Expense Reimbursement

Subscribe to Expense Reimbursement

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 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 2019 IRS mileage rate is as follows:

  • 58 cents per mile for business miles driven, up 3.5 cents from 2018
  • 20 cents per mile driven for medical or moving purposes, up 2 cents from 2018; and
  • 14 cents per mile driven in service of charitable organizations

2. Mileage reimbursement rates do not necessarily have to be set at the IRS rate, but use caution

The California Supreme Court 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.

3. Employees who challenge a mileage reimbursement amount set by the employer bear the burden in establishing their actual costs

If the employee challenges a predetermined amount set by the employer and agreed to by the employee, but then challenges the amount set later on, 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.

4. There are different methods employers can use to reimburse mileage

The Count in Gattuso explained that there are three different methods employers may use to reimburse employees mileage:

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.

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.

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 under Labor Code section 2802. 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.

 

California employers need to routinely need to review their policies and practices to make sure they are complying with intricacies that may arise in their work place.  In law school, attorneys-to-be are taught to “issue spot,” and the unfortunate litigation landscape that faces California employers, business owners and their supervisors must also “issue spot” and make sure the unique aspects of California employment law are being complied with to avoid liability.  This Friday’s Five covers five issues employers should issue spot on a routine basis to help ensure compliance and reduce liability:

1. Reporting time pay

Reporting time pay is triggered when an employee is required to report for work, but is not put to work or is furnished less than half their usual or scheduled day’s work.  If this occurs, the employee needs to 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 cannot not be less than the minimum wage.

It is important for employers to train managers and supervisors about this requirement, so that they understand the need to pay reporting time pay, or report the instance to HR to ensure the employee receives reporting time pay if they are sent home before one-half of their shift is worked.

2. Split shift pay

A split shift is a work schedule that is interrupted by a non-paid, non-working period established by the employer that is other than a meal or rest break.  So if the employee is required to work a shift, but then asked to report to a second shift over later in the same day, the employer may be obligated to pay a split shift premium.  Again, this issue is one that front-line managers and supervisors need to be trained on to ensure that split shifts are being reported to HR or other appropriate management in the company to ensure any split shift pay obligations are being paid.

3. Expense reimbursement issues

Under Labor Code section 2802, employers need to reimburse employees for any business expenses they incur in the course of completing their work for the employer.  This basic concept sounds easy in principle, but given the technology used in today’s workplaces, there can be many areas that expose employers to liability.  For example, if employees are required to work at home, have access to the internet, print reports, or send and receive faxes, the costs for completing this work should be reimbursed by the employer.  Other areas that are often litigated are cell phone reimbursement, mileage reimbursement, and reimbursement for the costs of uniforms and safety equipment.

4. Off-the-clock claims

Employers can be held liable for unpaid wages if they knew or should have known that employees were working and not being paid for the work.  Employers should establish and regularly communicate a time keeping policy to employees and supervisors.  The policy should set forth that employees always have an open door to complain to their supervisors and other managers or human resources about missed meal and rest breaks, unpaid wages, or unpaid wages.  If employees routinely acknowledge that they understand the time keeping policy and are agreeing to record their time through the employer’s system, this can go a long way in defending any off-the-clock claims.

5. On-Call time

Even though employees are traveling to a work site or even sleeping, if the employee is under the control of the employer, the employer may have to pay them for being on-call.  For example, the California Supreme Court held that security guards who were required to reside in a trailer provided by the employer at construction worksites would still need to be paid for the time they slept while on-call.  In that case, during weekdays the guards were on patrol for eight hours, on call for eight hours, and off duty for eight hours.  On weekends, the guards were on patrol for 16 hours and on call for eight hours.  The Court held that the employer was not permitted to exclude the time guards spent sleeping from the compensable hours worked in 24-hour shifts.  See Mendiola v. CPS Security Solutions, Inc.

Likewise, in Morillion v. Royal Packing Co., the California Supreme Court held that, “we conclude the time agricultural employees are required to spend traveling on their employer’s buses is compensable under Wage Order No. 14-80 because they are ‘subject to the control of an employer’ and do not also have to be ‘suffered or permitted to work’ during this travel period.”  Generally, travel time is considered compensable work hours where the employer requires its employees to meet at a designated place and use the employer’s designated transportation to and from the work site.

