We Have To Pay For What? A California Court Of Appeal Issues Expansive Expense Reimbursement Ruling

A California Court of Appeal recently issued a short decision in Cochran v. Schwan's Home Services, Inc., B247160 (Aug. 12, 2014) that took an expansive view of an employer's obligation to reimburse employees for business expenses. In light of this decision, employers should conduct a careful and wide-ranging review of their reimbursement policies and take a hard look at what actually happens "in the field."

The plaintiff, who worked as a customer service manager, sued his employer to recover expenses for the work-related use of his personal cell phone. The plaintiff asked the court to certify his case as a class action. The trial judge denied class certification on the ground that individualized inquiries about the class members' cell phone plans would overwhelm common issues. In effect, the trial court determined that no "expense" was incurred, and no reimbursement owed, unless the employee had to pay something out of pocket, above and beyond the expense to maintain the cell phone for personal use. The appellate court disagreed, finding that an employer is obligated to reimburse an "expense," even if the employee has incurred no additional cost associated with the business use of the phone. Because this error was the basis for the trial court's decision to deny certification, the court reversed that decision and sent the case back to the trial court.

The Obligation to Reimburse Business Expenses

California Labor Code section 2802 obligates employers to reimburse employees for "all necessary expenditures or losses incurred by the employee in direct consequence of the discharge of his or her duties, ..." The Cochran decision posed, and answered, the "threshold question" presented on appeal as follows:

Does an employer always have to reimburse an employee for the reasonable expense of the mandatory use of a personal cell phone, or is the reimbursement obligation limited to the situation in which the employee incurred an extra expense that he or she would not have otherwise incurred absent the job? The answer is that reimbursement is always required. Otherwise the employer would receive a windfall because it would be passing its operating expenses onto the employee.

Based on this interpretation of section 2802, the Cochran court found the trial court erred when it determined that the obligation to reimburse would depend on1 whether the employee had a plan allowing unlimited use; and2 whether the employee or a family member paid the bill...