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Labor and Employment Newsletter - April 2008

January 1, 0001

Contents


California Supreme Court Revisits Individual Liability For Retaliation Claims

In Jones v. The Lodge at Torrey Pines Partnership, 42 Cal. 4th 1158 (2008), the California Supreme Court held that: (1) inclusion of the term “person” in Section 12930(h) of the California Fair Employment and Housing Act (the “FEHA”) does not demonstrate the Legislature’s intent to allow employees to bring retaliation claims against their supervisors; and (2) the “adverse employment action” necessary to bring a retaliation claim is not more expansive than the “adverse employment action” necessary to establish a discrimination claim.

Plaintiff Jones argued that Section 12930(h) governing retaliation claims expressly applies to “any employer, labor organization, employment agency, or person [emphasis added],” thus permitting assertion of a retaliation claim individually against his supervisor. But the Court believed that inclusion of the term “person” did not unambiguously mean that a plaintiff can bring a retaliation claim against an individual, and, therefore, concluded that it was required to evaluate the legislative history surrounding the 1987 amendment to that statute in order to determine the Legislature’s intent.

Before reaching that legal issue, however, the Court engaged in lengthy review of the policy reasons why individuals should not be liable for retaliation claims. The Court heavily relied on Reno v. Baird, 18 Cal. 4th 640 (1998) (concluding that individuals could be liable for sexual harassment claims but not for discrimination claims) to note that: (1) while supervisors can avoid harassing individuals, they cannot avoid making personnel decisions; (2) it is incongruous to exempt small employers from liability for retaliation, while at the same time holding individual employees of larger employers liable for such claims; (3) allowing claims to be brought against individuals would result in conflicts of interest and the “chilling” of effective management; (4) corporate employment decisions are often collective; (5) and it is bad policy to subject supervisors to the threat of a lawsuit every time they make a personnel decision.

The Court then evaluated the statute’s legislative history to conclude that the California Legislature did not intend through addition of the term “person” to Section 12930(h) to impose liability on individuals for retaliation claims. The Court characterized the 1987 amendments to FEHA as “technical” and “conforming” changes. The Court reasoned that had the Legislature intended to amend the statute in order to impose individual liability on supervisors, which would have been controversial, the legislative history would be explicit on such a significant change.

Jones also argued that the “adverse employment action” necessary to bring a retaliation claim should be interpreted more broadly than that necessary to bring a discrimination claim. Relying on its analysis Yanowitz v. L’Oreal USA, Inc., 36 Cal. 4th 1028 (2005), the Court rejected this argument. The Court found no need to draw a distinction between the nature or quality of the “adverse employment action” necessary as a prerequisite to asserting a viable claim in either instance, and observed, instead, that such action need merely be of the type that “materially affects the terms, conditions, or privileges of employment.”

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Pre-Certification Discovery of Identities and Contact Information

One of the rapidly developing areas of the law relevant to class action employment litigation is the discoverability -- prior to class certification -- of the identities and contact information of putative class members. Plaintiffs’ counsel will often serve a document demand or special interrogatory early in the litigation seeking such information. This raises privacy issues, and defense counsel often object to disclosure on that ground.

Historically, whether because most of these disputes were resolved by compromise or by a trial court order which was not appealed, there was little appellate guidance in this area. This changed in 2007, when two high-profile cases were published directly addressing the issue, specifically Pioneer Electronics (USA), Inc. v. Superior Court (Olmstead), 40 Cal. 4th 360 (2007), and Belaire-West Landscape, Inc. v. Superior Court (Rodriguez), 149 Cal. App. 4th 554 (2007). Belaire, which was an employment case, applied the Supreme Court’s decision in Pioneer (a case involving allegedly defective consumer products) to balance the privacy rights of the putative class members against a plaintiff’s desire to find and contact putative class members. In both Belaire and Pioneer, this balancing act was achieved by sending out a notice to the putative class which gave them the right to “opt out” of the disclosure of their contact information. The court of appeal’s recent decision in Puerto v. Superior Court (Wild Oats Markets), 158 Cal. App. 4th 1242 (2008), analyzes a similar issue under a slightly different framework, and counsels in favor of employers zealously guarding the identities of putative class members.

