Expense reimbursement may seem like a small issue in comparison with the other areas of liability facing California employers, but the Old Carexposure for not appropriately reimbursing employees can be substantial. In Gattuso v. Harte-Hanks Shoppers, Inc., the California Supreme Court clarified the parameters of mileage reimbursement under California law, as well as the three different methods available for employers to reimburse employees for their mileage reimbursement.  This Friday’s Five post discusses five issues employers need to know about automobile and mileage reimbursement under California law.

1. Mileage reimbursement based on IRS mileage rate is presumed to reimburse employee for all actual expenses

The IRS publishes standard mileage rates each year (and sometimes adjusts these rates during the year). The 2017 IRS mileage rate is as follows:

  • 53.5 cents per mile for business miles driven, down from 54 cents for 2016
  • 17 cents per mile driven for medical or moving purposes, down from 19 cents for 2016
  • 14 cents per mile driven in service of charitable organizations

If the employee challenges the amount reimbursed, the employee bears the burden to show how the “amount that the employer has paid is less than the actual expenses that the employee has necessarily incurred for work-required automobile use (as calculated using the actual expense method), the employer must make up the difference.” Gattuso, at 479.

The California Supreme Court also held that the reimbursement rate can be negotiated by parties as long as it fully reimburses the employee, and the amount does not have to be set at the IRS mileage rate. The Court also warned that employee cannot waive the right to be fully reimbursed for their actual expenses:

We agree that, as with other terms and conditions of employment, a mileage rate for automobile expense reimbursement may be a subject of negotiation and agreement between employer and employee. Under section 2804, however, any agreement made by the employee is null and void insofar as it waives the employee’s rights to full expense reimbursement under [Labor Code] section 2802.

Gattuso, at 479.

2. Actual expense method of reimbursement

In examining the different methods of reimbursement, the Supreme Court held that the actual expense method is the most accurate, but it is also the most burdensome for both the employer and the employee. Gattuso, at 478. Under the actual expense method, the parties calculate the automobile expenses that the employee actually and necessarily incurred and then the employer separately pays the employee that amount. The actual expenses of using an employee’s personal automobile for business purposes include: fuel, maintenance, repairs, insurance, registration, and depreciation.

3. Mileage reimbursement method

The Court recognized that employers may simplify calculating the amount owed to an employee by paying an amount based on a “total mileage driven.” Gattuso, at 479.

Under the mileage reimbursement method, the employee only needs to keep a record of the number of miles driven for job duties. The employer then multiplies the miles driven by a predetermined amount that approximates the per-mile cost of owning and operating an automobile. The Court recognized that the mileage rate agreed to between the employer and employee is “merely an approximation of actual expenses” and is less accurate than the actual expense method. It is important to note that while this amount can be negotiated, the employee still is unable to waive their right to reimbursement of their actual costs as mentioned above.

4. Lump sum payment method

Under the lump sum method, the employee need not submit any information to the employer about work-required miles driven or automobile expenses incurred. The employer merely pays an agreed fixed amount for automobile expense reimbursement. Gattuso, at 480. This type of lump sum payment is often labeled as a per diem, car allowance, or gas stipend.

In Gattuso, the Court made it clear that employers paying a lump sum amount have the extra burden of separately identifying and documenting the amounts that represent payment for labor performed and the amounts that represent reimbursement for business expenses.

5. Don’t forget about other expenses incurred in the “course and scope” of working

In addition to mileage, employers may also have to reimburse employees for other costs they incurred in driving their personal cars for business. In making the determination about whether an employee’s actions are in the “course and scope” of their job, courts examine whether the expense being sought by the employee is “not so unusual or startling that it would seem unfair to include loss or expense among other costs of the employer’s business.” Employers need to be mindful about reimbursing employees for cell phone use, printing and office supplies (if employee is required to maintain a home office or use personal printer for work), and other work related expenses.

Happy Friday!  This Friday’s Five covers five areas that employers can start with in conducting an employment practices Checklistsaudit.  Coming up on the mid-point of the year, it is a good time to conduct an employment law practices audit to ensure that policies are compliant, managers are properly trained, and the company is maintaining the required records for the necessary length of time.  Here are five areas to start with in conducting an audit and a few recommended questions for each topic:

1. Hiring Practices

  • Are applications seeking appropriate information?
    • For example: Be careful about local ban the box regulations.
  • Are new hires provided with required policies and notices?
  • Are new hires provided and acknowledge recommended policies?
    • For example: meal period waivers for shifts less than six hours
  • Are hiring managers trained about the correct questions to ask during the interview?
  • Does the company provide new hires (and existing employees) with arbitration agreements with class action waivers?

