With COVID-19 stay-at-home orders resulting in the closure of many businesses’ physical locations, employers able to convert to telework have been able to continue operating during the recent period of forced isolation. While this flexibility has allowed some companies to avoid the dire consequences other businesses face, telework presents other issues companies must keep in mind.
In particular, for California employers, Labor Code Section 2802 requires employers to reimburse employees for most business expenses. With telework, certain expenses arise that businesses inadvertently may pass on to their employees, especially companies not accustomed to a remote workforce. Such oversight could result in significant liability. While Nevada law and the Fair Labor Standards Act (FLSA) are not precisely analogous to Section 2802, Nevada employers can still face liability based on the failure to reimburse business expenses, if deducting those expenses from an employee’s wages would cause the employee’s wages to fall below the minimum wage or required overtime rate.
California Labor Code Section 2802
California Labor Code Section 2802 requires employers to “indemnify” employees for all “necessary” expenses or losses incurred as a direct result of discharging work duties or obeying employer directions. The purpose of the statute is to prevent employers from passing on operating expenses to their employees, and reflects California’s strong public policy of indemnifying employees for liabilities that arise in the course and scope of their employment.
Many companies already have employee expense policies in place and will reimburse employees for things like travel and entertainment, or provide use of assets like company cars, cell phones, and laptops. With operational changes brought on by COVID-19, many employers less experienced with telework may overlook some obligations. First and foremost, in this day and age where virtually everyone owns a cell phone, many of which come with unlimited data and call plans included, employers may not see any cost to an employee who now uses his or her cell phone to telework. But under California law, this is not the case.
In a 2014 decision, Cochran v. Schwan’s Home Services, a California Court of Appeal ruled that an employer always has to reimburse the reasonable expense of the mandatory use of an employee’s personal cell phone. What is more, the Court held that it does not matter whether the phone bill is paid for by a third person (e.g., a family member or friend), or at all, because employers may not pass on operating costs in this manner. To show liability under Labor Code Section 2802, an employee only needs to show he or she was required to use a personal cell phone for work-related calls, and he or she was not reimbursed. To be in compliance, an employer must pay some reasonable percentage of the employee’s cell phone bill.
With COVID-19-related telework, Cochran potentially implicates a class of similar work-related costs, like land lines, Internet service, and perhaps even depreciation or “rental” cost if an employee is now using his or her personal computer, printer, and other hardware. Taken to its logical extreme, Cochran arguably could even support a claim for some percentage of an employee’s rent or housing cost. The rationale would be that the employer is now getting a free ride on the cost of physical office space or utilities, and so it must reimburse some reasonable cost. And while some Internet service providers are temporarily providing free Internet access to some customers due to COVID-19, Cochran suggests that a percentage of the reasonable value of the service is still reimbursable.
In order to comply with California Labor Code Section 2802, employers have a couple of options available. California law permits employers to pay a “lump sum” for employee expenses, so long as the amount covers the actual work-related costs incurred. If an employer uses this method, employees must be allowed to challenge the amount of any lump-sum payment, and if the employee shows that the lump sum is inadequate, the employer must make up the difference. Alternatively, an employer can reimburse actual work-related expenses incurred, which likely would require submission of receipts or other proof of employee payments. While this alternative is probably more accurate than a lump-sum payment method, it also likely entails greater administrative costs.
Non-compliance with Labor Code Section 2802 exposes California employers to more than just the cost of reimbursement. A plaintiff may also sue for penalties under California’s Private Attorneys General Act (PAGA), which could result in amounts far greater than the actual cost of the expense, especially if the plaintiff sued on behalf of other “aggrieved” employees. A successful PAGA plaintiff would also be entitled to attorneys’ fees and costs.
As employers implement telework processes to keep operations going in the face of stay-at-home orders, they are encouraged to review their reimbursement policies and practices and update them if need be.
While much less onerous than Labor Code Section 2802 obligations, failure to reimburse employee expenses also can result in liability under the FLSA. Employers may not require employees to pay for business expenses if doing so reduces the employee’s earnings below the federal minimum wage or required overtime compensation. Violations could result in liability for the difference in the amount paid and the applicable minimum wage or overtime amount, as well as liquidated damages.
SHLC attorneys are available to be retained for private consultation and advice. You can also find information on other COVID-19 employment issues at the SHLC Coronavirus Pandemic Employer Resources page, at https://suttonhague.com/coronavirus/. For a schedule of our upcoming webinars, visit https://suttonhague.com/events. We also have downloadable webinars on this and related topics at our Calnevalaw.com website. Regarding any tax issues, including payroll taxes, employers are strongly advised to consult with a qualified tax CPA.