California Employers Face Expanded Obligation to Reimburse Employee Personal Cell Phone Use

09/11/2014

A recent California Court of Appeal decision exposes employers to liability for failing to reimburse their employees for work-related personal cell phone use, but the lack of a bright line rule for determining the required reimbursement amount creates more questions than answers. In Cochran v. Schwan’s Home Services, Inc., No. B247160, -- Cal. App. 4th -- (Aug. 12, 2014), the Court determined that Labor Code section 2802 requires employers to reimburse employees for a “reasonable percentage” of their cell phone bills if their jobs require them to use their personal cell phones for work-related calls. Section 2802 requires an employer to “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.”

In a sweeping opinion that focused on the employer’s benefit rather than the employee’s out-of-pocket expenses, the Court held that the reimbursement obligation exists irrespective of (i) whether the employee would have incurred the expense of the cell phone plan anyway, with or without the job, (ii) whether the employee’s cell phone plan has unlimited minutes, (iii) whether the employee (as opposed to a third party, such as a friend or relative) personally pays for the cell phone plan, (iv) whether the cell phone bill is ever actually paid, or (v) whether the employee changed her plan to accommodate her work-related cell phone usage. Instead, “[t]o 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 [that] he or she was not reimbursed.”

Echoing the California Supreme Court’s decision in Gattuso v. Harte-Hanks Shoppers, Inc., 42 Cal. 4th 554 (2007), the Court noted that the purpose of section 2802 is to “prevent employers from passing their operating expenses on to their employees.” The Court then reasoned that allowing an employer’s reimbursement obligation to hinge on whether the employee actually incurred an added expense would in effect allow the employer to pass on its operating expenses to the employee. In light of the above principles, the Court reversed the trial court’s denial of class certification, holding that questions of common fact may exist because liability under section 2802 can be “determined without an inquiry into the specifics of each class members’ cell phone plan.”

The Cochran decision increases the potential for class certification of section 2802 claims. This may have costly consequences for employers, considering that section 2802 allows employees to recover attorney fees incurred in “enforcing the rights granted by” that section. To further complicate matters, the Cochran decision leaves several questions unanswered, making it difficult to predict the outcome of such lawsuits and to craft company policies to protect against them.

First, the Court held that employers must reimburse employees for a “reasonable percentage” of their cell phone bills, but it provided no guidance as to what a reasonable percentage would be, recognizing that the issue is case dependent “[b]ecause of the differences in cell phone plans and work-related scenarios.” What constitutes a “reasonable percentage” will be particularly difficult to determine for employees with unlimited calling plans who incur no out-of-pocket expense for their work-related calls. If an employer were to set its reimbursement percentage too high, it sets itself up for higher overhead, but by setting its percentage too low, it runs an increased risk of class action litigation. (And although an employer could alternatively reimburse employees for their actual out-of-pocket expenses by requiring them to submit expense reports detailing their work-related cell phone usage, such a process would require a fair amount of paperwork, and it is not entirely clear that this would satisfy Cochran’s express requirement that employers “pay some reasonable percentage of the employee’s cell phone bill.”)

Second, the opinion does not address the question of damages, an issue that the Court recognized is “more complicated.”

Third, the opinion does not address the issue of reimbursement for the costs of sending work-related text messages or emails on a personal cell phone, the cost associated with work-related use of other technologies (e.g., tablets or laptops), the cost of using home land-lines for work-related calls, or the cost of using home Internet access for work-related communications or duties. Presumably, however, the same rules for reimbursement would apply.

Fourth, the opinion does not specify the standard for determining whether an employee’s use of a personal cell phone to make work-related calls was “necessary” or “reasonable” within the meaning of section 2802. The Court did not articulate a standard for employees whose jobs are more stationary or office-oriented, or for employees whose work can just as easily be done at home as in the office.

In short, employers whose employees use their personal cell phones for work-related calls should revisit their cell phone usage and reimbursement policies to ensure they are consistent with the Cochran decision. To avoid the risk of the possible pitfalls listed above, an employer should consider providing cell phones to its employees (or at least giving employees the option of a company-provided phone), and consider implementing (and enforcing) a policy prohibiting the use of personal cell phones for work-related use.

For more information, please contact:

Tamara I. Devitt
949.202.3060
tamara.devitt@haynesboone.com

 

Kimberly A. Chase
949.202.3058
kimberly.chase@haynesboone.com

 

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