 2. Records

  • Are employee files maintained confidentially and for at least four years?
  • Are employee time records maintained for at least four years?
  • Are employee schedules maintained for at least four years?
  • Do the managers have set forms for the following:
    • Employee discipline and write-ups
    • Documenting employee tardiness
  • How is the employee documentation provided to Human Resources or the appropriate manager?
  • Who is involved in reviewing disability accommodation requests?
  • How are employee absences documented?

3. Wage and Hour Issues

  • Does the company have its workweeks and paydays established?
  • Are paydays within the applicable time limits after the pay period as required under the law?
  • Are employees provided with compliant itemized wage statements?
  • Are employees provided a writing setting out their accrued paid sick leave each pay period?
  • Are employees properly classified as exempt or nonexempt?
    • For exempt employees, review their duties and salary to ensure they meet the legal requirements to be an exempt employee.
  • Any workers classified as independent contractors, and if so, could they be considered employees?
  • Are nonexempt employees properly compensated for all overtime worked?
  • Is off-the-clock work prohibited?
    • Policy in place?
    • Are managers trained about how to recognize it and what disciplinary actions to take if find employees working off-the-clock?
  • Does the company’s time keeping system round employee’s time?
    • If so, is the rounding policy compliant with the law?
  • Are meal and rest period polices set out in handbook and employees routinely reminded of policies?
    • Does the company pay “premium pay” for missed meal and rest breaks? If so, how is this documented on the employee pay stub?
    • Do employees record meal breaks?
    • Are managers trained on how to administer breaks and what actions to take if employees miss meal or rest breaks?
  • Is vacation properly documented and tracked?
  • Are all deductions from the employee’s pay check legally permitted? (use caution, very few deductions are permitted under CA law)
  • Are employees reimbursed for all business expenses, such as uniforms, work equipment and miles driven for work?

 4.End of Employment Issues

  • Are employees leaving the company provided their final wages, including payment for all accrued and unused vacation time?
  • Does the employer deduct any items from an employee’s final paycheck?
    • If so, are the deductions legally permitted?

5. Anti-harassment, discrimination and retaliation

  • Are supervisors provided with sexual harassment training every two years? (If employer has 50 or more employees, supervisors are legally required to have a two-hour harassment prevention training that complies with AB 1825 and amendments to this law).
  • Are supervisors and managers mentioning the open-door policy of the company to employees at routine meetings with employees? Is this being documented?

Please let me know if you have any other items your company considers during review of employment policies – it would be great to update this list to share with readers.  Have a great weekend.

Employers that utilize interns, or who provide training to individuals that may lead to employment run the risk of having these individuals qualify as an employee, which would require the employer to comply with Labor Code requirements such as minimum wage, meal and rest breaks, and overtime pay.  The analysis is very difficult, and fact intensive, and employers should approach this issue with caution.  Once again, I cannot keep Friday’s Five to five items, but such is the nature of California.

The Division Labor Standards Enforcement (DLSE) take that position that in order to determine whether training time is compensable under California law, the following eleven factors would be taken into consideration:

  1. The training, even if it is at the employer’s business and includes operation of the employer’s resources, is similar to that which is given in a vocational school;
  2. The training is for the benefit of the trainees or students, not the employer;
  3. The trainees or students do not displace regular employees, but work under their close observation;
  4. The employer that provides the training receives no immediate advantage from the activities of the trainees or students and, the employer’s operations my even be impeded;
  5. The trainees are not necessarily entitled to ta job at the conclusion of the training period;
  6. The employer and trainees or students understand that the trainees or students are not entitled to wages for time spent training;
  7. Any clinical training is part of an educational curriculum;
  8. The trainees or students do not receive employee benefits;
  9. The training is general, so as to qualify the trainees or students for work in any similar business, and not specifically for a job with the employer offering the program;
  10. The screening process for the program is not the same as for employment, and does not appear to be for that purpose, but involves only criteria relevant for being accepted into the program;
  11. Advertisements for the program specify clearly that the program is for training or education, not employment.  However, employers can specify that qualified graduates will be considered for employment.

