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Labor Code Section 2802 – Employee Expense Reimbursement Policies In California

By on September 12, 2015

California law protects employees who use their own money or equipment at work.  The Legislature’s intent is that employees should not bear losses or expenses incurred in the service of their employers.  There are a number of laws and regulations that require employers to reimburse expenses that employee incur or to pay for employees use of their own property.

Labor Code Section 2802 Requires Employers To Indemnify Employees

Labor Code 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 . . . .”

Fortunately, this law does not mean the employer must reimburse employees who decide to fly first class or stay in a four-star hotel on a business trip, if doing so is contrary to policy.  The courts have said that “necessary” means “reasonable” under the circumstances.  And the California Division of Labor Standards Enforcement (“DLSE”) has said the employer may impose reasonable limits on employee expenses.

Employees’ Business Use Of Personal Property

This issue often arises when employees use their personal vehicles to perform their duties.  Given the various costs associated with owning a vehicle, it would be quite complicated to calculate the actual cost that must be reimbursed.  Fortunately, the Division of Labor Standards Enforcement has said that the IRS’ mileage reimbursement rate is a “presumptively reasonable” reimbursement rate.

The IRS rate may not always be viewed as reasonable, however.  For example, when an employer requires the employee to maintain a certain level of insurance coverage, the DLSE has said the IRS mileage reimbursement rate would not be sufficient.

The law is more straightforward regarding other tools and equipment.  The Industrial Welfare Commission’s wage orders require employers to furnish all tools and equipment necessary to do the job.  There is a narrow exception to this requirement.  Employers may require employees to supply their own hand tools (1) if the employees earn at least twice minimum wage, and (2) the hand tools are customarily required in the trade.

California Expense Reimbursement Law Does Not Allow Employees To Waive Their Rights

California Labor Code, Section 2804, states that any agreement, implicit or explicit, to waive an employee’s right to full reimbursement for expenses is unlawful and not enforceable. Thus, employer policies that waive an employee’s right to expenses after a certain deadline are not enforceable. By law, employees are entitled to reimbursement for up to four (4) years from the date the expense is incurred.

What does this mean to employers and employees? It’s simple: employers must reimburse employees for all expenses reasonably and necessarily related to work. If the employer requires the employee to drive, such as a courier driver, an outside sales person, the employer must cover the employee’s mileage. If the employer requires the employee to have a cell phone and make calls on that phone, the employer must cover the cost of the business related calls (private calls are not eligible for reimbursement).  If the employer requires the employee to have a home office, the employer must cover certain expenses reasonably and necessarily related to that office. The part that is not so simple, however, is how the employer calculates the employee’s reimbursement amount and how the reimbursement is paid.

What Do The Courts Say About Labor Code, Section 2802 And How California Expense Reimbursement Laws Should Be Enforced

What do they say? For the most part, they say surprising little. California’s Labor Code, section 2802 has been on the books for decades. But very few employment attorneys have presented appellate courts with issues related to Labor Code, section 2802 and California Expense Reimbursement. Thus, employment attorneys have had relatively little guidance from the courts on how Labor Code, section 2802 should be interpreted.

But several cases do shed light on appropriate expense reimbursement practices. The primary case is Gattuso v. Harte-Hanks Shoppers, LLC, in which the California Supreme Court outlined the employer’s obligation with regard to California’s Expense Reimbursement Laws. The California Supreme Court confirmed that employers must reimburse employees for all necessary and reasonable expenses. But more importantly, the Supreme Court recognized several methods may be used to reimburse employees properly.

The Department Of Labor Standards Enforcements’ Position On California Employment Expense Reimbursement Laws

The Department of Labor Standards Enforcements (DLSE) is chartered with enforcing California’s employment laws. Employment attorneys frequently seek guidance from the DLSE on certain employment policies. In response, the DLSE may issue “opinion letters” detailing the DLSE’s position regarding the law and the facts put forth to them. The DLSE has issued approximately 6 opinion letters regarding California’s expense reimbursement laws.

Aside from DLSE opinion letters, the DLSE also published a manual, entitled the Department of Labor Standards Enforcements Manual. This manual also sets forth the DLSE’s position regarding California’s expense reimbursement laws, including Labor Code, section 2802. The Manual is not binding legal authority. But it does offer significant information with respect to how the DLSE approaches California’s expense reimbursement laws, even including several factual scenarios.

Efforts To Change The Law

There are no bills pending in the California Senate or House of Representatives to change Labor Code, section 2802 or Labor Code, section 2804. The California Chamber of Commerce and other large business interests have repeatedly sought to change the law to relieve businesses of their obligations.

Methods Of Reimbursement

Section 2802 does not specify how employers must reimburse employees.  There does not seem to be any prohibition against employers’ requiring their employees to submit expense reports and obtain reimbursement of expenses. There also appears to be no legal basis supporting employers’ policies denying reimbursement when expense reports are submitted untimely or incorrectly.  Employees’ failure to comply with expense reimbursement policies should be treated as disciplinary issues rather than grounds for refusing to pay the expense.

Employers are not permitted to force employees to accept “direct deposit” of their wages.  The DLSE has opined the same rule applies to expense reimbursements.  While DLSE opinion letters are not binding on courts, they suggest how the DLSE will address the issue during administrative proceedings.

How To Prosecute Labor Code Section 2802 Claim

There are multiple ways to prosecute a claim under Labor Code section 2802. First, you can bring an individual action in State Court or by filing a complaint with the California Labor Board. This Labor Code section permits individual to not only recover the amount of the reimbursement they are owed, but also attorneys’ fees as well. However, this is likely to only be awarded in a State Court case, not with the Labor Board. Additionally, employees can file a class action on behalf of all similarly situated employees who were also not reimbursed properly, as well as representative action under the Private Attorney General Act “PAGA” in California.

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