This note covers employee expense reimbursement in California. It addresses work costs, personal phones, agreements, and recovery of unpaid expenses. See the expense reimbursement practice guide.
Must an employer in California reimburse employee business expenses?
California employers must reimburse employees for all necessary expenditures or losses directly caused by their work duties or employer directions. Section 2802(a) does not make prior authorization a condition of that duty.
Sources for this answer
California Labor Code § 2802(a) requires an employer to cover necessary expenditures or losses directly caused by employee duties or employer directions.
(a) An 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, even though unlawful, unless the employee, at the time of obeying the directions, believed them to be unlawful.
See Cal. Lab. Code § 2802(a)
Which business expenses must a California employer reimburse?
California employers must cover necessary expenditures or losses directly caused by employee duties or employer directions. The statute defines those expenditures to include reasonable costs, including attorney’s fees incurred to enforce the right. An expense outside the duty's necessity and direct-consequence terms does not meet the statutory test.
Sources for this answer
California Labor Code § 2802(a) covers necessary expenditures or losses directly caused by employee duties or employer directions.
(a) An 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, even though unlawful, unless the employee, at the time of obeying the directions, believed them to be unlawful.
See Cal. Lab. Code § 2802(a)
California Labor Code § 2802(c) includes reasonable enforcement costs and attorney’s fees within necessary expenditures or losses.
(c) For purposes of this section, the term “necessary expenditures or losses” shall include all reasonable costs, including, but not limited to, attorney’s fees incurred by the employee enforcing the rights granted by this section.
See Cal. Lab. Code § 2802(c)
Must a California employer reimburse remote-work costs such as home internet or a personal phone?
A California employer that requires an employee to make work calls on a personal cell phone must reimburse a reasonable percentage of the phone bill. On a touch screen, a tap shows all 2 sources in this group. In Cochran v. Schwan's Home Service, Inc. , the court treated it as irrelevant whether the employee changed phone plans to accommodate the work calls. Section 2802(a) does not name a device or a place of work, so its test of necessary expenditures in direct consequence of job duties also governs other remote-work costs, such as home internet.
Sources for this answer
Cochran v. Schwan's Home Service, Inc. holds that an employee required to make work-related calls on a personal cell phone incurs an expense under California Labor Code § 2802.
If an employee is required to make work-related calls on a personal cell phone, then he or she is incurring an expense for purposes of section 2802.
See Cochran v. Schwan's Home Service, Inc., 228 Cal. App. 4th 1137 (2014).
Cochran v. Schwan's Home Service, Inc. holds that, to comply with California Labor Code § 2802, the employer must pay some reasonable percentage of the employee's cell phone bill.
Thus, to be in compliance with section 2802, the employer must pay some reasonable percentage of the employee’s cell phone bill.
See Cochran v. Schwan's Home Service, Inc., 228 Cal. App. 4th 1137 (2014).
Cochran v. Schwan's Home Service, Inc. holds that it is irrelevant under California Labor Code § 2802 whether the employee changed phone plans to accommodate work-related use.
It is irrelevant whether the employee changed plans to accommodate worked-related cell phone usage.
See Cochran v. Schwan's Home Service, Inc., 228 Cal. App. 4th 1137 (2014).
California Labor Code § 2802(a) covers necessary work expenditures without specifying a device or location.
(a) An 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, even though unlawful, unless the employee, at the time of obeying the directions, believed them to be unlawful.
See Cal. Lab. Code § 2802(a)
Can an offer letter or expense policy in California make the employee bear business expenses?
Under Labor Code § 2804, a contract or agreement, express or implied, in which a California employee waives the reimbursement rights in § 2802 is null and void, so an offer letter cannot shift necessary business expenses to the employee. Gattuso v. Harte-Hanks Shoppers, Inc. permits an employer to reimburse through increased salary or commissions if the reimbursement portion can be identified. An agreed lump sum still must fully reimburse necessary expenses.
Sources for this answer
California Labor Code § 2804 voids an employee agreement waiving the benefits of the statutory article.
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, and this article shall not deprive any employee or his personal representative of any right or remedy to which he is entitled under the laws of this State.