The DLSE has opined is part of the analysis is that the employee does not have to be paid for voluntary attendance at training programs.  Examples the DLSE cites are English language instruction or literacy training.

Who is responsible for costs of training programs?

The DLSE takes the position that there is generally no requirement that an employer pay for training leading to licensure or the cost of licensure for an employee.  While the license may be a requirement of the employment, it is not the type of cost the employers are required to pay for under Labor Code § 2802.  The DLSE states that the most important consideration of the licensure is that it is required by the state or locality as a result of public policy:  “It is the employee who must be licensed and unless there is a specific statute which requires the employer to assume part of the cost, the cost of licensing must be borne by the employee.”  However, if an employer requires an employees to undergo training that is specific only to that employer, then the employer would usually need to bear the training costs.

I can hear the questions already, just five new laws taking effect on January 1, 2016?  No, there are many more, as I have previously written about, but here are five additional new laws employers need to understand going into 2016.

1.     Family members of whistleblower are granted protections and some employers are excluded from the joint employer liability enacted in 2015

AB 1509 – Effective January 1, 2016, this bill prohibits employers from retaliating against an employee who is a family member of an employee who made a protected complaint.  The bill extends the protections to an employee who is a family member of a person who engaged in, or was perceived to engage in, the protected conduct or make a complaint protected the law.  This bill also amends Labor Code section 2810.3 to exclude certain household goods carrier employers from the joint liability imposed between the client employer and a labor contractor.

2.     Labor Commissioner Provided Increased Enforcement Authority Over Local Ordinances and the Ability to Issue Awards For Expense Reimbursement

AB 970 – Effective January 1, 2016, provides the Labor Commissioner with authority to investigate and at the request of the local government, to enforce local laws regarding overtime hours or minimum wage provisions.  The Labor Commissioner has authority to issue citations and penalties for violations, but cannot issue violations if the local entity has already issued a citation for the same violation.  The bill also authorizes the Labor Commissioner to enforce Labor Code section 2802 which requires employers to pay for business related costs that the employee directly incurs in discharging their duties for the employer.

 3.     Labor Commissioner Provided Increased Judgment Collection Authority

SB 588 – Amends the Labor Code to provide the Labor Commissioner many more rights in collecting judgments against employers who are found liable for unpaid wages.  The Labor Commissioner has authority to issue a lien against on an employer’s property for the amount of the judgment.  Also, the law also imposes personal liability for employers in adding Labor Code section 98.8(f):

 Any person who is noticed with a levy pursuant to this section and who fails or refuses to surrender any credits, money, or property or pay any debts owed to the judgment debtor shall be liable in his or her own person or estate to the Labor Commissioner in an amount equal to the value of the credits, money, or other property or in the amount of the levy, up to the amount specified in the levy.

Also, if an employer has a judgment entered against it, and it is not paid within 30 days after the time to appeal the judgment, the employer is required to obtain a bond in order to continue to do business in California. Effective January 1, 2016

 4.     Employee’s Permitted Time Off From Work Expanded

SB 579 – Existing law prohibits an employer who employs 25 or more employees working at the same location from discharging or discriminating against an employee who is a parent, guardian, or grandparent having custody of a child in a licensed child day care facility or in kindergarten or grades 1 to 12, inclusive, for taking off up to 40 hours each year for the purpose of participating in school activities, subject to specified conditions.  The law is amended to provide these protections for employees under a broader “child care provider”, and applies these protections to employees who are a stepparent, foster parent, or who stands in loco parentis to a child.

The bill also amends California’s Kin Care law set forth in Labor Code section 233 to require employers to allow employees to use “an amount not less than the sick leave that would be accrued during six months” for family members as defined in the Healthy Workplaces, Heathy Family Act of 2014, otherwise known as California’s paid sick leave law.  The Kin Care law is amended under this bill to provide that employers must allow employees to use up to one-half of their sick leave to attend to victims of domestic violence or the diagnosis, care, or treatment of an existing health condition of, or preventive care for, the employee or the employee’s family member.  Family member definition is broadened from the existing definition under the law (a child, parent, spouse, or domestic partner) to also include grandparents, grandchildren, and siblings.  Effective January 1, 2016.

