A Refresher on California Reimbursement Requirements in a COVID-19 World

May 1, 2020

California Labor Code Section 2802 requires employers to reimburse California employees for “all necessary business expenditures or losses incurred by the employee in direct consequence of the discharge of his or her duties.”
 

Imagine it is one week after the “shelter-in-place” order was lifted and, after weeks of working from home, you plop into your office chair to discover a folder on your desk titled “Requests for Reimbursements.” You leaf through the contents. You see cellphone bills, an Amazon receipt for a $750 printer, a receipt for a 50-inch television, and a screenshot of a Venmo request from a name you’ve never seen. What are your obligations as an employer?

 

California Labor Code Section 2802 requires employers to reimburse California employees for “all necessary business expenditures or losses incurred by the employee in direct consequence of the discharge of his or her duties.” Its purpose is to prevent employers from passing their operating expenses to employees. Previously, because working remotely was not required, many employers could decline “work from home” reimbursements as the employee chose to work remotely. However, COVID-19 and the resulting shelter-in-place orders have required many employees to work remotely. To determine whether (and what) the employer is obligated to pay, there are a few things to consider:

  • Who is submitting the receipt?

The Labor Code only applies to employees. Thus, if the employee’s roommate demands payment for an increased electric bill, the employer could decline: the roommate is not the employee. If, however, the employee demands payment for the increased electric bill they share with their roommate, the employer may have an obligation to pay. Note, too, that the definition of “employee” in California fits in a widely cast net. Under California’s new AB5 regime, many independent contractors may be deemed employees.

  • What is the receipt?

At minimum, the employee should document the purchase date, the item purchased, the amount, and that they purchased the item. Reimbursement requests can take many forms. Perhaps the employee’s roommate receives the electric bill and then requests a pro-rata share via Venmo. Do not dismiss a reimbursement request merely because it comes in an unusual form.

  • What is the receipt for?

Is it a work-related expense? An employer can likely decline a request to pay for an employee’s dog food. However, some usual or seemingly extravagant requests may require more thoughtful analysis. An employer can likely decline a request for a 50-inch television submitted because the employee misses watching sports in the break room. If, however, that same employee regularly used a large television to run business simulations and the employer expected those simulations to continue while the employee worked remotely, the request might not be so far-fetched.

  • Is the reimbursement request necessary and reasonable?

Section 2802 only requires reimbursement of necessary and reasonable expenses incurred by the employee as a condition of continued employment. What constitutes necessary and reasonable will depend on multiple factors, including the employee’s job responsibilities (on paper and in practice), performance expectations while working remotely, and the actual costs incurred.

 

If the employer switches to Zoom video conferences and requires employees to upgrade to a premium account (which charges a fee), the premium account fee would be reimbursable under Section 2802. Employers cannot pass their operating costs to their employees. If that same employee, however, purchased a desktop before being required to work remotely, she likely cannot submit a reimbursement for the desktop’s cost simply because she must use it for work. They could, however, submit reimbursements for work-specific programs they were required to install to fulfill their job duties.

 

What about an accountant demanding a printer? The accountant may need a printer, but not the same $750 printer used by the marketing director to print prospective client handouts. Similarly, remote employees will need devices to work from—a laptop, desktop, iPad, etc. While most employees could work—if not comfortably—from a laptop, there are certain employees who may require more. Convenience, by itself, is insufficient to trigger a reimbursement obligation. Be careful, though, about delving too deeply into the “reasonableness” of a particular necessary item. While a court ultimately may agree the amount was unreasonable, the language of Section 2802 requires reimbursement of all necessary expenses. That an item was “unreasonable” will not destroy the employee’s Section 2802 claim for a “necessary” expense; it will merely reduce the amount of their recovery.

  • How much should the employer reimburse?

Items like a keyboard are fairly easy to calculate. But, what about expenses that an employee would incur irrespective of whether they work remotely? If the employee’s electric bill increased because they are now working from home, is that reimbursable? Technically and conservatively, yes. However, an employer should only be responsible for a reasonable percentage of that bill.  The same rationale applies to a personal cell phone or internet—if an employee must now use their personal cellphone or home internet for work (having no employer-paid alternative), a conservative approach would be to reimburse a reasonable percentage of the bill. However, courts would likely draw the line at reimbursement of fixed expenses, such as the cable bill, as there was no “loss” to the employee as a condition of continued employment simply because the employee worked remotely.

  • Can the employer keep the item?

Can the employer recover the hypothetical 50-inch television? Technically, yes. Practically, however, it may be difficult to retrieve company property from an individual’s home absent legal intervention or prior agreement. Reimbursement policies should require advance written authorization for purchases over a certain amount. For something like the television, the employer should condition advance approval on the employee’s agreement to return the item upon the sooner of the employer’s demand or termination of employment.

  • Is there a cut-off date to submit reimbursements?

Generally, an employee may seek reimbursement of a necessary business expense within three years of the expense. However, to lessen the risk of belated claims, employers should identify a deadline to submit reimbursements (i.e., 30 days after incurring the cost) in a written reimbursement policy. But, if a reimbursement request is submitted after that date (but before the expiration of the three years), the best practice is to accept the submission. Make sure the reimbursement is timely to avoid falling afoul of other wage and hour laws. Best practice is to provide reimbursement within the next pay period following submission.

  • What are the consequences for failing to pay?

The failure to comply with Section 2802 exposes employers to individual or class litigation, PAGA claims (and related penalties),10% statutory interest, and payment of the employees’ attorney fees, in addition to the amount that should have been reimbursed.

  • What can I do to control the anticipated reimbursements?

It is not too late to take control of reimbursements. Communication with employees is critical: send reminders about expense reimbursement processes (or establish/communicate a process), ensure reimbursement policies require advance approval over a specific amount, review job descriptions to anticipate likely reimbursements, check with employees regarding devices they may need (or already have), and identify someone to field employee questions. For any expenses that the employer does not fully reimburse, be prepared to substantiate the reasonableness of the reimbursement.

 

Finally, employers cannot contract around their Section 2802 reimbursement obligations. Therefore, do not rely on policies or agreements that waive the employee’s right to reimbursement.

 

via Law.com

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