Law360 (December 2, 2020, 1:02 PM EST) --
With employees working remotely, and incurring more personal costs for work tasks, there is an increased risk of wage and hour class actions, and representative actions under the Private Attorneys General Act, or PAGA, from remote employees claiming unreimbursed business expenses. California employers should consider a proactive approach to addressing this growing risk with managing remote workers.
Under California Labor Code Section 2802, employers are required to reimburse employees for all necessary expenditures incurred by the employee "in direct consequence of the discharge of his or her duties."
Courts have interpreted the purpose of Section 2802 is to ensure that employers provide employees with the tools, equipment and materials necessary to perform their jobs, and to ensure that employers absorb those expenses and not pass them on to their employees. The failure to indemnify employees for business expenses is subject to PAGA civil penalties of $100 per employee per pay period for an initial violation, and $200 per employee per pay period for each subsequent violation.
Before the pandemic, California employers could demonstrate that remote work arrangements were voluntary options provided to select employees who retained access to the employer's workspace and related equipment and supplies. Now, with continued stay-at-home orders from state and local governments, and company policies requiring remote work, working from home is mandatory for many, and thus related expenses on equipment and supplies for work will likely be deemed necessary.
California Labor Code Section 558.1 also provides that any person acting on behalf of an employer who violates Section 2802 may be held personally liable as the employer for such violations — especially an owner, director, officer or managing agent of the employer. Those individuals should consider establishing a process that closely manages expense reimbursements for remote workers. That process may include the following considerations.
1. Remote Work Agreements
Consider requiring individual, written, remote work agreements that include the following provisions about expenses.
Include a list of the specific business expenses that will be covered by the employer, and the specific reimbursement rates that apply with a study that benchmarks data to support the amount and frequency of the payment rates. Also include a list of expenses that are specifically not covered because they are not necessary for the discharge of the employee's duties.
If, for example, a flat rate is intended to cover all business expenses each month, then expressly include that language so that it is clear that other expenses will not be considered necessary or covered. But you may consider requiring employees to submit receipts of actual expenses incurred, or to complete detailed expense reports that include the date, amount, a description of the expense and the business purpose for the expense. Without such documentation, there may be risk of an IRS audit determining that the monthly amount is unrestricted cash that is taxable income.
When flat rate amounts apply — for example, a monthly reimbursement rate for personal use of smart phones for work purposes — also include a provision for employees to report additional expenses that may exceed the flat rate amounts allocated by the company.
Also include detailed instructions for employees on how to properly document and submit in a timely manner actual expenses incurred for reimbursement, and language that provides for discipline of employees for failing to follow the expense reimbursement policy, including the misrepresentation of actual expenses incurred.
Address whether some expenses must be preapproved and the timing of when the employer will pay the reimbursement.
Encourage employees to report any concerns or complaints about the reimbursement policy to a specific company representative who is the primary contact for such reports. Include a provision reminding employees that the company strictly prohibits retaliation against employees for making good faith complaints about the reimbursement policy.
And require employees to sign and date an acknowledgment form that they have received, read and understand the reimbursement policy, and that they know the specific company representative to contact with any questions or concerns.
Employers may also consider that California Labor Code Section 2804 makes null and void any agreements between an employer and employee to waive the employee's right to reimbursement under Section 2802. As such, employers should consider whether they can require employees to waive the right to reimbursement of necessary expenses because they failed to meet specific submission requirements in the policy that are unrelated to the requirements of Section 2802.
2. Employee and Manager Training
Provide training for remote employees to ensure that they understand the company's policy to reimburse them for reasonable and necessary expenses incurred to discharge their duties. The training should provide clarity on which expenses are covered, what constitutes adequate documentation of expenses incurred, as well as proper reporting of such expenses to the company for reimbursement.
Creating a record that the company made a concerted effort to train its employees regarding their rights and obligations about expense reimbursements can be an important aspect of defending against class and representative claims for expense reimbursements.
Employers may also want to consider training for managers of remote employees to ensure that they understand the company's policy to reimburse reasonable and necessary expenses, and know how to handle related requests and complaints.
3. Attestation Surveys
Consider adopting a process where employees regularly provide an attestation — perhaps monthly or quarterly — that they have submitted all business expenses incurred for that period of time, and have been reimbursed for all such expenses. The attestation process should also permit employees to report that they have not submitted all expenses incurred, or have not been reimbursed for all expenses submitted, so that the company can audit those responses and resolve them promptly.
The attestation survey should also enable employees to acknowledge their understanding of the company's policy prohibiting retaliation for complaints related to expense reimbursements, and that the company is relying on the accuracy and honesty of the information contained in the attestation.
Consider, for example, a plaintiff who claims that she was regularly denied expense reimbursements. During the deposition, she admits that when she first started to work remotely, she read, signed, understood and complied with the expense reimbursement policy.
She must also admit that each month or quarter she confirmed in writing that she submitted all expenses and that she was notified to immediately report any reimbursement concerns to human resources. She also admits that she was assured through the attestation process that she will not be retaliated against for complaints about expenses not being reimbursed, and that the company relied on her truthful responses in the attestation.
It would be difficult for the employee to show that the company somehow failed to exercise reasonable diligence to facilitate the submission of all necessary expenses, to reimburse them or to resolve related complaints.
With these proactive steps, companies can develop critical evidence needed to defend class certification, or PAGA manageability, years before an action is filed on expense reimbursements.
Michael J. Nader is a shareholder at Ogletree Deakins Nash Smoak & Stewart PC.
The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.
For a reprint of this article, please contact firstname.lastname@example.org.