  5.     Limits Placed on Employer’s Use of E-Verify

AB 622 – Effective January 1, 2016, this bill adds Labor Code section 2814 which expands the definition of an unlawful employment practice to include an employer or any other person or entity using the E-Verify system when not required by federal law to check the employment authorization status of an existing employee or an applicant who has not received an offer of employment, as required by federal law, or as a condition of receiving federal funds. The bill also requires an employer that uses the E-Verify system to provide to the affected employee any notification issued by the Social Security Administration or the United States Department of Homeland Security containing information specific to the employee’s E-Verify case or any tentative nonconfirmation notice “as soon as practicable.”  The bill provides for a civil penalty of $10,000 for an employer for each violation of its provisions.

It is a good time to review employee policies and handbooks to ensure they are compliant with the new requirements.

The recent settlement creating a $228 million fund by Federal Express in a multistate class action brought in 2005 alleging that drivers were misclassified as independent contractors.  However, the parties are encountering some reluctance from the court in obtaining court approval of the settled.  This case is a good example that entering into a settlement with the opposing party does not necessarily end the case.  Parties in a class action must still obtain court approval of the settlement.  This Friday’s Five provides a list of five items to understand about the settlement process of class actions.

1.      The judge must approve the settlement to protect the interests of absent class members

The judge is tasked with the roll of protecting the absent class members who will be impacted by the settlement.  The judge will review the claims asserted by the plaintiffs, how strong the claims are, and the likelihood of success on the claims in reviewing the terms of the settlement.  Therefore, it is usually contingent upon plaintiffs’ counsel to set out a detailed evaluation of the claims and potential risks in continued litigation when seeking the court’s approval.  Judicial approval requires the judge to review the judgment of experienced counsel and make a determination that the agreement is “fair, adequate and reasonable” in context with the risks and delay of continued litigation.

2.      Notice to the absence class members must be given

The California Rules of Court provide that, in the event the court grants preliminary approval and certifies a settlement class, “notice of the final approval hearing must be given to the class members,” which shall “contain an explanation of the proposed settlement and procedures for class members to follow in filing written objections to it and in arranging to appear at the settlement hearing and state any objections to the proposed settlement.”  The court will likely require notice to be provided to as many of the class members as possible, and that the notice is sent to each individual class member if practicable.

3.      Court will review plaintiff’s attorneys fees and the incentive awards provided to the named plaintiffs

It is likely that the named plaintiffs will seek an incentive award, which is a payment beyond the payment they will receive with the other class members.  Courts approve these payments for the named plaintiffs’ work in bringing the case and participating in the litigation.  As for the plaintiffs’ attorney’s fees, the court will look to the monetary and nonmonetary results achieved for the class members.  Plaintiffs’ fees are usually based upon a percentage of the total recovery for the class members, with “lodestar” cross-check.  The lodestar method cross-check examines the plaintiffs’ attorneys’ reasonable hours spend on the case multiplied by a reasonable rate per hour.

4.      The court ensures the settlement was not collusive

In determining whether a class action settlement is fair, the court will look to whether the settlement was reached through “arm’s-length” negotiations.  Therefore, if an independent mediator was involved in helping the parties reach the settlement, the parties will explain the mediation process to the court.  The court will also look to whether plaintiffs’ counsel conducted sufficient investigation and discovery into the claims in order to make a reasonable determination of the strengths and weaknesses of the case.  The experience of the class counsel is also taken into account by the court.  Finally, the judge will review the number of objectors to the settlement in addition to how many of the class members opted out of the settlement in evaluating the fairness of the settlement.

5.      After preliminary approval, the court holds a final fairness hearing

Once the court has preliminarily approved the class action settlement, notice has been provided to all of the class members, the class members have the opportunity to file an opt-out or objection to the settlement, the court will hold one last fairness hearing.  At this point in time, the parties can submit to the court all of the information pertaining to how many class members participated in the settlement, how many opted out of the settlement, and if there were any objectors.  Objectors also have the ability to appear at the fairness hearing.  Managing Class Action Litigation: A Pocket Guide for Judges, explains:

If objectors and unrepresented class members appear at the fairness hearing, it is important to permit them to fully voice their concerns. For class members who feel strongly enough about their injuries to appear, the fairness hearing is their “day in court.” Judges in settlements involving tort claims such as the Agent Orange and silicone gel breast implant litigation held multiple days of hearings to accommodate the interests of class members.

