In California, there has been an increase in class action litigation against employers for the alleged failure to reimburse employees for business expenses, particularly mileage reimbursement.
By way of example, in recent actions filed against prominent retailers, employees allege that they were not reimbursed for mileage and other travel expenses caused by:
- daily bank deposits,
- purchasing supplies for store events;
- required travel between stores to attend meetings;
- required travel between stores to provide staffing support; or
- required travel to transfer inventory.
Under California Labor Code Section 2802, employers must reimburse 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.” Meaning that an employer must reimburse an employee for all monies that they spend or lose, directly related to performing their duties or following employer directions. Where an employer fails to do so, Section 2802 allows an employee to recover, along with any unreimbursed expenses, interest from the date the expense was incurred, as well as any reasonable attorneys’ fees and costs incurred by the employee to enforce the rights granted by the statute.
With respect to mileage reimbursement, California state agencies, including the Department of Labor Standards Enforcement (“DLSE”), consider the IRS rate to be the most reasonable reimbursement rate. The IRS increased the standard mileage rate for the use of a car effective January 1, 2013, to 56.5 cents per mile for business miles driven. Although using the IRS rate is the best practice, employers may reimburse for mileage expenses at less than the IRS rate as long as the payment reimburses the employee for all actual expenses incurred by the employee in the operation of the vehicle for business use.
Other business expenses that must be reimbursed under California law include:
- the cost of uniforms, defined as apparel and accessories of distinctive design and color, and maintenance of those uniforms (i.e., dry cleaning) where they are required to be worn as a condition of employment by non-exempt employees; and
- the cost of providing and maintaining tools or equipment required for the performance of the job.
This litigation trend focusing on failure to reimburse for expenses may not be limited to California. In fact, just last month, delivery drivers filed a wage and hour class action lawsuit against a franchisee of 138 Domino’s pizza restaurants in Mississippi and Louisiana for failure to pay minimum wage. The drivers allege that the employer violated federal wage and hour laws by failing to adequately reimburse its drivers for their automobile expenses, which resulted in a reduction in the drivers’ net wages below minimum wage. The lawsuit is presently pending in the United States District Court, Southern District of Mississippi.
We recommend that employers review their policies and practices to ensure that they are in compliance with California or other state laws, regarding business-expense reimbursements. To comply with federal law, employers should also assess whether any failure to reimburse required business expenses would reduce employees’ compensation below minimum wage in violation of the Fair Labor Standards Act.