The Puerto decision – which discusses Pioneer at length but surprisingly cited Belaire only in passing – stemmed from a wage-and-hour class action seeking overtime and other remedies on behalf of employees who allegedly were misclassified as exempt from overtime. Unlike Belaire and Pioneer, however, the discovery request at issue in Puerto sought the identity of current and former employees of the defendant who were witnesses, not necessarily putative class members. The trial court had ordered that an opt-in process was appropriate – in other words, that contact information would not be disclosed unless an individual affirmatively agreed.

The court of appeal reversed this decision, applying the same four-step balancing test that was discussed in Pioneer and Belaire. Under this test, the court must first determine if there is a legally protected privacy right at issue. If so, the court must analyze whether there is a reasonable expectation of privacy under the circumstances. If such an expectation exists, the next question is whether the potential invasion of privacy at issue is “serious in nature, scope, and actual or potential impact.” If the potential privacy invasion is serious, then the competing interests must be balanced by considering “the interest of the requesting party, fairness to the litigants in conducting the litigation, and [the] consequences” of disclosing or not disclosing the information at issue.

Like the courts in Belaire and Pioneer, the Puerto court found in the affirmative with respect to the first two parts of the Pioneer balancing test, indicating that “current and former employees unquestionably have a legitimate expectation of privacy in their addresses and telephone numbers.” The Puerto court, however, found that the potential invasion of privacy was not serious because, in response to the discovery requests seeking witness-identifying information, the defendant already had identified the individuals in question by name and admitted that they were, in fact, percipient witnesses in the litigation. Although in light of this finding the court did not believe it was necessary to reach the fourth step, it did so anyway and found that the “statutory entitlement to percipient witness discovery” weighed in favor of disclosure.

Accordingly, Puerto holds at least two lessons for employer defendants. First, employers should guard against unnecessary disclosure of personal information. Although Belaire and Pioneer recognize the sensitivity of identities and contact information, the defendant in Puerto nevertheless freely released the identities of its current and former employees, a fact which the Puerto court repeatedly cited as weakening the privacy interests at stake. Second, the defendant in Puerto provided, in response to a request for percipient witness information, what the court characterized as an “overbroad . . . general list of employees.” By admitting that the disclosed individuals were witnesses, the defendant in Puerto allowed the applicable analysis to shift to the privacy rights of percipient witnesses as opposed to the privacy rights of putative class members -- even though it is far from clear that absent putative class members are witnesses at all, at least prior to class certification.

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Marijuana Use Need Not Be Tolerated By Employers

In Ross v. RagingWire Telecommunications, Inc., 42 Cal. 4th 920 (2008), the California Supreme Court held that the protective provisions of California’s Compassionate Use Act (the “Act”), which exempts users of marijuana for medical purposes from the provisions of certain California criminal statutes, does not apply in the employment context. As a practical matter, the Court’s decision means that the Act does not require employers to hire individuals who fail drug tests for use of marijuana, even though their marijuana use might otherwise be protected from criminal liability under the Act.

Plaintiff Gary Ross was a newly-hired systems administrator for the defendant RagingWire Telecommunications, Inc. As a condition of his employment, Ross was required like all other new applicants to take a drug test. He failed. This was because Ross suffers from strain and muscle spasms in his back, and, as a result, his physician had recommended that he use marijuana to help alleviate the pain. A copy of this recommendation was provided to the clinic that administered the drug test, demonstrating Ross’ marijuana use. For purposes of the Court’s decision, it was undisputed that Ross is a qualified individual with a disability under the FEHA and receives governmental disability benefits.

Because Ross failed the drug test, however, RagingWire discharged him. Ross then sued, alleging that RagingWire violated the FEHA by discharging him because of, and by failing to make reasonable accomodation for, his disability. Essentially, Ross was asking the company to reasonably accommodate him by waiving its uniform policy against hiring individuals who fail its pre-employment drug test, and allowing him to continue to use marijuana at home.

After reviewing both the language of the Act and its legislative history, the Court found that the Act merely exempted medical users and their caregivers from criminal liability under two specific statutes, but did not purport to impact the employer-employee relationship. The Court found it telling that the legislative history was silent as to the Act’s application to employment law, and declined to grant any weight to several amicus curiae briefs submitted by legislators who purportedly had intended the Act to affect the FEHA and require employers generally to “accommodate off-duty, off-premises medical cannabis use by their employees, absent an undue hardship.” Accordingly, the Court found that Ross could not state a cause of action under the FEHA based on RagingWire’s refusal to accommodate his use of marijuana.

