Employers Are Liable for Business Expenses When They Have Actual or Constructive Knowledge of the Expenditures

January 2010Newsletters California UPDATE Employment Law

California Labor Code § 2802 provides that an employer must reimburse its employees for all necessary expenditures and losses incurred as a direct consequence of the employment. Unlike other sections of the Labor Code, § 2802 does not directly address when this duty is triggered.

In Stuart v. RadioShack Corp., 2009 U.S. Dist. Lexis 41658 (N.D. Cal. 2009), the plaintiffs filed a lawsuit against RadioShack Corporation seeking reimbursement for expenses related to use of their own cars to perform intercompany store transfers. The issue before the court was whether an employee must first request reimbursement from his or her employer before the employer's duty to indemnify under Labor Code § 2802 is triggered.

Since Labor Code § 2802 is vague about when the duty to reimburse is triggered, the court looked to overtime cases where both federal and state courts have held that plaintiffs seeking unpaid overtime must prove that the employer "had actual or constructive knowledge of [the] alleged off the clock work." Drawing a parallel between overtime liability and expense reimbursement, the court held that, before an employer's duty to reimburse is triggered, it must either know or have reason to know that the employee has incurred an expense. Once the employer has actual or constructive knowledge of the employee's expense, it has the duty to exercise due diligence and ensure that the employee is reimbursed.

In this case, the plaintiffs failed to establish that the employer knew or had reason to know that employees were incurring mileage expense just because they used (and the company expected them to use) their personal vehicles to perform intercompany store transfers. To prevail, plaintiffs would have had to show who logged such information or otherwise received it and whether those persons' knowledge could be imputed to the company. The court also held that employers may not assert equitable defenses such as waiver, laches and equitable estoppel to avoid payment of reimbursements to employees even if the employee knowingly fails to submit a request for reimbursement.

Employers may continue to enforce deadlines and procedural requirements that employees must follow in order to request and receive work-related expense reimbursements. But even if an employee fails to follow these procedures, employers must reimburse the employee where they know or should reasonably know that the employee incurred the expense.