The Federal Express case illustrates that the process of obtaining court approval may take multiple attempts to cure issues the court has with any number of the items set forth above.  Indeed, the FedEx settlement is only at the initial preliminary approval stage, and the court has set the final fairness hearing to take place on March 24, 2016.  What is the lesson to learn from this case?  The work is not done once a settlement is reached, the parties still have to obtain the court’s approval.

Photo: Rob Young

This week, a federal court in northern California certified portions of a class action Picture - driverbrought by Uber drivers who worked in California since 2009 (click here for the decision [PDF]).  Over 160,000 drivers have worked for Uber in California during this time period, and while the case is making a lot of news, what are the key issues employers should understand about the ruling?  Here are five takeaways for employers from the decision:

1.     Employers must understand the class action procedure

Employers with more than 30 or so employees should understand what a class action is, and the procedural issues of a class action.  It is important to understand that while the court certified certain portions of the plaintiffs’ case (and refused to certify others), this does not mean that Uber has lost the case.  Class certification is not a ruling on the merits of the case, but only whether the case is one that there a sufficient similarities between all of the class members’ claims that enable to court to decide the matter on a class wide basis.  The court explained:

The merits of the case are not currently at issue. Rather, the Court needs to consider only two questions at this juncture; whether the case can properly proceed as a class action, and, if so, how. While answering both of those questions necessarily requires the Court to perform a rigorous analysis of a number of legal issues, the parties correctly recognize that one threshold issue is of paramount importance to the success or failure of Plaintiffs’ class certification motion: as to whether drivers are Uber’s employees or independent contractors under California’s common-law test of employment, will “questions of law or fact common to class members predominate over any questions affecting only individual members” of the proposed class?

….

That is, are the drivers’ working relationships with Uber sufficiently similar so that a jury can resolve the Plaintiffs’ legal claims all at once? This question is of cardinal importance because if the Plaintiffs’ worker classification cannot be adjudicated on a classwide basis, then it necessarily follows that Plaintiffs’ actual substantive claims for expense reimbursement and conversion of gratuities cannot be adjudicated on a classwide basis either.

The court ruled in plaintiffs favor in certifying the class action because Uber treated all of the drivers the same:

As other courts weighing certification of employment misclassification claims have recognized, however, there is inherent tension between this argument and Uber’s position on the merits: on one hand, Uber argues that it has properly classified every single driver as an independent contractor; on the other, Uber argues that individual issues with respect to each driver’s “unique” relationship with Uber so predominate that this Court (unlike, apparently, Uber itself) cannot make a classwide determination of its drivers’ proper job classification.

Uber also made the argument that the class should not be certified because many drivers did not support the lawsuit, as demonstrated in 400 declarations it offered from the drivers.  The court noted that class member’s opposition to the class action does not necessarily bar class certification.  The court explained that it “must be mindful” of the fact that “‘the protections conferred by [these laws] have a public purpose beyond the private interests of the workers themselves.’”  In addition, the court explained that if class members do not agree with the class action, they are free to opt-out of the class action.

2.     The Borello test determines if workers are properly classified as independent contractors

The “most significant consideration” is the putative employer’s “right to control work details.”  S.G. Borello & Sons, Inc. v. Dep’t of Indus. Relations (Borello), 48 Cal. 3d 341, 350 (1989).  Recently, the California Supreme Court noted that under the right-of-control test, it is “not how much control a hirer [actually] exercises, but how much control the hirer retains the right to exercise.” Ayala, 59 Cal. 4th at 533.

The second set of factors that the court will look at under the Borello test are as follows:

a) whether the one performing services is engaged in a distinct occupation or business;

(b) the kind of occupation, with reference to whether, in the locality, the work is usually done under the direction of the principal or by a specialist without supervision;

(c) the skill required in the particular occupation;

(d) whether the principal or the worker supplies the instrumentalities, tools, and the place of work for the person doing the work;

(e) the length of time for which the services are to be performed;

(f) the method of payment, whether by the time or by the job;

(g) whether or not the work is a part of the regular business of the principal; and

(h) whether or not the parties believe they are creating the relationship of employer-employee.

Finally, the Borello test has five additional factors borrowed from the Fair Labor Standards Act (FLSA) in making a determination of a worker’s classification:

(i) the alleged employee’s opportunity for profit or loss depending on his managerial skill;

(j) the alleged employee’s investment in equipment or materials required for his task, or his employment of helpers;

(k) whether the service rendered requires a special skill;

(l) the degree of permanence of the working relationship; and

(m) whether the service rendered is an integral part of the alleged employer’s business.