Ross also asserted a claim for wrongful termination in violation of public policy. Relying on the same reasoning underlying rejection of Ross’ discrimination claims, the Court found that nothing in the Act’s text or legislative history would support a “fundamental public policy requiring employers to accommodate marijuana use by employees.” The Court concluded that Ross could not state such a claim.

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District Court Finds Employers Liable For Using Out-Of-State Paycheck

In Solis v. Regis Corp., 13 Wage & Hour Cas. 2d (BNA) 192, 2007 WL 4328805 (N.D. Cal. December 10, 2007), the federal District Court for the Northern District of California granted summary judgment for the plaintiff, holding that Regis Corp. violated California Labor Code Section 212 when its subsidiaries paid their California employees with out-of-state checks.

Regis Corp.’s subsidiaries operate hair salons in California. The company processed its subsidiaries’ payroll in Chicago, and all paychecks for employees in California were drawn on the LaSalle Bank, also located in Chicago, until about the time suit was filed in 2005. For about one year, plaintiff Solis worked at one of the California salons -- a Supercuts in Thousand Oaks. To support plaintiffs’ summary judgment motion, Solis declared that she had to pay a $5 to $6 “check cashing fee” on several different occasions. In opposition, Regis Corp. submitted hundreds of declarations from employees who stated they did not have to pay a check cashing fee and/or had never been notified of any sort of “hold” being placed on their out-of-state checks.

California Labor Code Section 212(a)(1) prohibits, “in payment of wages due,” issuing “[a]ny … check … unless it is negotiable and payable in cash, on demand, without discount, at some established place of business in the state, the name and address of which must appear on the instrument . . . .” The court held that Regis Corp. violated the statute because checks issued to employees for the one-year class period did not include “the ‘name and address’ of a business in California where the checks could be cashed on demand and without discount.”

Regis Corp. argued that liability should attach, if at all, only for class members actually injured: that is, those individuals whose checks were held or who paid fees to cash them because the paychecks came from outside of California. Citing to Section 225.5, which provides a penalty for violation of Section 212 for “unlawfully withhold[ing] wages due any employee,” Regis Corp. also argued that employees who did not pay a check cashing fee or have a hold placed on their paycheck did not have wages withheld, so a penalty would be inappropriate. The court observed, however, that Regis Corp.’s argument went to the issue of penalty, not liability, and that liability was established.

The court then addressed two issues arising under the Section 225.5 penalty provision. First, the court concluded that an employer violation of Section 212 that resulted in imposition of check cashing fees and a hold being placed on a check constitute an unlawful withholding of wages. The court noted that paying a fee to cash a check meant an employee took home less than she or he was owed. The court also determined that a “hold” on paycheck cashing constituted an unlawful withholding from wages since the check was not “payable on demand.”

Second, the court focused on whether paying California employees with out-of-state checks is an unlawful withholding of wages “in and of itself” when neither a fee nor a hold is imposed. The court decided that the Legislature required more than simply violating the statute to impose a penalty under Section 225.5; there must be an actual withholding, i.e., some form of injury, for a penalty to attach.

Finally, the court evaluated Solis’ alternative argument for penalties under the Labor Code Private Attorneys General Act of 2004, which provides for a civil penalty when no penalty is specifically provided under another provision of the Labor Code. Since the penalty under Section 212 is limited to the withholding of wages, the court concluded that Section 2699 did in fact provide a penalty for a violation of the statute not accompanied by harm. Thus, employees who did not pay a cashing fee or have a hold placed on their out-of-state checks still could receive an award under Labor Code Section 2699.

This case could have serious implications for employers who have consolidated payroll in one location outside of California for subsidiaries or employees located within the state. Employers should assess their payroll practices in light of California Labor Code Section 212 and this new decision.

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Court Holds That Simply Referencing An Employee Handbook To An Arbitration Agreement Does Not Bind Employees To Arbitrate Claims

In Mitri v. Arnel Management Co., 157 Cal. App. 4th 1164 (2007), plaintiffs Mitri and Eppel sued their former employer, Arnel Management Company, Arnel’s owner and their supervisors for sexual discrimination and harassment. Arnel filed a motion to compel arbitration based on a reference to arbitration in the company’s Employee Handbook. The Handbook provides generally that “[a]ny dispute arising out of employment with the Company, as allowed by law, will be settled by binding arbitration.” But the Handbook goes on to state that “as a condition of employment, all employees are required to sign an arbitration agreement” and “[e]mployees will be provided a copy of their signed arbitration agreement.” (Emphasis added.)

