Seyfarth Shaw LLP | www.seyfarth.com Litigating CA Wage & Hour Class and PAGA Actions (23rd Edition) 35 V. Reimbursement of Employee Expenses A. The Duty to Reimburse Expenses Under Labor Code Section 2802 Labor Code section 2802 requires an employer to “indemnify” its employees for “all necessary expenditures incurred” in the course of their employment. This provision has been in effect since 1937, and over the next sixtyplus years, litigation over Section 2802 focused almost exclusively on seeking “indemnification” from the employer in the narrow insurance-context sense of the word—”to reimburse (another) for a loss suffered because of a third party’s act or default.”169 Today, plaintiffs regularly use Section 2802 as a vehicle to seek reimbursement of routine business expenses that employees incur in the course of their duties—such as driving a car or talking on a cell phone. Before 2005, all the published cases under Section 2802 involved circumstances where an employee sought to have the employer pay the cost of tools or equipment lost or damaged on the job,170 or to indemnify the employee for the cost of legal counsel the employee incurred in defending a claim based on the employee’s performance of job duties.171 But in 2007 the California Supreme Court, in Gattuso v. Harte-Hanks Shoppers, Inc., assumed (without deciding) that Section 2802 does indeed require the reimbursement of necessary business expenses.172 Often targeted for Section 2802 class actions are businesses employing large numbers of outside salespersons who are paid on straight commission. Many such businesses encourage their salespeople to make sales calls and to entertain clients to generate business. In addition, many such salespeople are constantly using cell phones because they are on the road often and lack an office. Before Gattuso, the law was unclear as to how the employer could satisfy its duty to reimburse necessary expenses. The plaintiff in Gattuso argued that with respect to business mileage, the employer had to allow employees to submit expense reports and then reimburse the employees at the IRS mileage rate. By contrast, the 169 Black’s Law Dictionary, 342 (2d pocket ed. 2001). 170 See, e.g., Machinists Auto. Trades v. Utility Trailers Sales, 141 Cal. App. 3d 80, 86 (1983) (mechanic entitled to indemnification for loss of his tools from employer’s premises in a burglary when employer required that employee have tools that were “too heavy to be transported routinely to and from the place of employment,” so the loss was “incurred in direct consequence of the dischargeof the employee’s duties”); Earll v. McCoy, 116 Cal. App. 2d 44, 47 (1953) (employee not entitled to reimbursement under Section 2802 for tools lost in a fire on employer’s premises when employee was not required to leave tools at the place of employment and there was “no evidence in the record indicating that the fire which directly caused the losses occurred in direct consequence of the discharge of duties of employment”). 171 See, e.g., Jacobus v. Krambo Corp., 78 Cal. App. 4th 1096, 1098 (2000) (employee entitled to “indemnification from his employer of the legal costs incurred [for] successfully defending [a] sexual harassment action”); Devereaux v. Latham & Watkins, 32 Cal. App. 4th 1571, 1584 (1995), disapproved on other grounds by Moran v. Murtaugh Miller Meyer & Nelson, LLP, 40 Cal. 4th 780 (2007) (employee not entitled to indemnification in connection with her depositions because the employee’s conduct was not within the course and scope of her employment, given that she “took a position in her depositions [that was] adverse to the interests of her former empoyer”); Grissom v. Vons Companies, Inc., 1 Cal. App. 4th 52, 59 (1991) (expenses incurred by employee in defending third party lawsuit arising out of auto accident that occurred during course and scope of employee’s employment; employee who retained his own counsel after employer provided counsel was due reimbursement for attorney’s fees incurred because retention of separate counsel was deemed necessary); Douglas v. Los Angeles Herald-Examiner, 50 Cal. App. 3d 449, 464-465 (1975) (expenses incurred by employee in defending lawsuit filed as a result of services rendered by employee in course and scope of employment). 172 Gattuso v. Harte-Hanks Shoppers, Inc., 42 Cal. 4th 554, 562 (2007) (noting the issue of an “employer’s obligation under section 2802 to pay legal expenses that an employee incurs in defending a third party action based on the employee’s job-related conduct” was not relevant to the case and not before the court).
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