In response to “stay-at-home” orders issued by Governor Gavin Newsom and various California municipalities to prevent the further spread of the coronavirus (SARS-CoV-2) employers have been asking or requiring employees to work from home. In this regard, there may be uncertainty about whether employers are required to reimburse employees for expenses incurred to perform remote work. It can sometimes be difficult to determine which expenses, if any, employers must reimburse, and the amount of such reimbursements. Must an employer reimburse remote workers for all cell phone usage since supervisors are calling employees at home? What about printer ink costs? How about internet service?
As more employees work from home during the pandemic, expense reimbursement issues may arise and, potentially, evolve into claims underpinning Private Attorneys General Act (PAGA) lawsuits and/or class actions. The penalties for failing to properly reimburse employees for their necessary business expenses can be steep, as employees can be awarded reimbursement costs, PAGA penalties, and attorneys’ fees if they are successful.
This article provides employers with analysis and tips related to expense reimbursement of remote workers in California.
An Employer’s Duty to Reimburse
Under California Labor Code Section 2802 and court decisions in Gattuso v. Harte-Hanks Shoppers, Inc., 42 Cal.4th 554 (2007) and Cochran v. Schwan’s Home Service, Inc., 228 Cal.App.4th 1137 (2014), employers are required to reimburse employees for all “necessary” and “reasonable” expenses. California Labor Code Section 2802 provides as follows:
(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.
(b) 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.
The underlying assumption of Labor Code Section 2802, Cochran, and Gattuso is that an employer provides employees with the equipment and resources necessary for employees to perform their jobs. Section 2802 operates to prevent an employer from passing its operating expenses to employees.
Types of Expenses
The Cochran case expressly extended the expense reimbursement requirement to cover personal cell phone usage where the employer does not otherwise provide the equipment and/or a cellular plan. Whether a California court would extend the Cochran holding to internet plans where the employer does not provide a “hot spot” or to other expenses related to working from home remains to be seen. With respect to personal computer and printer usage, if the employee were required to use personal devices for work, reimbursement for the normal “wear and tear” on the personal equipment could be required.
Only “necessary” expenses that employees incur must be reimbursed; expenses that are incurred voluntarily need not be reimbursed by the employer. For example, if an employee is neither required nor encouraged to work at home, the employer is not required to provide reimbursement for any expenses incurred by the employee.
Where the employer does not provide adequate equipment but expects the employee to work from home, the employer may be obligated to provide equipment (e.g., computer hardware and peripherals) or provide reimbursement for the equipment. However, if the employee wants to upgrade equipment solely for the sake of convenience (e.g., get a bigger monitor, a wireless mouse, or a newer computer or phone), the employer would not have to reimburse for the upgrades because they are not “necessary” for the employee to perform his or her work.
The cost of office supplies such as pens, pads, lamps, and furniture are not reimbursable unless the employer requires the use of specific types of supplies. However, printer ink and printer paper costs may be reimbursable when paperless work is not possible. Employee expenses related to the costs of teleconferencing software and applications may be reimbursable if the employer has instituted specific requirements for teleconferencing. If the employee is free to choose from among different teleconferencing software or applications—there are numerous free software and application programs available—reimbursement would not be necessary. Finally, the costs of postage, mail delivery, and messengers are not reimbursable except when required if a reasonable alternative (such as scanning, faxing, and email) does not exist.
Determining the appropriate amount for a reasonable reimbursement is another issue. The Cochran court held that when an employee must use a personal cell phone for work purposes, the employer must provide reimbursement for a “reasonable percentage of [the] cell phone bills.” In theory, depending on the circumstances, an argument regarding the reasonable rate of reimbursement for expenses related to employee use of internet services, personal computers, or printers could be made. To the extent employers are requiring employees to clock in/out using a cellphone app on their personal cellphones, reimbursement of a portion of the employee’s cellphone expense may be required.
In the face of the swift and dramatic changes to business operations caused by the pandemic, many employers transitioned some or almost all of their employees to working at home literally overnight. Making sure the employees had the technology to make the transition seamless was an initial priority. However, as the state and local stay-at-home orders have been extended into May, employers may want to review their expense reimbursement policies to ensure that they are not leaving themselves vulnerable to claims and litigation later.