What happens when your employees use their personal smartphones to check or respond to work email? It may be a question that you hadn’t given much thought to. Presumably, if an employee makes a work-related call, email or text, an expense report is submitted and the employee is reimbursed. But what if the call, email or text is covered within the employee’s phone plan and, consequently, there is no separate charge to the employee?
That question was recently addressed by a California Court of Appeal, which held that employers must reimburse the employee the reasonable cost of that call, email or text, even if no separate or additional charge is imposed on the employee. Otherwise, the court explained, “the employer would be passing its operating expenses to the employee.” Cochran v. Schwan’s Home Service, Inc. 2014 DJDAR 10735 (August 12, 2014).
The source of an employer’s obligation to reimburse employees for work-related expenses is California Labor Code Section 2802(a). This statute requires employers to indemnify employees for “all necessary expenditures” incurred by the employee in “direct consequence of the discharge of his or her duties.” If employers fail to comply with this obligation, employees are entitled to recover accruing interest, plus reasonable attorneys’ fees and costs incurred to recover work-related expenses.
The plaintiffs in Cochran claimed that while they didn’t incur an extra charge on their personal cell phone bill when they used their phones for work-related purposes, reimbursement for some part of their personal cost was still required. The court agreed and determined employers must reimburse employees “some reasonable percentage of the employee’s cell phone bill.”
But what does this mean?
The court in Cochran gives little guidance to how employers are supposed to determine what portion of the employee’s cell phone bill should be paid. In fact, the court could provide no hard and fast rule, and, instead, stated that the calculation of the amount of the reimbursement must be left to “the parties in each particular case.” Not a very comforting directive.
What should employers do?
The most conservative approach would be to provide employees with company-owned smartphones to conduct business and work-related communications or, alternatively, simply pay an employee’s entire personal cell phone bill each month. However, that might not be palatable for many employers.
A more precise but time-consuming alternative would require employees to submit their entire monthly phone bill with documentation of the proportion of the calls made for work-related matters. In that scenario, the employer would determine the proration of the work‑related calls to the total calls and reimburse the employee for a pro rata percentage of the entire cell phone bill. This procedure would have to be repeated each month.
Another approach is for the employer to agree to reimburse employees at a flat rate each month, and the employee in turn agrees that (1) the amount is a reasonable estimate of the proportionate charges, including taxes and fees, that are allocable to business calls and (2) if the employee incurs business charges in any month in excess of the estimated amount, the employee will submit the entire phone bill, identifying business calls and the employer will reimburse all business charges, including the proportion of taxes and fees attributable to the business calls. If the employee routinely submits phone bills with larger work-related charges, the employer will want to increase the flat rate amount.
Employers might also create policies that limit personal cell phone access for work-related matters to management employees only to reduce the scope of reimbursements. Of course, employers would still be required to reimburse employees should they fail to strictly follow such a policy.
What is clear from the Cochran decision is that employers need to revisit their expense reimbursement policies to ensure that they are compatible with the court’s interpretation of Labor Code Section 2802. One size will not fit all and there are a variety of options available that might work better for particular employers. Certainly, the worst option is to have no policy and provide no guidance to employees regarding the use of personal smartphones to communicate on work‑related matters. At a minimum, employers need to review their cell phone and reimbursement policies now to ensure they comply with the Cochran decision and avoid unwanted liability to employees.
About the Author: David Goldman is a partner at the law firm of Wendel Rosen Black & Dean LLP where he handles a wide array of employment law, business litigation and competitive business practices counseling and litigation.