Outside salespersons are exempt from overtime and the minimum wage. This “outside salesperson” exemption is all the more reason why outside salespersons must depend on their employers to reimburse their mileage, travel, and other employment expenses. Fortunately, Labor Code section 2802 requires an employer to reimburse every employee, exempt or not, for any necessary and reasonable employment expenditures or losses that he “incurs.” But a recent Court of Appeal opinion on the issues of when an employee “incurs” cell phone expenses and how much his employer must reimburse has many outside salespersons reaching out and touching someone – an employment attorney.
Must an Employer Reimburse an Employee’s Cell Phone Expenses?
The use of a personal cell phone raises the question of when an employee “incurs” cell phone expenses. The plaintiff in Cochran v. Schwan’s Home Service, Inc., 228 Cal.App.4th 1137 (2015) brought a class action against his employer on behalf of 1,500 customer service managers for failure to reimburse them for their business use of their personal cell phones. The employer argued that some of the managers had unlimited data plans and thus didn’t “incur” additional employment expenses when they used their cell phones. Meanwhile, the plaintiff couldn’t have “incurred” expenses at all because his girlfriend paid his phone bill. The managers’ cases were thus too different from each other for a class action to be inappropriate.
The trial court agreed with the employer and denied the plaintiff’s motion for class certification. The Court of Appeal, however, reversed, holding that all customer service managers “incurred” personal cell phone expenses as soon as they used those phones to make work-related calls. The fact that an employee passed on those expenses to his service provider or even a girlfriend didn’t change the fact the employee incurred the expenses. Labor Code section 2802 thus required their employer to reimburse those expenses to the extent they were reasonable and necessary. The only question, then, was how much of those expenses their employer had to reimburse.
The Court in Cochran answered that question, too, holding that the employer only had to pay a “reasonable percentage” of an employee’s personal cell phone bill. But the Court didn’t elaborate about what percentage is “reasonable.” For guidance, courts might turn to Gattuso v. Harte-Hanks Shoppers, Inc., 42 Cal.4th 554 (2007). In Gattuso, the Court held that an employer didn’t have to reimburse the actual cost of an employee’s work-related use of his personal vehicle (e.g., gas, insurance, etc.), but could reimburse him by giving him a raise and/or making certain fixed payments (e.g., cash stipend, gas card, etc.). Employers could similarly reimburse an employee’s business use of his personal cell phone.
Cochran raises questions about the scope of an employer’s duty to reimburse. If an employer must reimburse an employee for the work-related use of his personal cell phone, the employer should also reimburse him for the work-related use of a personal tablet or laptop. That, in turn, could mean an employer must reimburse a “reasonable percentage” of the employee’s home internet and electricity bills. In fact, an employer who requires an employee to work from home might also have to reimburse a reasonable percentage of his rent or mortgage. That makes sense in light of the purpose of Section 2802: to ensure that “duty-related losses ultimately fall on the business enterprise, not on the individual employee.” ((Janken v. GM Hughes Electronics, 46 Cal.App.4th 55, 74, fn. 24 (1996).))
What Can an Employee Get If His Employer Fails to Reimburse His Cell Phone Expenses?
If an employer fails to reimburse an employee for any necessary and reasonable employment expenditures, the employee can sue for the amount owing and a mandatory award of reasonable attorney’s fees. ((Lab. Code §2802(b).)) Interest on the judgment will accrue from the date he incurred the expenses. ((Id.)) The employee has three years to sue his employer for a violation of 2802, though if he blows the statute of limitations for a Section 2802 claim, he’ll still have a year to sue for unfair competition under Business & Professions Code section 17200. ((Civ. Code §338(a), Bus. Prof. Code §17208.)) He’ll be able to recover the unreimbursed expenses as restitution on the theory that the employer’s failure to reimburse him amounts to unfair competition. ((Bernardo v. Planned Parenthood Federation of America, 115 Cal.App.4th 322, 351-352 (2004).))
Moreover, the employee can sue for civil penalties on behalf of the State of California under the Labor Code Private Attorney General Act (PAGA). The employer will owe civil penalties of $100 per aggrieved employee per pay period for the initial violation of Section 2802 and $200 per aggrieved employee per pay period for each subsequent violation. ((Lab. Code §2699(f)(2).)) Thus, an employer who fails to fully reimburse 10 outside salespersons for a year will owe civil penalties of $1,000 for the initial violation of section 2802 ($100 x 10 workers), but if he has 26 biweekly pay periods, the penalties will really ring off the hook: $50,000 for the subsequent violations ($200 x 10 workers x 25 pay periods).