See Cal. Lab. Code § 2804
Gattuso v. Harte-Hanks Shoppers, Inc. holds that a California employer may satisfy its reimbursement obligation through increased base salary or commission rates if there is a method to apportion the reimbursement portion from pay for labor.
We conclude that an employer may satisfy its statutory reimbursement obligation by paying employees enhanced compensation in the form of increases in base salary or increases in commission rates, or both, provided there is a means or method to apportion the enhanced compensation to determine what amount is being paid for labor performed and what amount is reimbursement for business expenses.
See Gattuso v. Harte-Hanks Shoppers, Inc., 42 Cal. 4th 554 (2007).
Gattuso v. Harte-Hanks Shoppers, Inc. holds that, under California Labor Code § 2804, an agreement on a lump-sum reimbursement payment does not relieve the employer of the obligation to pay full reimbursement.
But, under section 2804, the existence of an agreement between an employer or employee regarding a lump-sum reimbursement payment would not relieve the employer of the statutory obligation to pay full reimbursement, nor would it bar an employee challenge to a lump-sum payment as being insufficient under section 2802 to provide full reimbursement.
See Gattuso v. Harte-Hanks Shoppers, Inc., 42 Cal. 4th 554 (2007).
What happens in California if an employer does not reimburse expenses?
California reimbursement awards carry interest from the date the employee incurred the necessary expense or loss. Necessary expenditures or losses also include reasonable enforcement costs, including attorney’s fees. The cited provisions do not set a reimbursement deadline.
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California Labor Code § 2802(b) attaches judgment-rate interest to reimbursement awards from the date of the expense or loss.
(b) All awards made by a court or by the Division of Labor Standards Enforcement for reimbursement of necessary expenditures under this section shall carry interest at the same rate as judgments in civil actions. Interest shall accrue from the date on which the employee incurred the necessary expenditure or loss.
See Cal. Lab. Code § 2802(b)
California Labor Code § 2802(c) includes reasonable enforcement costs and attorney’s fees within necessary expenditures or losses.
(c) For purposes of this section, the term “necessary expenditures or losses” shall include all reasonable costs, including, but not limited to, attorney’s fees incurred by the employee enforcing the rights granted by this section.
See Cal. Lab. Code § 2802(c)
How does federal minimum-wage law limit unreimbursed expenses in California?
Under 29 C.F.R. § 531.35, an employer that requires an employee to supply tools of the trade for the job violates the Fair Labor Standards Act in any workweek in which the employee's cost cuts into the minimum or overtime wages due. The regulation rests on the rule that wages count as paid only when they are paid free and clear, with no kick-back to the employer. On a touch screen, a tap shows all 2 sources in this group.
The federal rule is a floor, not a general duty to reimburse. It is breached only when an employer-required cost pushes the week's pay below the minimum or overtime wages due.
Sources for this answer
29 C.F.R. § 531.35 states that when an employer requires an employee to provide tools of the trade for the employer's work, the Fair Labor Standards Act is violated in any workweek in which the employee's cost of those tools cuts into the minimum or overtime wages required under the Act.
For example, if it is a requirement of the employer that the employee must provide tools of the trade which will be used in or are specifically required for the performance of the employer's particular work, there would be a violation of the Act in any workweek when the cost of such tools purchased by the employee cuts into the minimum or overtime wages required to be paid him under the Act.
See 29 C.F.R. § 531.35
29 C.F.R. § 531.35 states that wages are not considered paid unless they are paid finally and unconditionally, or free and clear.
Whether in cash or in facilities, “wages” cannot be considered to have been paid by the employer and received by the employee unless they are paid finally and unconditionally or “free and clear.”
See 29 C.F.R. § 531.35
29 C.F.R. § 531.35 states that the Fair Labor Standards Act's wage requirements are not met when an employee kicks back all or part of the wage to the employer or to another person for the employer's benefit.
The wage requirements of the Act will not be met where the employee “kicks-back” directly or indirectly to the employer or to another person for the employer's benefit the whole or part of the wage delivered to the employee.
See 29 C.F.R. § 531.35