The court of appeal for the fourth appellate district found that the latter Handbook provision negated Arnel’s argument that the Handbook itself constituted an arbitration agreement. And Arnel could not produce evidence showing that an arbitration contract had been provided to Mitri and/or Eppel. On these facts, the court concluded that the Handbook’s mere reference to such an agreement failed to demonstrate that plaintiffs had entered into a bilateral contract to arbitrate. Instead, the Handbook merely put Mitri and Eppel on notice that they could be required to enter into an arbitration agreement as a matter of corporate policy, but did not itself constitute a binding arbitration agreement.

The Handbook also contains a document labeled the “Acknowledgment Receipt,” which states “[m]y signature acknowledges that I have read and understood the statements above as well as the contents of Handbook.” Both Mitri and Eppel signed acknowledgment receipts, but denied ever having been given or reading the general arbitration policy in the Handbook. The court found the Acknowledgement of Receipt insufficient to create a binding arbitration agreement because it failed to reference any sort of explicit understanding and agreement by the employees to abide by the arbitration provision in the Handbook.

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No Discrimination Claim Under The Older Workers Benefit Protection Act

In Syverson v. International Business Machines Corp., 2007 WL 2904252 (N.D. Cal. October 3, 2007), defendant IBM instituted involuntary group terminations called “Resource Actions.” Over a three year period, the Resource Actions resulted in the termination of tens of thousands of employees. A group of discharged employees over 40 years old, including plaintiff Syverson, alleged that IBM refused to consider older individuals for placement in different company positions and retained younger employees to perform their job duties. All but one of the discharged employees were paid severance packages and signed a General Release and Covenant Not to Sue (the “Release”). After separation, the former IBM employees sought injunctive relief under the Older Workers Benefit Protection Act (the “OWBPA”), 29 U.S.C. § 626(f), and the Age Discrimination in Employment Act (the “ADEA”), 29 U.S.C. §§ 621 et seq.

IBM argued that, rather than creating a separate cause of action, the OWBPA only determines whether an employee has signed a valid waiver which extinguishes her or his right to bring a separate claim under the ADEA. The district court agreed and held that the plain text of the OWBPA does not alone create an independent cause of action for discrimination. The court also held that because the Ninth Circuit Court had already determined that the Release was invalid, and IBM had since stopped using it, there was no need to evaluate whether the Release would have a chilling effect on employees bringing claims under the ADEA. The Court consequently dismissed the employees’ OWBPA claim. Similarly, the Court dismissed the former employees’ ADEA claim because the complaint lacked the specificity necessary to identify the specific test, requirement or practice that had an adverse impact on older workers.

While the OWBPA governs the effectiveness of waivers or releases on ADEA claims -- and the content of and process necessary to procure such waivers and releases -- this case teaches that the OWBPA does not create an independent cause of action that a plaintiff may utilize to seek injunctive relief. Importantly, the OWBPA requires that any waiver of the right to sue under ADEA must be knowing, voluntary and at a minimum “written in a manner calculated to be understood by such individual, or by the average individual eligible to participate” in the agreement. Compliance with these prescriptions is necessary to avoid post-release challenges like those in the Syverson case.

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A California Court Holds That The Protections of the Uniformed Services Employment and Reemployment Rights Act May Not Be Waived In Severance Or Other Agreements

In Perez v. Uline, Inc., 157 Cal. App. 4th 953 (2007), a California court of appeal addressed rights provided in the Uniformed Services Employment and Reemployment Rights Act of 1994 (the “USERRA”), which prohibits termination of employment based on membership in the military or performance of military service. The court also considered whether a release that does not mention California Civil Code Section 1542 protections effectively releases unknown claims.

Plaintiff Brian Perez, a captain in the United States Marine Corps Reserves, was employed by defendant Uline, Inc. Perez was terminated in March 2003, the very day that he returned to work following duty with the Reserves and signed a Severance Agreement and Release (the “Release”) to effectuate his own termination.

The Release provided that Uline would pay Perez six weeks’ salary in return for release of any and all claims arising out of his employment with Uline, based on a variety of state and federal laws. Specifically, the Release provided that plaintiff waived:

“all claims existing as of the date [he] signs this [a]greement arising from or relating to [his] employment or the termination of his [] employment and any claims which arise under the common law of contract, implied contract, tort, public policy, or statute, such as [claims under specified legislative enactments], . . . or any other federal or state law, statute, decision, order, policy or regulation establishing or relating to claims or rights of employees, including, but not limited to, . . . any and all claims in tort or contract, based upon public policy, and any and all claims alleging breach of an express or implied, oral or written, contract, . . . or alleging misrepresentation, defamation, interference with contract, . . or wrongful discharge.”

