©2023 Seyfarth Shaw LLP www.seyfarth.com 2023 Cal-Peculiarities | 239 decision in 2007.349 The high court’s decision assumed, without officially deciding, that section 2802 does indeed require employers to indemnify employees for their ordinary business expenses.350 At issue in Gattuso was whether the employer could satisfy a duty to indemnify necessary expenses by increasing the employee’s overall pay, as opposed to paying for expenses as they were incurred and claimed on expense reports. Gattuso held that an employer can choose among various alternative methods to pay employee mileage expenses, including (1) tracking the actual costs to the employee for necessary fuel, insurance, depreciation, and service, and paying that amount, (2) paying the employee a lump sum payment each month so long as the lump sum actually covers all necessary mileage expenses, (3) paying a per-mile rate, such as the IRS mileage rate, or (4) increasing the employee’s commission rate, with the extra commissions being devoted to cover employee expenses.351 This employer victory was partial only. First, Gattuso held that because Labor Code section 2804 prohibits employers and employees from waiving the right to indemnity, employees will always be entitled to payment for all necessary expenses, meaning that the employer who provides a fixed expense allowance or an enhanced commission rate must ensure that payments actually cover all necessary expenses.352 Second, Gattuso held that the employer must provide some method or formula to identify the amount of the combined employee compensation payment that is intended to provide expense reimbursement. Gattuso also stated that, going forward, employers must identify the portion of wages allocated to expenses on itemized wage statements.353 Another decision has held what Gattuso implies—that California employers must indeed indemnify employees for their reasonable and necessary business expenses. In that case, FedEx delivery drivers, arguing that they were employees, not independent contractors, sued FedEx under section 2802 for reimbursement of work-related expenses.354 The Court of Appeal affirmed the trial court’s finding that the drivers were employees for purposes of section 2802 and that FedEx had failed to indemnify the drivers fully for their business expenses. Duty to solicit requests for reimbursement? A federal district court has held that employers can be liable for business expenses even when the employee has failed to submit required expense reports. The court reasoned that the law focuses not on whether an employee requests reimbursement of expenses but rather on whether the employer either knows or has reason to know that the employee has incurred a reimbursable expense. If the employer has that actual or constructive knowledge, then it must exercise due diligence to ensure that the employee is paid.355 Cell-phone expense reimbursement. The Court of Appeal has held that an employer that required its customer service managers to use their personal cell phones for business must reimburse the managers for a reasonable percentage of their cell phone bills.356 The trial court had denied certification of a proposed class of 1,500 managers, reasoning that a class trial was unmanageable in light of individualized issues as to whether particular class members paid their own phone bills and whether they had service plans that provided for unlimited minutes. In either case, the trial court ruled, the employer’s practice of requiring personal cell-phone use might not have caused an employee to incur any actual expense. The Court of Appeal, however, reversed the denial of class certification, because it disagreed with the trial court’s interpretation of section 2802. The Court of Appeal held that section 2802 always requires reimbursement when an employee relieves the employer of a business expense, regardless of whether the employee actually incurred an extra expense in doing so: “Otherwise, the employer would receive a windfall because it would be passing its operating expenses onto the employee. Thus, to comply with section 2802, the employer must pay some reasonable percentage of the employee’s cell phone bill.”357 The Court of Appeal left for another day the enormous practical difficulties involved in calculating individual damages. Nor did the Court of Appeal address other issues
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