Are you being reimbursed for using your cell phone and Internet at home while Telecommuting?
by Jennifer A. Grady, Esq. (revised May 20, 2020)
Since January 1, 2016, California employers must reimburse employees for use of their personal cell phones for mandatory business purposes. (Cochran v. Schwan’s Home Service, Inc). This ruling affects millions of employers who must update their company policies in order to stay compliant with the new law. This topic has become especially relevant now that employees have been thrust into a remote-work arrangement due to COVID-19, and are forced to use their own devices, equipment, and utilities. Labor Code 2802, the statute that governs this topic, may also apply to other expenses incurred within the scope of the job, such as Internet connection, office equipment, and utilities.
What does this mean for employers?
According to Cochran, California employers must indemnify employees 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.” Unfortunately, even years after this case was decided, the exact measure of reimbursement is still somewhat unclear. While the court in Cochran determined that employers must consistently reimburse employees a “reasonable percentage,” it did not define what is reasonable. Furthermore, the employer must reimburse the employee even if the employee does not incur any additional expense on his or her cell phone/data plan as the result of using the device for work-related purposes (i.e. if the client has unlimited talk, text, and data plans).
This law is now reflected in California Labor Code section 2082:
“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.”
Plaintiffs bringing a claim for their employer’s failure to reimburse their expenses will also be entitled to recover attorney’s fees and costs for bringing an action against their employer.
Employers: be sure to show employee cell phone and expense reimbursement on employee wage statements/pay stubs.
Examples of Reimbursement Policies
The California law rules out implementing a simple flat rate, or a maximum amount of work-related cell phone expenses. That means employers must consider adopting new reimbursement policies to ensure that they remain compliant with California laws.
For example: An employee is a salesperson in the field and uses a cell phone for business-related purposes. The employer has several options to remain compliant with the reimbursement law:
Pay the employee’s entire cell phone bill;
Pay a “reasonable” portion of the cell phone bill as determined by the employee’s submitted phone bill and itemized call/data use;
Pay a flat rate that is a reasonable estimate of charges. In the event that charges exceed the flat rate, allow the employee to submit charges for reimbursement.
What if an employee has an unlimited amount of minutes, texting, and data in their cell phone plan?
Even if an employee has a personal cell phone plan with unlimited minutes, or otherwise did not incur any special or extra expense for work-related purposes, the employer is still liable for the business related phone charges. This is because the court’s reasoning focused on the benefit to the employer instead of the actual expense to the employee. The employer would otherwise be passing its operating expenses onto the employee, and receive a windfall.
The Cochran Court’s Analysis
The California Court of Appeals Cochran court made it very clear that employers shall not receive a windfall:
“If an employee is required to make work-related calls on a personal cell phone, then he or she is incurring an expense for purposes of [California Labor Code] section 2802. It does not matter whether the phone bill is paid for by a third person, or at all. In other words, it is no concern to the employer that the employee may pass on the expense to a family member or friend, or to a carrier that has to then write off a loss. It is irrelevant whether the employee changed plans to accommodate worked-related cell phone usage.
Also, the details of the employee’s cell phone plan do not factor into the liability analysis. Not only does our interpretation prevent employers from passing on operating expenses, it also prevents them from digging into the private lives of their employees to unearth how they handle their finances vis-à-vis family, friends and creditors.”
To show liability under section 2802, an employee need only show that he or she was required to use a personal cell phone to make work-related calls, and he or she was not reimbursed.
What About Other Expenses, Like Electricity, Internet, and Land-lines?
As a result of COVID-19, more employees than ever are telecommuting and working from home. They may now be using more electricity that they would have if they were working in the office, or had to upgrade their Internet services so that they are high-speed. They may have had to purchase home office equipment in order to perform their jobs. Since Labor Code section 2802 requires reimbursement of “all necessary expenditures or losses incurred by the employee in direct consequence of the discharge of his or her duties,” this could conceivably cover other costs besides cell phone usage.
It is important to develop a company policy that will outline which expenses are reimbursable, and how employees can submit expense reports to the company. For example, if an employee is working 40 hours per week out of a 168 hour week, you could consider reimbursing for about 25% of their bills that qualify as reimbursable expenses. Of course, if the employee uses this equipment for more time than that agreed-upon, be flexible and reimburse for that extra amount. It’s a better practice to pay additional amounts for reimbursement that to defend the cost of a lawsuit for non-compliance with the Labor Code.
If an employee were to work only 20 hours per week, the reimbursement could be more along the lines of 12%. This would be similar to an “accountable plan” in accounting principles for business owner reimbursements.
What Would a Legal Claim Look Like?
An employee may make a claim for expenses that were not reimbursed through a demand letter, lawsuit, or labor claim. As an example, say that since the law was enacted on January 1, 2016, an employee used his cell phone on the job to answer emails, make phone calls, and check on status orders. He used his cell phone 75% of the time for work purposes. If his cell phone bill on average was $120.00-130.00 per month (average $125.00), at 75%, that would be $93.75 per month for 22 months. The employee would therefore entitled to $2,062.50, plus interest and attorney’s fees, for failure to provide this reimbursement over that period of time. However, if the employee used his cell phone at work only 10% of the time, the reimbursement would be $275.00 ($125 x 10% x 22 months).
This small amount per month can now balloon to tens of thousands of dollars by the time you pay attorney’s fees and penalties to defend a lawsuit or labor claim. In addition, employees may band together to bring a class action lawsuit, which will exponentially increase the amount of damages.