California law mandates that employers reimburse employees for work-related expenses. Under section 2802 of the California Labor Code, “[an] employer shall 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.” Cal. Lab. Code § 2802(a). Among the items that may require reimbursement in California are office supplies, uniform costs, travel expenses, and mandatory training. In addition, an employer must reimburse its employee for a reasonable percentage of the employee’s cell phone bill where personal cell phone use is required as part of the employee’s job duties. Employers are also required to reimburse employees for costs associated with use of a personal vehicle for work-related purpose. The duty to reimburse for business expenses arises where an employer “know[s] or ha[s] reason to know that the employee has incurred an expense.” Stuart v. Radioshack Corp., 641 F. Supp. 2d 901, 904 (N.D. Cal. 2009).
On May 9, 2016, Gina McLeod – a California-based Loan Officer for Bank of America – filed a class action lawsuit alleging that she and other loan officers were not properly reimbursed for use of their personal vehicles in the performance of their job duties. According to McLeod’s First Amended Complaint, Bank of America “expect[ed] and requir[ed] Loan Officers to drive their own vehicles to and from sites of customers and prospective customers and to and from Bank of America’s offices, facilities, and branches.” First Am. Compl., ¶ 3, McLeod v. Bank of Am., N.A., No. 16-cv-03294-EMC, (N.D. Cal.). However, as further alleged by McLeod, Bank of America expected its Loan Officers to “pay . . . expenses incurred operating their personal vehicles” and “refused to timely and fully reimburse [McLeod] and other present and former Loan Officers for [those] business expenses.” Id.
On December 13, 2017, Judge Edward Chen of the United States District Court for the Northern District of California granted McLeod’s motion to certify her class of nearly 1,900 California Loan Officers. Among other findings, Judge Chen concluded that McLeod presented “substantial evidence of a widespread practice of not reimbursing Loan Officers for mileage incurred,” and that Bank of America “was not only aware that Loan Officers routinely used their personal vehicles, but indeed encouraged them to do so.” See McLeod v. Bank of Am., N.A., 2017 U.S. Dist. LEXIS 205273, at *16-19 (N.D. Cal. Dec. 13, 2017). On August 16, 2018, after time-consuming negotiations, the parties agreed to settle McLeod’s case for $11 million. Pl.’s Mot. for Prelim. Approval of Class Action Settlement, at 4, McLeod v. Bank of Am., N.A., No. 16-cv-03294-EMC, (N.D. Cal.). McLeod’s motion for preliminary approval of the settlement was filed on October 9, 2018 and was set for hearing on October 23, 2018.
The McLeod case illustrates the need for employers to exercise diligence with respect to reimbursing employees for business-related expenses, particularly employees’ use of personal vehicles for business reasons. In Gattuso v. Harte-Hanks Shoppers, Inc., 42 Cal. 4th 554 (2007), the California Supreme Court recognized the ways in which employers may reimburse employees for personal vehicle use: (1) based on actual expenses; (2) based on a lump sum payment; or (3) based on mileage. Of these three, the latter is typically seen as the most practical and least burdensome reimbursement option. Further, California’s Division of Labor Standards Enforcement – the state entity responsible for enforcing wage-and-hour laws – considers payment of a reasonable mileage reimbursement rate as sufficiently covering employee operating costs associated with use of a personal vehicle for business. The Internal Revenue Service’s standard mileage rate, which is used to calculate tax deductions related to vehicle use, is typically viewed as reasonable (though that rate is not required).
As demonstrated by the McLeod case, an employer may face potential claims not only for known expenses, but under circumstances when it should have known that employees were incurring personal costs to the employer’s benefit. To ensure compliance with California law, employers should have policies and procedures in place to make certain that employees are properly reimbursed for work-related expenses. Further, employers should provide training and engage in consistent communications regarding the types of expenses that are reimbursable and the applicable processes. For example, as part of the proposed McLeod settlement, Bank of America must (1) send monthly email reminders to Loan Officers and their supervisors informing them about being able to seek reimbursement for business-related travel; (2) train newly-hired Loan Officers regarding reimbursement procedures; (3) provide refresher training to existing Loan Officers and their supervisors regarding reimbursement procedures; and (4) train Loan Officers and supervisors on how to access Bank of America’s reimbursement software on a smartphone.