The court analyzed these factors and held that a class action was appropriate in this case “because all (or nearly all) of the individual elements of the Borello test themselves raise common questions which will have common answers.”

3.     It is the employer’s burden to prove the workers are independent contractors, so proceed with caution

The court noted that because Uber drivers “’render service to Uber,’ they are presumptively employees as a matter of law.  Thus, the Plaintiffs have proved their prima facie case, although the ultimate question of their employment status will need to be decided by a jury.  Therefore, the burden will be on Uber at trial to ‘disprove an employment relationship.’”

4.     Understand obligations to reimburse employees for work related expenses

The plaintiffs were also seeking to certify a class of drivers who incurred business expenses and were seeking reimbursement for these expenses under Labor Code section 2802.  While plaintiffs were not entirely clear on what items they were seeking reimbursement for, the court concluded that it appeared the main reimbursement items were for vehicle operating expenses, such as gas, maintenance, and wear and tear.  Plaintiffs, therefore, waived reimbursement claims for other items such as water, gum, and mints for passengers, and clothing costs.  I’ve written previously about employer’s obligations to reimburse drivers for mileage here.

The court noted that these reimbursement claims “can sometimes be problematic to certify as class actions because ‘there may be substantial variance as to what kind of expenses were even incurred by [the workers] in the first place” and “it may be challenging to determine on a classwide basis whether a particular expense (or type of expense) was ‘necessary’ or incurred in ‘direct consequence’ of the employee’s duties.”  The court held that it would not certify the reimbursement class at this point in time because the plaintiffs did not demonstrate that by dropping the reimbursement claims in addition to the mileage reimbursement claim was in the best interest of the class.

5.     Businesses need to be careful about how they characterize tips or service charges to customers, and understand the difference

Plaintiffs also assert that because the drivers should have been classified as employees, Uber violated Labor Code section 351, which precludes employers from taking employee’s tips.  The court granted plaintiffs’ motion for class certification on this issue based on Plaintiffs’ evidence that Uber informed its customers in advertisements that a tip for the driver was included in the cost of the fares (“When the ride is over, Uber will automatically charge your credit card on file.  No cash is necessary.  Please thank your driver, but tip is already included”; “All Uber fares include the tip….”)  Employers must be mindful about how they characterize tips and service charges, and must understand the difference between the two under the law.

Earlier this week Uber appealed a California Labor Commissioner ruling against it holding that a driver was misclassified as an independent contractor.  In this video, I briefly discuss the ruling and the lesson it holds for employers.

Misclassification of employees as independent contractors can carry many damages and penalties.  For example, Sections 226.8 and 2753 of the Labor Code impose a civil penalty of $5,000 to $25,000 depending on whether the misclassification is willful.  In addition, the misclassified worker can recover back unpaid overtime wages, unpaid minimum wages, and expense reimbursement.  Therefore, employers need to be extremely cautious in classifying workers as independent contractors.

For more information about the factors that differentiate an employee from an independent contractor click here.

The Labor Commissioner’s can be viewed here:

Colin Cochran brought a putative class action against his employers, Schwan’s Home Service, on behalf of 1,500 customer service managers who were not reimbursed for expenses pertaining to the work-related use of their personal cell phones. He alleged causes of action for violation of Labor Code section 2802; unfair business practices under Business and Professions Code section 17200 et seq.; declaratory relief; and statutory penalties under Labor Code section 2699, the Private Attorneys General Act of 2004.

The trial court denied class certification on the grounds that there would be too many individualized questions about each employee’s cell phone expenses incurred for work purpose. In Cochran v. Schwan’s Home Service, the appellate court reversed trial court’s denial of class certification. Below are five lessons employers should learn from this ruling.

1. Employers have an obligation to reimburse business expenses incurred by employees.

Labor Code section 2802, subdivision (a) requires: "[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…." This Labor Code section requires employers to reimburse employees for all out-of-pocket expenses the employee incurs (and not just cell phone usage) during the performance of their job.

2. Expenses must be necessary in order to require employer reimbursement.

"In calculating the reimbursement amount due under section 2802, the employer may consider not only the actual expenses that the employee incurred, but also whether each of those expenses was `necessary,’ which in turn depends on the reasonableness of the employee’s choices. [Citation.]"