Perez later sued alleging, inter alia, wrongful termination in violation of public policy, and that the Release was invalid under Section 1542 of the California Civil Code.

Perez founded his wrongful discharge claim on the public policy expressed in the USERRA. Importantly, the USERRA provides that its protections may not be limited by “contract, agreement . . . or other matter.” Without citation to any authority or analysis, the California court of appeal agreed with Perez that the protections of the USERRA could not be waived by the general statements provided in the Release, and reversed the lower court’s decision on that issue.

The court also held that, despite the absence of an explicit reference to Section 1542 of the California Civil Code, the waiver language found in the Release was sufficient to invoke waiver of the protections of Section 1542, which relates to claims arising out of the plaintiff’s employment that are as yet unknown to the employee. The court concluded that Perez in fact knew that he was releasing all claims arising under the statutes the agreement referred to, even those he did not know about.

Employers should be cognizant of the broad protections provided by the USERRA and the inability -- based on the court’s decision in Perez[1] -- to limit, reduce or otherwise require waiver of those protections. With respect to waiver of the protection provided by Section 1542, this case suggests that explicit mention of that Code provision in a release is not absolutely mandatory -- although it is of course advisable.

[1] This court did not address several other federal court decisions upholding waiver of USERRA rights.

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FMLA Amendments Provide Leave To Servicemembers’ Families

On January 28, 2008, President George W. Bush signed into law the National Defense Authorization Act for FY 2008 (the “NDAA”), which included the first amendments to the federal Family and Medical Leave Act of 1993 (the “FMLA”) since it was enacted. Predictably, the NDAA’s amendments to the FMLA are intended to impact and assist families with members serving in the Armed Forces. Section 585 of the NDAA amended the FMLA in two significant respects by adding: (1) an active duty leave entitlement and (2) Servicemember Family Leave. In the wake of these amendments, employers should consider revising their leave policies to capture new entitlements providing leave for servicemembers’ families.

Under the newly-added active duty leave entitlement, an employee is entitled to 12 workweeks of leave if there is a “qualifying exigency . . . arising out of the fact that the spouse, or a son, daughter, or parent of the employee is on active duty (or has been notified of an impending call or order to active duty) in the Armed Forces in support of a contingency operation.” “Contingency operation,” as defined in 10 U.S.C. 101(a)(13) and used here, essentially includes any military operation in which members of the Armed Forces are or may become involved in military actions, operations, or hostilities against an enemy of the United States or against an opposing military force. The amendments fail, however, to provide a definition of “qualifying exigency,” instead leaving this definitional chore to the Secretary of Labor.

The Department of Labor (the “DOL”) has issued notice that employers will not be obligated to provide active duty leave entitlement until the Secretary of Labor promulgates regulations addressing this issue. In spite of the need for enabling regulations, the DOL is encouraging employers voluntarily to begin providing active duty leave. Some guidance has been provided on specific situations in which leave would likely be required, and employers can begin to revise their policies accordingly.

For instance, initial references to legislative history and the comments sought by the DOL suggest that the active duty leave entitlement will have broad application to non-medical situations associated with a family member being called to or serving on active duty, and will most certainly include leave for such “exigencies” as the need to:

  • make arrangements for child care;
  • make financial and legal arrangements to address the servicemember’s absence;
  • attend counseling related to the active duty of the servicemember;
  • attend official ceremonies or programs where the participation of the family member is requested by the military;
  • attend to farewell or arrival arrangements for a servicemember; and
  • attend to affairs caused by the missing status or death of a servicemember.

The NDAA amendments to the FMLA that created the Servicemember Family Leave, however, became effective immediately. Thus, it is imperative that employers promptly align their policies with these new provisions. Under Servicemember Family Leave, a spouse, son, daughter, parent, or next of kin of a covered servicemember is entitled to a total of 26 workweeks of leave during a 12-month period to care for the servicemember. A “covered servicemember” is one who is “undergoing medical treatment, recuperation, or therapy, is otherwise in outpatient status, or is otherwise on the temporary disability retired list, for a serious injury or illness” sustained in the line of duty on active duty, which renders the servicemember medically unfit to perform his or her duties. In essence, Servicemember Family Leave merely expands upon previous leave entitlements for the care of family members by extending the leave period from 12 to 26 workweeks when the need to care for a family member is the result of injuries or illnesses sustained during military operations. In addition, the employees eligible for Servicemember Family Leave were expanded to include “next of kin,” i.e., the nearest blood relative.

