California Expense Reimbursement Law–Labor Code 2802
California Expense Reimbursement Laws
This page addresses in general terms California’s Employment Expense Reimbursement Laws: Labor Code, section 2802 and the Industrial Welfare Commission Wage Orders.
California Policy Regarding Expense Reimbursement
It is the policy of the state of California that employers cannot expect employees to carry the cost of doing business. These costs include mileage, client/customer entertainment and gifts, cell phone expenses, certain uniform expenses, and so on. As stated in Labor Code, section 2802, employers must reimburse employees for all reasonable and necessary expenses:
Labor Code, section 2802, subdivision (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.”
Labor Code, section 2802 also allows employees to collect interest (Labor Code, section 2802, subdivision (b)), and entitles employees to recover their litigation costs and attorneys’ fees. (Labor Code, section 2802, subdivision (c)).
California Expense Reimbursement Law Does Not Allow Employees to Waive Their Rights
California Labor Code, Section 2804, states that any agreement, implicit or explicit, to waive an employee’s right to full reimbursement for expenses is unlawful and not enforceable. Thus, employer policies that waive an employee’s right to expenses after a certain deadline are not enforceable. By law, employees are entitled to reimbursement for up to four (4) years from the date the expense is incurred.
What does this mean to employers and employees? It’s simple: employers must reimburse employees for all expenses reasonably and necessarily related to work. If the employer requires the employee to drive, such as a courier driver, an outside sales person, the employer must cover the employee’s mileage. If the employer requires the employee to have a cell phone and make calls on that phone, the employer must cover the cost of the business related calls (private calls are not eligible for reimbursement). If the employer requires the employee to have a home office, the employer must cover certain expenses reasonably and necessarily related to that office. The part that is not so simple, however, is how the employer calculates the employee’s reimbursement amount and how the reimbursement is paid.
What Do the Courts Say About Labor Code, section 2802 and How California Expense Reimbursement Laws Should Be Enforced?
What do they say? For the most part, they say surprising little. California’s Labor Code, section 2802 has been on the books for decades. But very few employment attorneys have presented appellate courts with issues related to Labor Code, section 2802 and California Expense Reimbursement. Thus, employment attorneys have had relatively little guidance from the courts on how Labor Code, section 2802 should be interpreted.
But several cases do shed light on appropriate expense reimbursement practices. The primary case is Gattuso v. Harte-Hanks Shoppers, LLC, in which the California Supreme Court outlined the employer’s obligation with regard to California’s Expense Reimbursement Laws. The California Supreme Court confirmed that employers must reimburse employees for all necessary and reasonable expenses. But more importantly, the Supreme Court recognized several methods may be used to reimburse employees properly.
The Department of Labor Standards Enforcements’ Position on California Employment Expense Reimbursement Laws
The Department of Labor Standards Enforcements (DLSE) is chartered with enforcing California’s employment laws. Employment attorneys frequently seek guidance from the DLSE on certain employment policies. In response, the DLSE may issue “opinion letters” detailing the DLSE’s position regarding the law and the facts put forth to them. The DLSE has issued approximately 6 opinion letters regarding California’s expense reimbursement laws.
Aside from DLSE opinion letters, the DLSE also published a manual, entitled the Department of Labor Standards Enforcements Manual. This manual also sets forth the DLSE’s position regarding California’s expense reimbursement laws, including Labor Code, section 2802. The Manual is not binding legal authority. But it does offer significant information with respect to how the DLSE approaches California’s expense reimbursement laws, even including several factual scenarios.
In 2007, the DLSE proposed changes to clarify Labor Code, section 2802. Those changes can be viewed here: http://www.dir.ca.gov/dlse/2802Regs.htm.
Efforts to Change the Law
There are no bills pending in the California Senate or House of Representatives to change Labor Code, section 2802 or Labor Code, section 2804. The California Chamber of Commerce and other large business interests have repeatedly sought to change the law to relieve businesses of their obligations.