Cochran at 1144.  What is necessary or not could vary from case to case. Apparently, in this case, the employer had a clear policy requiring the service representatives to use their personal cell phones, so there was no need for the court to conduct any analysis about whether the putative class members’ use of their personal cell phones was a necessary expense.

3. Employers must always reimburse employee for expense of cell phone use even though the employee did not pay additional cell phone fees for using their cell phone for work purposes.

This is the essential holding of the Cochran case. The court explains:

The threshold question in this case is this: 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.

Cochran at 1144.  The employer argued that the case could not be certified as a class action because there are too many individualized questions surrounding each employee’s cell phone plan, and if the employee actually incurred any more expenses as a result of using their cell phone for work. Many people now have unlimited data plans, and if so, the employee would not incurred any additional expenses when using the phone for work.

The court explained that any time a cell phone is required for work, the employer must reimburse the employee. The court stated that to hold otherwise would provide a “windfall” to the employer.

4. The court held that the details about each employee’s cell phone plan do not determine liability.

Not only does our interpretation prevent employers from passing on operating expenses, it also prevents them from digging into the private lives of their employees to unearth how they handle their finances vis-a-vis family, friends and creditors. To 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.

Cochran at 1145.

5. The court did not explain how to calculate a reasonable reimbursement for employee’s cell phone use when the employee has an unlimited data plan.

The court passed in explaining how an employer and employee would go about figuring out the amount of reimbursement for personal cell phone use given the different data plans available for cell phones. The court stated that section 2802 requires that the employer should pay some “reasonable percentage” of the employees’ cell phone plans when the cell phone is required for work. Cochran at 1144.

This ambiguity is a blessing and a curse for employers. It is a blessing in that it leaves many options available to employers and employees to structure a reasonable reimbursement plan, but it is a curse because the ambiguity could still lead to future challenges to the agreed upon reimbursement plan. 

In my last post, I wrote about what steps employers should talk to comply with the new employment laws for 2015. This post discusses more generally what employers should audit on a yearly basis. And with the year coming to a close, now is a great time to review these five items:

1. Expense reimbursement and mileage policies.
Employees must be reimbursed for all out of pocket expenses incurred while performing their jobs under Labor Code Section 2802. This includes reimbursing employees for their out of pocket expenses for driving their personal vehicles for business purposes. There are a number of different methods employers may utilize in calculating and paying expense reimbursement, as I have previously written here.

While not required, the employer can utilize the IRS mileage rates established each year to pay employees for their vehicle expenses. The IRS mileage rate for 2015 has been set at 57.5 cents per mile (up from 56 cents in 2014).

2. Deductions from wages.
Generally, employer cannot make deductions from employees’ pay for ordinary business expenses or losses. For example, employers are not allowed to deduct the following items employee’s wages:

  • Ordinary damage or wear and tear to equipment
  • The outstanding balance owned on a loan to an employee in one “balloon payment” for the remaining balance of a loan owed to the employer
  • Deductions from employee’s current pay for past payroll errors
  • For returned items from customers
  • Lost equipment
  • Shipping fees to return items to the employer

3. Reporting time pay
California law requires an employer to pay “reporting time pay” under the applicable Wage Order, which states:

Each workday an employee is required to report for work and does report, but is not put to work or is furnished less than half said employee’s usual or scheduled day’s work, the employee shall be paid for half the usual or scheduled day’s work, but in no event for less than two (2) hours nor more than four (4) hours, at the employee’s regular rate of pay, which shall not be less than the minimum wage.

This issue comes up often times when the employer requires employees to attend meetings during days the employees normally have off. It is important for employers to understand this requirement and schedule employees accordingly.

4. Handbook updates
With California’s new paid sick leave requirement, it may be a good time to review your company’s handbook policies to ensure they are compliant and add a policy for the new law. We are currently reviewing a number of our client’s handbooks. It is like going to the dentist, if you wait too long to update your handbook, it will end up costing you more than if the handbook is revised at least once a year.