The FMLA, as amended, with the new amendments highlighted in bold and italics can be found here, and the Notice of Proposed Rulemaking to Amend the FMLA Regulations can be found here. California employers will also want to ensure they have addressed California Military and Veterans Code § 395.10, effective October 9, 2007, which creates a new leave of absence right for spouses of military personnel while such military personnel are on a leave of absence from deployment during a military conflict.

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No-Match Letters From The Social Security Administration

The February 2007 edition of the Employment News reported on a recently published regulation from the Bureau of Immigration and Customs Enforcement, part of the Department of Homeland Security (the “DHS”). The final rule, “Safe-Harbor Procedures for Employers Who Receive a No-Match Letter,” issued in August 2007 and addressed what an employer should do after receiving a “no-match” letter from the Social Security Administration.

A variety of plaintiffs, including the American Federation of Labor and Congress of Industrial Organizations (“AFL-CIO”), the American Civil Liberties Union (“ACLU”) and other unions and business groups, filed an action to block enforcement of the rule. On October 10, 2007, federal judge Charles Breyer of the Northern District of California granted a preliminary injunction that prevented the DHS from enforcing its new rule. Judge Breyer found that plaintiffs raised serious questions as to whether: (1) the new rule was “arbitrary and capricious” because the DHS did not provide a “reasoned analysis” for the agency’s change in position on the sufficiency of a no-match letter alone to put an employer on notice of an employee’s undocumented immigration status; (2) the government “exceeded its authority by interpreting IRCA’s anti-discrimination provision”; and (3) the DHS violated the Regulatory Flexibility Act because it failed to undergo a final flexibility analysis, which would have summarized issues raised by the public comments on the rule and would have included the agency’s assessment of the issues and what it would do to minimize the economic impact on small businesses.

On November 23, 2007, the DHS filed a motion requesting a stay of the lawsuit, in order to give the DHS time to revise and reissue the rule. On December 5, 2007, the DHS also appealed Judge Breyer’s order for a preliminary injunction. In a press release that day, Secretary of the DHS, Michael Chertoff, said “I believe that the No-Match Rule is a major step forward in preventing employment of illegal migrants. . . . DHS is not abandoning it.” On March 21, 2008, the DHS announced its “Supplemental Proposed Rulemaking for the No-Match Rule.” The supplemental proposed rule is intended to respond to the district court’s three findings as well as to clarify parts of the August 2007 Final Rule, but it does not change the steps an employer can take after receiving a no-match letter. Information regarding the supplemental proposed rule was published in the Federal Register on March 26, 2008; comments can be submitted until April 25, 2008. See here.

If the DHS is successful in promulgating the Safe Harbor rule, employers may have to set up new procedures for clearing discrepancies in the 90-day timeframe laid out by the rule. (See February 2007 Employment News.) Employers may face more criminal or civil liability for knowingly employing an undocumented alien if they do not address the questions raised by the no-match letter.

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California Supreme Court Determines That Lump-Sum Method Of Travel Reimbursement Is Lawful

As discussed in the February 2007 edition of the Employment News, Gattuso v. Harte-Hanks was pending review in the California Supreme Court. In November 2007, the California Supreme Court held that California Labor Code § 2802(a) “does not restrict the methods by which the employer may calculate reimbursement, and that section 2802 requires only that whatever method is used result in full reimbursement for actual expenses necessarily incurred by the employee.” 42 Cal. 4th 554 (2007). Employers may satisfy their statutory obligations by paying employees increased wages or commissions instead of separately reimbursing them for actual expenses or miles, provided that the lump-sum amount is sufficient to reimburse employees fully for all expenses incurred. An employer is therefore not required to keep reimbursement for travel entirely separate from salary and commissions. The Court emphasized, however, that employers must communicate to employees the apportionment method used, and identify the portion of overall compensation intended as reimbursement for work-related expenses.

The Court’s decision is at odds with the proposed regulation issued by the Division of Labor Standards Enforcement regarding the calculation of travel reimbursement. Under its proposed regulation, employers would be required to compensate employees per mile traveled at the current IRS mileage reimbursement rate. More discussion about Gattuso and alternative reimbursement methods can be found on page 10 of the February 2007 edition of Employment News.

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