The California Supreme Court recently held that an employer can meet its obligations to indemnify its employees for expenses by paying employees an enhanced compensation that takes the expenses into account.
The California Supreme Court recently held that an employer can meet its obligations to indemnify its employees for expenses by paying employees an enhanced compensation that takes the expenses into account. See Gattuso v. Harte-Hanks Shoppers, Inc. (11/5/07).
In this case, the plaintiff, Gattuso, worked as an outside sales representative for Harte-Hanks and sued his employer on behalf of himself and others similarly situated, seeking indemnification under California Labor Code Section 2802 for expenses incurred in using his own automobile to perform employment duties. Under Section 2802, employers are required to indemnify employees for expenses necessarily incurred in the discharge of employment duties. Harte-Hanks argued that it satisfied its obligations under Section 2802 by paying the outside sales representatives higher base salaries and higher commissions than it pays to inside sales representatives. The higher salaries and commissions are intended to compensate for the automobile expenses.
The Court noted that there are three different ways in which employers can reimburse employees for automobile expenses: 1) the “actual expense method,” under which the employee submits detailed and accurate records regarding the various expenses that are to be reimbursed, including maintenance, repairs, insurance, fuel, and the like; 2) the “mileage reimbursement method,” under which the employee keeps track of all miles driven to perform job duties, and the employer and the employee determine the appropriate mileage reimbursement to encompass all of the automobile expenses; and 3) the “lump sum payment method,” which was the one at issue in this case.
Under the lump sum payment method, the employer pays a fixed amount for automobile expenses. It can be determined “per diem,” or it can be considered a car allowance or gas stipend. The amount is based upon a thorough understanding of what the employee does, where the employee drives, etc. The Court held that Labor Code Section 2802 permits an employer to use the lump sum method to reimburse employees for automobile expenses, provided the amount paid is sufficient to provide full reimbursement for actual expenses necessarily incurred. Additionally, the employee must be permitted to challenge the amount of the lump sum payment as being insufficient.
Further, the Court held that an employer using the lump sum method and increasing the employee’s base or commission compensation to account for reimbursement of automobile expenses must provide some method or formula to identify the amount of the combined employee compensation payment that is intended to provide expense reimbursement.
Employers’ Bottom Line:
This case provides yet another look at California wage and hour law. Whether it is reimbursing employees for automobile related expenses, or other regularly recurring expenses, employers must be aware of their legal obligations. If employers are not aware of what is required of them, the results can be disastrous.
Should you have any questions about this or any other issue related to employment law, please contact the author of this Alert, Helene Wasserman at email@example.com or 213-237-2403 or the Ford & Harrison attorney with whom you usually work.
Helene is the host of the Employer Helpcast, which is a “one stop website” for both “nuts and bolts” employment law advice and insight into new legal developments affecting employers.