense. Id. An employer must pay a reasonable percentage of the employee’s cell phone bills even if the employee does not actually pay her cell phone bill, and even when an employee has a plan providing for unlimited calls, texts, and data. Id.
As discussed in my companion post, “The Duty to Reimburse in the Digital Age” these same principles may apply to other devices—such as computers and tablets—as well as to home internet connections when an employer requires an employee to use them for work.
Costs of Lawsuits
If an employee gets sued based on the employee’s conduct within the course and scope of employment, California law requires the employer to pay any judgment entered against the employee and to pay the costs necessary to defend the lawsuit. Grissom v. Vons Companies, Inc., 1 Cal. App. 4th 52, 58 (1991). Unlike an insurer, an employer is not required to defend the employee whenever there is merely a potential for liability. Jacobus v. Krambo Corp., 78 Cal. App. 4th 1096, 1100 (2000). However, if the employer decides to run a risk and not front the costs for the employee’s defense, the employer may be required to indemnify the employee for her reasonable and necessary expenses in defending the suit if the employee’s conduct was in the course and scope of her employment. See Grissom, 1 Cal. App. 4th at 58; Plancarte v. Guardsmark, LLC, 118 Cal. App. 4th 640, 647-48 (2004). Whether or not some of the argued items were originally mentioned as included in a severance package can play a role in the case as well.
How Can I Determine Whether a Reimbursement Policy Complies with California Law?
California employers should review their expense reimbursement policies regularly and consult with an attorney or human resources professional in devising and updating them. Employees who believe that their employers’ reimbursement policies may violate the law should contact an employment attorney for advice and assistance.
Does an Employer have to Reimburse the Expenses of Independent Contractors?
The information in this post applies only to individuals who are employees, not independent contractors, for whom the duty to reimburse is governed by contract. Employees who have been misclassified as independent contractors may be entitled to reimbursement for operating expenses their employer has shifted to them. For information about how to determine whether an employee has been misclassified as an independent contractor, see Valerie Brender’s recent post: When is an Independent Contractor Actually an Employee?