This week’s Friday’s Five covers five huge misconceptions about California employment law that can land employers into huge legal trouble:

1. Meal and rest breaks seem so trivial.

The topic may seem trivial for companies that have not faced this litigation before, or for out of state employers who wrongly believe California cannot be much different than federal requirements.  However, with the penalty owed to employees of one hour of pay for each missed meal or rest break (i.e., up to two hours of penalty pay per day) these violations add up to significant amounts of liability very quickly.  A verdict against Wal-Mart for $172 million is a good example of the liability that even small employers face in this regard.

2. My payroll company understands the laws about wages and itemized pay statements.

Payroll companies are not law firms and they will not notify you if you are not paying your employees properly, calculating overtime correctly, tracking and reporting paid sick leave appropriately, or even ensure that the paystubs they generate for your employees comply with the law.  It is the employer’s responsibility to ensure the employment laws are being complied with, and it is wise to have an experienced employment lawyer review these practices and audit the practices of the payroll company.

3. The employee’s title determines if they are owed overtime.

An employee’s title is not determinative of whether they qualify as an exempt employee and do not need to receive overtime pay.  See my previous article on the various exemptions that employees may qualify for, and the requirements necessary for employees to meet those exemptions.

4. Employees can be provided “comp time” instead of paid overtime.

While it is true employers may provide employee’s comp time in lieu of overtime, there are many technical restrictions that must be met in order for comp time plans to be legal under California law.  Labor Code section 204.3 only authorizes employers to provide nonexempt employees with compensated time off instead of paying for overtime if the following requirements are met:

  • Payment for comp time must be at the overtime rate of pay (i.e., not less than one and one-half hours for each hour of employment, or double time if applicable)
  • Must be in writing before work begins
  • Employees cannot accrue more than 240 hours of compensation time off
  • Employee has to make a written request for comp time in lieu of overtime
  • Employee must be scheduled to work at least 40 hours a week
  • Employee must be paid at rate of pay in effect at time of payment
  • Payment at termination must be at high of current or three-year average rate of pay
  • Employee must be permitted to use comp time within reasonable period
  • Employer must keep records of comp time accrued and used

5. My company does not need employment counsel to review our policies on a regular basis, we have it under control.

If you have been a reader of this blog for any time period, you understand that every employer in California needs to understand their legal duties when it comes to employing workers.  And with competent employment law counsel [:)] it is not hard to comply with the law, but it is difficult to keep current with the law and ensure all legal obligations are being met.  California employment law is regularly changing.  In addition, employers need to make sure they are complying with intricacies that may arise in their work place, such as:

 

Also, in case you missed it, my Podcast is live:

Youtube: https://www.youtube.com/watch?v=WUbLzjwuUao&t=2s

iTunes: https://itunes.apple.com/us/podcast/zaller-talk/id1405859405?mt=2

Spotify: https://open.spotify.com/show/6zpZovQKMeZ5l2DYL0nh3q?si=KggpsQ6pSIGf1-PCMdM8dw

Have a great weekend.

You may recall from your college business law class of the “American rule” regarding attorney’s fees: generally in the United States each side is responsible to their own attorney’s fees, and unlike other countries, the loser does not have to pay the other party’s attorney’s fees. Employers can basically ignore this general rule in employment litigation under California law. I debated about writing this article because once a lawsuit is filed, employers don’t have any control over what claims and damages the plaintiff will assert, so why would employers need to understand when they have exposure to a current or former employee’s attorney’s fees in litigation? However, employers need to understand the underlying liability of potential claims, the motivations behind those claims, and the major part of many employment law claims can be attorney’s fees. And as shown below, the California legislature has used the award of attorney’s fees to shift the risk in many actions against employers, and it is a concept that employers need to understand to address liability and litigation strategies. Here are five California employment related statutes that can expose employers to a plaintiff’s attorney’s fees:

1. Minimum wage/unpaid overtime claims. Labor Code section 1194, provides attorneys fees for plaintiffs who recover damages for minimum wage or overtime violations:

Notwithstanding any agreement to work for a lesser wage, any employee receiving less than the legal minimum wage or the legal overtime compensation applicable to the employee is entitled to recover in a civil action … reasonable attorney’s fees, and costs of suit.

