The Latest News on Expense Reimbursements
If your company requires or encourages employees to work remotely, you have a clear obligation under California law to reimburse them for work-from-home (WFH) business expenses. What is still very muddy is to what extent? Courts are slowly beginning to offer some clarity on this issue. Below we answer five business-expense reimbursement questions for you to consider.
What Does California Require for Business-Expense Reimbursements?
California Labor Code section 2802 requires employers to reimburse employees for “all necessary expenditures or losses” incurred in discharging their duties. The statute is also clear that employees are limited to reimbursement of “reasonable” costs.
For example, if an employee purchases the most expensive laptop on the market, which is not necessary to perform their job, you as the employer would only be required to pay a “reasonable” portion of the purchase – you would not be required to cover unnecessary or excessive costs. While this may sound simple enough, it is not always easy to determine what costs are “necessary” and “reasonable.”
For example, in a 2014 California case, Cochran v. Schwan's Home Service, Inc., the court found that if an employee is required to use their personal cellphone for business purposes, the employer must reimburse a “reasonable percentage” of the cellphone usage (even if the employee has an unlimited data plan). However, no California court or agency has provided a bright-line rule as to what constitutes a “reasonable” percentage, leaving employers with uncertainty as to how to properly calculate these expenses.
What Costs Should We Reimburse for Remote Workers?
If you are requiring or encouraging employees to work remotely or on a hybrid schedule, you should reimburse a “reasonable percentage” of at least “basic” work-from-home (WFH) expenses, referenced in the Amazon case discussed below. Depending on the job’s requirements, this may include:
- Personal cellphone usage;
- Internet usage;
- Electricity usage;
- Office equipment (e.g., laptop, printer, etc.).
Are There Recent Cases for Reimbursing Remote Workers?
Yes, although many are still being litigated. With the shift towards remote/hybrid work arrangements during the pandemic, plaintiffs’ attorneys are now testing the gray areas of section 2802 by going after “WFH” expenses. These expenses can include everything from office equipment, furniture, and cellphone/internet usage to utilities and meal perks otherwise available at the office. Some employees have even sued for the potential rental value of their home office that they are required to use for work. The question is what expenses will courts find “reasonable” and “necessary” under the Labor Code?
While it is uncertain whether employers are required to cover all conceivable WFH costs (or a portion of them), employers are certainly on the hook for some of them. In the 2022 case, Williams v. Amazon.com Services LLC, a California federal court held that Amazon was required to reimburse employee Williams for “basic” costs incurred during the time Williams was subject to COVID-19 stay-at-home orders and working remotely. The Court also found that Amazon still had the obligation to reimburse Williams, even though he did not submit reimbursement requests to Amazon at the time, reasoning that Williams’ job “plausibly requires the use of physical space, internet, and electricity.”
What About When Remote Work is Voluntary?
Some courts have suggested that if an employee is working remotely voluntarily then an employer is not obligated to reimburse WFH expenses. The argument is that if the office is available to the employee at any time, and furnished with all necessary equipment to perform the job, WFH costs are not “necessary” or “reasonable” under section 2802. However, other employment attorneys have argued that section 2802 does apply to voluntarily remote workers because the employer is still allowing the employee to necessarily incur costs for the benefit of the employer.
Also, the degree to which one is voluntarily working remotely is fact specific. For example, if you do not have enough office space for all employees on a given day, it may be harder to argue that remote work is truly “voluntary.” As such, it is best to consult legal counsel before implementing such a policy.
What Steps Should Employers Take on WFH Expense Reimbursement?
- Execute a remote work agreement, detailing expense reimbursement: Clearly outline which expenses are covered, when advance approval is required, and how to submit for reimbursement. For example, you may include “reasonable” limitations on how much you will reimburse for certain items (e.g., up to $300 for a printer).
- Determine how to calculate WFH costs: Consider what each employee/job position requires to perform their duties. Then, determine a “reasonable percentage” of usage for things like personal cellphone and internet. You may also pay remote workers a flat monthly stipend, assuming that it sufficiently covers the WFH costs.
- Direct employees to notify you if they do not believe they have been sufficiently reimbursed: This should be addressed in your policy, and communicated to employees by their managers/supervisors. This will put the employer on notice of a potential issue.
- Consider whether you want to continue remote/hybrid work arrangements: You may find that reimbursing WFH expenses are too costly for your business. Outside of reasonable accommodations under the ADA/FEHA, employees do not have the right to work remotely, and you may terminate the arrangement going forward.