Cal-Peculiarities: How California Employment Law is Different 2022 Edition

©2022 Seyfarth Shaw LLP  www.seyfarth.com 2022 Cal-Peculiarities | 233 7.13 Indemnification of Employee Expenses Under Labor Code section 2802, California employers must indemnify employees for money that they necessarily expend or lose in direct consequence of discharging their duties or as a result of following their employer’s direction . 329 A n employee who successfully sues the employer for indemnification is entitled to reasonable attorney fees and costs . 330 A prevailing employee also would be entitled to interest on an award, at the rate applicable in civil actions, from the date on which the employee incurred the necessary expenditure or loss . 331 Although in effect since 1937, Section 2802 traditionally was simply a means to obtain employer “indemnification” only in the narrow sense of the word: “to reimburse (another) for a loss suffered because of a third party’s act or default. ” 332 Examples of these cases are noted below (see § 7.13.1, 7.13.2). More recently, however, employees have invoked Section 2802 to seek indemnification for other kinds of employee expenses (see § 7.13.3). 7.13.1 Indemnification for payment of attorney fees California employers must indemnify employees for the attorney fees they incur in defending suits filed by a third party for liability arising out of the employees’ employment. For example, an employee who successfully defended an action for co-worker sexual harassment was entitled to indemnification from the employer for fees and costs incurred in defending the action . 333 7.13.2 Indemnification for value of stolen tools An employer who requires employees to leave the employee’s personal tools on the employer’s premises must indemnify an employee for tools that are stolen from the premise s. 334 7.13.3 Indemnification for routine business expenses Although judicial decisions interpreting Section 2802 typically have addressed circumstances in which an employee seeks indemnification for lost or damaged tools or equipment, or for the legal expenses incurred to defend a lawsuit arising out of the employee’s job duties, the DLSE has interpreted Section 2802 to apply more broadly, to require employers to cover routine employee business expenses. For example, the DLSE opines that Section 2802 requires employers to indemnify employees for such expenses as auto expenses (for other than commuting), client entertainment, and cell phone charges . 335 A 2005 Court of Appeal decision, Gattuso v. Harte-Hanks Shoppers, Inc. , endorsed the DLSE’s extension of Section 2802 to car mileage expenses . 336 The California Supreme Court reviewed this case, and issued its own decision in 200 7. 337 The high court’s decision assumed, without officially deciding, that Section 2802 does indeed require employers to indemnify employees for their ordinary business expense s. 338 At issue in Gattuso was whether the employer could satisfy a duty to indemnify necessary expenses by increasing the employee’s overall pay, as opposed to paying for expenses as they were incurred and claimed on expense reports. Gattuso held that an employer can choose among various alternative methods to pay employee mileage expenses, including (1) tracking the actual costs to the employee for necessary fuel, insurance, depreciation, and service, and paying that amount, (2) paying the employee a lump sum payment each month so long as the lump sum actually covers all necessary mileage expenses, (3) paying a per-mile rate, such as the IRS mileage rate, or (4) increasing the employee’s commission rate, with the extra commissions being devoted to cover employee expenses . 339 This employer victory was partial only. First , Gattuso held that because Labor Code section 2804 prohibits employers and employees from waiving the right to indemnity, employees will always be entitled to payment for all necessary expenses, meaning that the employer who provides a fixed expense allowance or an enhanced