2. Unsuccessful appeal of Labor Commissioner Claim. In order to discourage appeals from Labor Commissioner rulings, California Labor Code section 98.2(c) requires the court “shall” awards costs and reasonably attorney’s fees to the other party. This section permits the employee to obtain fees on an unsuccessful appeal by the employer, or to the employer who prevails on an unsuccessful appeal by employee. The catch for employers however, is that Labor Code section 98.2(c) provides that the employee is “successful” and therefore entitled to attorney’s fees “if the court awards an amount greater than zero.” Yes, even if the employee receives $1, they are successful in the appeal, and are entitled to their attorney’s fees. Therefore, employers have a huge disincentive in appealing Labor Commissioner rulings.

3. Expense reimbursement claims Labor Code section 2802 provides that employers must pay for and reimburse employees for “all necessary expenditures or losses incurred by the employee in direct consequence” of the employee’s job. Therefore, items like mileage reimbursement, even personal cell phone expenses, or other out-of-pocket expenditures employees make while performing their job must be reimbursed by the employer. Labor Code section 2802(c) provides that the employee is entitled to “attorney’s fees incurred by the employee enforcing the rights granted by this section.”

4. Private Attorney General Act (PAGA) claims Plaintiff’s counsel bringing a PAGA claim can seeks attorney’s fees under this statute as well. See Labor Code section 2699(g). Plaintiffs’ attorneys also claims fees under California Code of Civil Procedure section 1021.5, which permits them to recover fees if the case “resulted in the enforcement of an important right affecting the public interest” if certain requirements are satisfied.

5. California’s Fair Employment and Housing Act (FEHA) The Fair Employment and Housing Act (FEHA) prohibits harassment and discrimination in employment based on protected categories and/or retaliation for protesting illegal discrimination related to one of these categories. “In civil actions brought under [FEHA], the court, in its discretion, may award to the prevailing party . . . reasonable attorney’s fees and costs, including expert witness fees.” (Gov. Code, § 12965, subd. (b).) Under FEHA, the fee shifting provision goes both ways, to the plaintiff but also potentially the employer. Courts have discretion to award the defendant employer attorney’s fees and costs as the prevailing party in cases where plaintiff’s claim is deemed unreasonable, frivolous, meritless or vexatious. As a California court recently explained:

Despite its discretionary language, however, the statute applies only if the plaintiff’s lawsuit is deemed unreasonable, frivolous, meritless, or vexatious. . . . ‘ “[M]eritless” is to be understood as meaning groundless or without foundation, rather than simply that the plaintiff has ultimately lost his case . . . .’

Robert v. Stanford University, 224 Cal.App4th 67 (2014).

You’ve set up a successful company and begin hiring employees. To be a successful operator in California, a company’s management needs to be familiar with the critical legal concepts in order to successfully navigate California’s complex employment laws. You never wanted to go to law school, but time to hit the, ahem, books (or the Internet).  Here are a five fundamental legal concepts that every employer should understand:

1. At-will employment. Under California law, it is presumed that all employment is terminable at-will. California Labor Code section 2922 provides: “An employment, having no specified term, may be terminated at the will of either party on notice to the other.” The at-will doctrine means that the employment relationship can be terminated by either party at any time, with or without cause, and with or without advanced notice. There are some major exceptions to this rule, see item #3 below for example, but generally California law recognizes that employers and employees may, at any time, and for any legal reason, terminate the employment relationship.

2. Meal and rest break obligations. Employers cannot employ an employee for a work period of more than five hours per day without providing the employee with a meal period of at least thirty minutes. This break may be waived if the total work period per day of the employee is no more than six hours, with the mutual consent of both the employer and employee. A second meal period of at least thirty minutes is required if an employee works more than ten hours per day, except that if the total hours worked is no more than 12 hours. The second meal period may be waived by mutual consent of the employer and employee only if the first meal period was not waived. Rest periods are based on the total hours worked daily and a full ten minute consecutive break must authorized and permitted for each four hour work period, or major fraction thereof. I’vewritten about these obligations before, and the DLSE’s website provides many details regardingmeal periods and rest breaks.

