Under California Labor Code section 2802, employers must reimburse California employees for reasonable and mandatory business expenses incurred while carrying out job duties.  The law seeks to prevent employers from unfairly passing operational expenses onto employees.  Thus, employers must adequately reimburse employees.  However, Labor Code section 2802 does not state how employers must provide reimbursement.  Are employees able to reimburse California employees through increased base pay, or must reimbursement be a separate reimbursement?   As is a frequent practice, the legislature left this question for future examination by the judiciary.

In Gattuso v. Harte-Hanks Shoppers, Inc., 42 Cal. 4th 554 (2007), the California Court of Appeal determined that California employees may receive reimbursement under Labor Code section 2802 as a separate reimbursement or through enhanced compensation.  This article examines California employee reimbursement methods that satisfy California Labor Code section 2802.

California Labor Code § 2802: California Employees Entitled to Reimbursement

California Labor Code section 2802 requires employers to reimburse California employees, “for all necessary expenditures or losses incurred by the employee” while completing work duties.  California Labor Code § 2802.  Necessary expenditures or losses include all reasonable costs.  Id.  Typically, California employees are entitled to reasonable reimbursement for mandatory business expenses such as, traveling for work in a personal vehicle, using a personal cell phone for calls, email, or messaging, using a personal computer for work, using personal utilities, including personal internet, while working from home, and purchasing tools and inventory for the employer.

To prevail on a failure to reimburse claim, California employees must show: 1. They incurred necessary expenditures; 2. While discharging their job duties; 3. The employer knew or had reason to know of the expenditures; and, 4. The employer did not exercise due diligence towards reimbursement.  Cochran v. Schwan’s Home Services, Inc., 228 Cal. App. 4th 1137 (2014).  Where an employer fails to reimburse a California employee for mandatory business expenses, the employee has a claim for damages.

Reimbursement Methods Under California Labor Code § 2802

Employers that follow California Labor Code section 2802 must promptly reimburse California employees for mandatory business expenses.  Employers may reimburse employees in several ways.  One common reimbursement method is to provide the California employee separate reimbursements for actual expenses.  Alternatively, the employer may reimburse paying enhanced compensation.  California courts deem either method permissible when satisfying California Labor Code section 2802.

In Gattuso, the California Court of Appeal concluded that California employers could satisfy their California Labor Code section 2802 reimbursement obligations through separate reimbursements, or paying California employees enhanced compensation.  Gattuso v. Harte-Hanks Shoppers, Inc., 42 Cal. 4th 554, 559 (2007).  The Court held that enhanced compensation could take the form of increased base salary, increased commission rates, or both.  Id.  Where a California employee receives enhanced compensation reimbursements, the employer must utilize an apportionment method delineating between compensation for labor and reimbursement for business expenses.  Id.  Additionally, the reimbursement amount must reimburse the California employee for all expenses incurred.  Gattuso at p. 575.  Where an employer offering enhanced compensation for reimbursement fails to satisfy the above-mentioned requirements, the California employee has a legal claim.

California Employee Tax Consequences Included in Reimbursement Analysis

While the Gattuso Court stated that potential adverse tax consequences on the employee did not affect an employer’s method of reimbursement decision, the tax consequences resulting from the employers’ choice of reimbursement must be considered in determining whether the payment provides a sufficient reimbursement.  Gattuso at p. 571.

Enhanced Compensation Reimbursements Must Be Separately Identified on California Employee Wage Statements

Although not expressly required, California employees receiving enhanced compensation for reimbursements should receive wage statements that separately identify the reimbursement amounts. Where a wage statement containing enhanced compensation fails to include this, the California employee may have an inaccurate wage statement claim under California Labor Code section 226(a).

California Employees May Not Received Sufficient Reimbursement Under Commission-Based Enhanced Reimbursement

When a California employee receives commission-based enhanced compensation, the employer chooses to link expense reimbursement with employee performance.  Here, the employer risks that an employee could earn less commission income than anticipated, and have the effect of failing to provide sufficient reimbursement for total expenses incurred.  Under such circumstances, the employer must make up the difference. Otherwise, the California employee has a claim under California Labor Code section 2802.

California Employees May Recover Damages for Employer’s Failure to Reimburse 

A California employee forced to use personal property for mandatory business-related activities is entitled to reimbursement.  Where the employer fails to provide reimbursement, the employee may recover the amount owed, interest, and attorney fees incurred by the employee enforcing their right to reimbursement.  California Labor Code § 2802.

Astanehe Law Knows Employee Rights

Astanehe Law has experience handling California failure to reimburse claims.  Michael Astanehe has recovered millions on behalf of Californians.  If your employer has failed to reimburse you for mandatory business expenses, contact Astanehe Law.  Our California employment law attorneys can discuss your options with you and help you learn your rights.  Contact Astanehe Law to discuss your options with an experienced California employment law attorney.