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New Class Certification Opinion: California Employers – Reimburse Your Employees for Cell Phone Expenses

August 21 2014

On August 12, 2014, the California Court of Appeal issued a short, but interesting decision that may trigger a new wave of class action lawsuits against California employers. In Cochran v. Schwan’s Home Service, Inc. (opinion found here), the Court ruled that employers must reimburse employees for the reasonable cost of using their personal cell phones for business purposes, regardless of whether the employees have plans with unlimited or limited minutes. The Court found that the amount owed is a “reasonable percentage” of the employee’s cell phone bill, although though no guidance was provided as to how to determine what “reasonable percentage” means.

Background: The plaintiff in Cochran filed a putative class action on behalf of 1,500 customer service managers alleging a violation of Labor Code section 2802 because the managers had not been reimbursed expenses related to their personal cell phones. Under section 2802, employers must indemnify employees for all necessary expenditures incurred by employees in the performance of their duties. The trial court denied class certification based on a lack of commonality – each class member would have to be asked who paid the phone bill and whether he or she purchased a different plan because of their work cell phone usage, and, therefore, incurred an “extra expense” as a result of their job duties.

Court of Appeal’s Decision: The Court reversed the denial of class certification and disagreed with the assumptions made by the trial court; namely, that: (1) employees are not entitled to reimbursement if a third person pays the bill; (2) employees are not entitled to reimbursement if they did not purchase a different plan because of their need to use their personal phone for work purposes; and (3) liability for failure to reimburse cannot be determined without an inquiry into each employee’s cell phone plan. The Court held that Labor Code section 2802 always requires reimbursement for the reasonable expense of a personal cell phone for work purposes. As the basis for this decision, the Court noted that the purpose of section 2802 is “to prevent employers from passing their operating expenses on to their employees” and, if reimbursement was not always required, employers would receive a windfall. Further, the Court stated, “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. Damages, of course, raise issues that are more complicated.”

The implications of the Court’s rationale may be far reaching. Not only does this decision make it easier for a class to be certified under section 2802 claims, but this same rationale could be applied beyond personal cell phones. For example, the same arguments could be applied to personal internet plans or other personal electronics if the employee is required to access the internet from home or use any other personal electronics for work purposes.

Employer Takeaway: Employers should evaluate their reimbursement policies to determine if they need to be updated. If reimbursement policies do not yet exist, implementing a policy should be considered. If reimbursement policies need to be modified, employers will have to consider whether they should be modified retroactively or only on a going-forward basis. Ultimately, if employees are required to use personal cell phones for work purposes, employers should consider providing their employees with a cell phone plan. As the Court did not provide any guidance as to what a “reasonable percentage” means, an employer can get into muddy waters trying to determine what portion of an employee’s cell plan to cover.