3. Protected categories. Under the at-will doctrine employers may decide to terminate an employee based on any reason, just as long as it is not an illegal reason. An illegal reason would be one based upon an employee’s protective category, such as their race, gender, national origin, disability, age, or sexual orientation for example. California law even protects employees who are perceived to be in a protected category, associated with someone who is in a protective category, or even a sympathizer of someone in a protected category. In addition, the DLSE provides that the following activities are also protected:

The engaging in or exercising of a right that is protected by law. Some examples of “protected activity” under the Labor Code include: 1. Filing or threatening to file a claim or complaint with the Labor Commissioner. 2. Taking time off from work to serve on a jury or appear as a witness in court. 3. Disclosing or discussing your wages. 4. Using or attempting to use sick leave to attend to the illness of a child, parent, spouse, domestic partner, or child of the domestic partner of the employee. 5. Engaging in political activity of your choice. 6. For complaining about safety or health conditions or practices.

4. The difference between exempt and non-exempt. Employers need to understand which positions are legally entitled to overtime and other protections of the Labor Code, and the position that are “exempt” from these requirements. Here is a list of common exemptions under California law. It is important to note that employers and employees cannot simply make the determination and agree to be exempt on their own (the right to overtime cannot be waived, see non-waivable rights below). The employer has the burden of establishing that the employee meets all of the required elements of a particular exemption in order for the employee to be legally classified as exempt. 5. Understanding that certain Labor Code provisions cannot be waived by employees. Employees cannot waive their rights to certain protections offered by the California Labor Code. For example, employees cannot waive their rights to minimum wage, overtime, expense reimbursements for out of pocket expenses incurred for business purposes, right to participate in PAGA representative actions, and the right to receive non-disputed wages. You can read more about these rights here. So before a decision is made because the employee willingly agrees to the terms, or may even ask for certain employment terms, employers need to be sure that the employee can actually agree to those terms under the law. Photo courtesy of Janet Lindenmuth

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.

Here is a list of five rights provided to employees under the California Labor Code that the employee may not waive by agreement with an employer.

1. Minimum wage
Labor Code Section 1194 provides a private right of action to enforce violations of minimum wage and overtime laws. That statute clearly voids any agreement between an employer and employee to work for less than minimum wage or not to receive overtime.

2. Overtime
In Gentry v. Superior Court, the Supreme Court explained:

[Labor Code] Section 510 provides that nonexempt employees will be paid one and one-half their wages for hours worked in excess of eight per day and 40 per week and twice their wages for work in excess of 12 hours a day or eight hours on the seventh day of work. Section 1194 provides a private right of action to enforce violations of minimum wage and overtime laws.
…
By its terms, the rights to the legal minimum wage and legal overtime compensation conferred by the statute are unwaivable. “Labor Code section 1194 confirms ‘a clear public policy . . . that is specifically directed at the enforcement of California’s minimum wage and overtime laws for the benefit of workers.’"

3. Expense reimbursement
Labor Code section 2802 requires employers to reimburse its employees for “necessary expenditures or losses incurred by the employee” while performing his or her job duties. Labor Code section 2804, clearly provides that an employee cannot waive this right to be reimbursed for or liable for the cost of doing business. Section 2804 provides, “Any contract or agreement, express or implied, made by any employee to waive the benefits of this article or any part thereof, is null and void….”

4. Right to participate in PAGA representative actions
The California Supreme Court recently clarified that employees may not waive their right to bring a representative action under the Private Attorney General Act (PAGA) (even though the Court held that class action waivers in arbitration agreements are enforceable). The Court held in Iskanian v. CLS Transportation that, “we conclude that an arbitration agreement requiring an employee as a condition of employment to give up the right to bring representative PAGA actions in any forum is contrary to public policy.”

5. Right to receive undisputed wages
Under Labor Code section 206.5 employers and employees may not enter into agreements that waive the employee’s right to receive wages that are undisputed. Labor Code section 206.5 also provides that an employer may not require “as a condition of being paid, to execute a statement of the hours he or she worked during a pay period which the employer knows to be false.”

My firm is conducting a webinar on Thursday June 19, 2014 at 10:00 a.m. for a mid-year update on emerging employment law issues and the newly enacted LLC statute effecting most California Limited Liability Companies. 

For more information and to register, please complete the form below:

https://docs.google.com/forms/d/1LU6GudLKMnb4yt4qpvQTagUj9OlxJmaR13JQs79urKI/viewform?embedded=true