Since January 1, 2016, California employers must reimburse employees for use of their personal cell phones based on the decision in the landmark cell phone reimbursement class action case, Cochran v. Schwan’s Home Services, Inc. In addition, under Labor Code section 2802, employees must be reimbursed for “all necessary expenditures or losses incurred by the employee in direct consequence of the discharge of his or her duties,” for mandatory business purposes. Although this law has been on the books for four years now, it has particular relevance in the wake of the Covid-19 pandemic because many workers are now telecommuting due to mandatory business shutdowns ordered by state and local governments due to the Covid-19 pandemic.
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, or the bill is paid by a third party).
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This law is 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
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According to the Cochran court, “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 the Cochran court’s 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 Would a Potential 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 times the number of months that the employee was not reimbursed since the law went into effect or the employee began using his or her cell phone for business purposes (whichever is later). The employee would therefore entitled to the total reimbursement amount, plus interest and attorney’s fees, for failure to provide this reimbursement over that period of time.
Security Issues
When employees use their own cell phones for business purposes, it creates additional intellectual property, data security, and liability risks for the employers. Accordingly, Employers may want to provide phones and electronic devices to its employees so that it can have greater control over security and use of Company data.
Employers may want to balance company security versus employee convenience. Often, employees do not want to carry two phones and opt to use their own personal cell phones, rather than carrying a work phone on their person as well. In this instance, employers need to consider what company information the employee will have on his or her phone, and how to protect that information. It may be worthwhile to consult a IT professional who can advise how to maintain the employee’s privacy while protecting company information and potential trade secrets, along with co-worker and client information.
What About Costs Like Internet?
According to Labor Code section 2802, “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.” This would conceivably include Internet costs if the employee must use an Internet connection to do his or her work.
What About Giving Out Personal Cell Phone Numbers?
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The easiest way to track phone usage, have more control over the security of the device, and ensure the privacy of the employee is to provide a company-issued cell phone, laptop, tablet, or device. However, is this is not possible, or the preferred option is to use the employee’s personal cell phone, you must consider the privacy of the individual.
There are several options in lieu of giving out an employee’s personal cell phone number to colleagues and clients:
(1) The free option: Use a Google voice number as the public-facing number that routes to the employee’s cell phone;
(2) If the company’s receptionist is still answering calls on behalf of the company, have the client call into the main office line, and have the receptionist route the number to the employee’s cell phone;
(3) If there is no receptionist on duty, have the company use a call routing/phone tree service like RingCentral where the caller can be connected to the employee without seeing the personal phone number; and
(4) Consider using a virtual receptionist company (temporarily or permanently) to provide a professional greeting, screen calls, take messages, and route calls to employees. These companies can provide month-to-month contracts about $150 to $300 for 100 minutes of calls, and offer various packages based on the expected number of minutes used. (Do your research on companies like Ruby, DaVinci Virtual, and Abby Connect, among others, and see if you can get a 1-2 week free trial of their services. Also inquire about any setup fees).
Other Considerations for Remote Workers
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Now that more employees than ever are working from home, it’s time to create a Remote Work Policy and Agreement, if you have not already. The policy would reiterate that the benefit can be revoked at any time, should outline security and safety issues, and address communication requirements and deadlines.
Employers may consider a home inspection by video chat or photographs to have a record of the employee’s work environment. This is important because employees can still file a lawsuit for injuries incurred while working on the job from home–just see Samberg v. J.C. Penney, where the court decided in favor of providing worker’s compensation benefits to an employee who tripped over her dog while retrieving fabric samples while working from home.
Employers should also consider potential exposure to lawsuits and laws in states where remote employees work if it is outside the state where the company has offices, and tax issues raised by telecommuting employees in other states.
Most importantly, if an employee is non-exempt, he or she must still clock in/out at the beginning and end of each shift, and for meal breaks. He or she should also be taking 10-minute rest breaks per the requirements of California law.
About the Firm
The Grady Firm attorneys provide the following employment law services:
Assistance with interpreting emergency Covid-19 legislation as it affects your business;
Counsel employers on staff changes and draft Notices of Reduced Hours, Furloughs, or Layoffs;
Draft Severance Agreements;
Act as I-9 agent and I-9 audit preparation or defense;
Employee v. independent contractor classification analysis;
Assistance with converting independent contractors to employees;
On-site, classroom-style Sexual Harassment training for employees and supervisors;
“Experiential” supervisor training in which managerial employees practice processing a harassment complaint and commencing an investigation in pairs with other trainees.
Draft and review Employee Handbooks, arbitration agreements, and Anti-Harassment policies;
Employee personnel file audits;
Litigation defense.
To learn more about ensuring your business is compliant with state and local laws, schedule a complimentary 15-minute consultation with The Grady Firm’s attorneys; call +1 (949)798-6298; or fill out a Contact Request Form. The Grady Firm has offices in Beverly Hills, Newport Beach, and San Diego, California.
*Jennifer A. Grady, Esq. is licensed to practice employment law in California.
This article is for informational purposes only, and does not constitute legal advice or create an attorney-client relationship. This article does not make any guarantees as to the outcome of a particular matter, as each matter has its own set of circumstances and must be evaluated individually by a licensed attorney.
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