238 | 2023 Cal-Peculiarities ©2023 Seyfarth Shaw LLP www.seyfarth.com 7.12.6 Barriers to employer recovery of wage overpayments The Court of Appeal has held that an employer must not make payroll deductions to recoup inadvertent overpayments of salary, because any such deduction would violate attachment and garnishment statutes.339 The DLSE has opined that an employer making regular, predictable, and expected overpayments (such as where the employer pays a set amount on the assumption that employees have worked a given number of hours, without yet checking on the exact number of hours worked) can recover those overpayments through deductions in the next paycheck, but only if the employer has prior written authorization to make those deductions and only if the employee still receives, after the deductions, not less than the minimum wage. Further, even with that authorization, according to the DLSE, there can be no deduction from the final paycheck.340 7.12.7 Other forbidden deductions General Labor Code prohibition. California employers generally must not deduct from employee paychecks except as the deductions are authorized by law or made with the employee’s written consent.341 Independent Contractors. As the “ABC test” for independent contractors is applied pursuant to Dynamex and AB 5, franchisors and others must proceed with caution when deducting from the pay of individuals classified as independent contractors, as a finding of misclassification has been found to support a claim for improper deductions of management, sales, and marketing fees.342 Tips. California employers must not deduct tips or gratuities from wages. For discussion of this and other peculiar rules on tips, see § 7.18. 7.13 Indemnification of Employee Expenses Under Labor Code section 2802, California employers must indemnify employees for money that they necessarily expend or lose in direct consequence of discharging their duties or as a result of following their employer’s direction.343 An employee who successfully sues the employer for indemnification is entitled to reasonable attorney fees and costs.344 A prevailing employee also would be entitled to interest on an award, at the rate applicable in civil actions, from the date on which the employee incurred the necessary expenditure or loss.345 Although in effect since 1937, section 2802 traditionally was simply a means to obtain employer “indemnification” only in the narrow sense of the word: “to reimburse (another) for a loss suffered because of a third party’s act or default.”346 Examples of these cases are noted below (see § 7.13.1, 7.13.2). More recently, however, employees have invoked section 2802 to seek indemnification for other kinds of employee expenses (see § 7.13.3). 7.13.1 Indemnification for routine business expenses Although judicial decisions interpreting section 2802 typically have addressed circumstances in which an employee seeks indemnification for lost or damaged tools or equipment, or for the legal expenses incurred to defend a lawsuit arising out of the employee’s job duties, the DLSE has interpreted section 2802 to apply more broadly, to require employers to cover routine employee business expenses. For example, the DLSE opines that section 2802 requires employers to indemnify employees for such expenses as auto expenses (for other than commuting), client entertainment, and cell phone charges.347 A 2005 Court of Appeal decision, Gattuso v. Harte-Hanks Shoppers, Inc., endorsed the DLSE’s extension of section 2802 to car mileage expenses.348 The California Supreme Court reviewed this case, and issued its own
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