5. Review employees who are paid on commissions.

A) Must have written agreements with commissioned employees.
As of January 1, 2013, when an employee is paid commissions, the employer must provide a written contract setting forth the method the commissions will be computed and paid. The written agreement must be signed by both the employer and employee. Commission wages are “compensation paid to any person for services rendered in the sale of such employer’s property or services and based proportionately upon the amount or value thereof.” Commissions do not include (1) short-term productivity bonuses, (2) temporary, variable incentive payment that increase, but do not decrease, payment under the written contract, and (3) bonus and profit-sharing plans, unless there has been an offer by the employer to pay a fixed percentage of sales or profits as compensation for work to be performed.

B) If the commissioned employee is non-exempt, ensure the proper overtime rate is being calculated.
If the employee is non-exempt and the employer is required to pay overtime for work longer than eight hours in one day or more than 40 hours in one week, ensure that the employee’s regular rate of pay is properly calculated for overtime purposes. The DLSE provides a good overview of how to calculate the appropriate regular rate of pay here.

Expense reimbursement may seem like a small issue in comparison with the other areas of liability facing California employers, but the exposure for not appropriately reimbursing employees can be substantial. In Gattuso v. Harte-Hanks Shoppers, Inc., the California Supreme Court clarified the parameters of mileage reimbursement under California law, as well as the three different methods available for employers to reimburse employees for their mileage reimbursement.  This post discusses five issues employers need to know about automobile and mileage reimbursement under California law.

1. Mileage reimbursement based on IRS mileage rate is presumed to reimburse employee for all actual expenses

The IRS publishes standard mileage rates each year (and sometimes adjusts these rates during the year). The 2014 mileage rate is published on the IRS mileage rate here.

If the employee challenges the amount reimbursed, the employee bears the burden to show how the “amount that the employer has paid is less than the actual expenses that the employee has necessarily incurred for work-required automobile use (as calculated using the actual expense method), the employer must make up the difference.” Gattuso, at 479.

The California Supreme Court also held that the reimbursement rate can be negotiated by parties as long as it fully reimburses the employee, and the amount does not have to be set at the IRS mileage rate. The Court also warned that employee cannot waive the right to be fully reimbursed for their actual expenses:

We agree that, as with other terms and conditions of employment, a mileage rate for automobile expense reimbursement may be a subject of negotiation and agreement between employer and employee. Under section 2804, however, any agreement made by the employee is null and void insofar as it waives the employee’s rights to full expense reimbursement under section 2802.

Gattuso, at 479.

2. Reimbursement Method: Actual Expense Method

In examining the different methods of reimbursement, the Supreme Court held that the actual expense method is the most accurate, but it is also the most burdensome for both the employer and the employee. Gattuso, at 478. Under the actual expense method, the parties calculate the automobile expenses that the employee actually and necessarily incurred and then the employer separately pays the employee that amount. The actual expenses of using an employee’s personal automobile for business purposes include: fuel, maintenance, repairs, insurance, registration, and depreciation.

3. Reimbursement Method: Mileage Reimbursement Method

The Court recognized that employers may simplify calculating the amount owed to an employee by paying an amount based on a “total mileage driven." Gattuso, at 479.

Under the mileage reimbursement method, the employee only needs to keep a record of the number of miles driven for job duties. The employer then multiplies the miles driven by a predetermined amount that approximates the per-mile cost of owning and operating an automobile. The Court recognized that the mileage rate agreed to between the employer and employee is “merely an approximation of actual expenses” and is less accurate than the actual expense method. It is important to note that while this amount can be negotiated, the employee still is unable to waive their right to reimbursement of their actual costs as mentioned above.

4. Reimbursement Method: Lump Sum Payment

Under the lump sum method, the employee need not submit any information to the employer about work-required miles driven or automobile expenses incurred. The employer merely pays an agreed upon fixed amount for automobile expense reimbursement. Gattuso, at 480. This type of lump sum payment is often labeled as a per diem, car allowance, or gas stipend.

In Gattuso, the Court made it clear that employers paying a lump sum amount have the extra burden of separately identifying and documenting the amounts that represent payment for labor performed and the amounts that represent reimbursement for business expenses.

5. All expenses incurred in an employee’s course and scope of their job must be reimbursed by the employer.

In addition to mileage, employers may also have to reimburse employees for other costs they incurred in driving their personal cars for business. In making the determination about whether an employee’s actions are in the “course and scope” of their job, courts examine whether the expense being sought by the employee is “not so unusual or startling that it would seem unfair to include loss or expense among other costs of the employer’s business.” This is a very fact specific determination that employers need to approach with caution.