Litigating California Wage & Hour and Labor Code Class Actions

cost of legal counsel the employee incurred in defending a claim based on the employee’s
performance of job duties. 90 But in November 2007, the California Supreme Court in
Gattuso v. Harte-Hanks Shoppers, Inc. 91 assumed (without deciding) that Section 2802
does indeed require the reimbursement of necessary business expenses.
The most common targets for Section 2802 class actions are businesses employing large
numbers of outside salespersons who are paid on straight commission. Many such
businesses encourage their salespeople to make sales calls and to entertain clients to
generate business. In addition, many such salespeople are constantly using cell phones
because they are on the road often and lack an office. Many businesses believe that these
expenses are self-reimbursing in that employees incur expenses to generate more sales,
which generate more commissions, thereby covering those higher expenses.
Before Gattuso, the law was unclear on how the employer could satisfy its duty to
reimburse necessary expenses. The plaintiff in Gattuso argued that with respect to
business mileage, the employer had to allow employees to submit expense reports and
then reimburse the employees at the IRS mileage rate. By contrast, the defendant argued
that Section 2802 allows any method to reimburse employee expenses so long as the
employer does, in fact, reimburse the employee for the full value of all expenses
necessarily incurred on the job.
The California Supreme Court largely sided with the defendant. The Court agreed that an
employer could choose among various alternative methods to reimburse employee
mileage, including (1) tracking the actual costs to the employee for necessary fuel,
insurance, depreciation, and service, and reimbursing that amount; (2) paying the
employee a lump sum payment each month so long as the lump sum actually covered all
necessary mileage expenses; (3) paying a per-mile rate, such as the IRS mileage rate; or
(4) increasing the salespersons’ commission rate with the extra commissions being
devoted to cover the employees’ expenses. 92
The California Supreme Court did set some limits, however. For one, the Court held that,
pursuant to Labor Code Section 2804, the employer and employee could not agree to
90
91
92
See, e.g., Jacobus v. Krambo Corp., 78 Cal. App. 4th 1096 (2000) (expenses employee incurred in successful defense
against sex harassment allegations); Devereaux v. Latham & Watkins, 32 Cal. App. 4th 1571 (1995) (expenses incurred
by employee in connection with her depositions in two actions brought by third parties against her employer); Grissom
v. Vons Companies, Inc., 1 Cal. App. 4th 52 (1991) (expenses incurred by employee in defending third party lawsuit
arising out of auto accident that occurred during course and scope of employee’s employment; employee who retained
his own counsel after employer provided counsel is due reimbursement for attorney’s fees incurred because retention of
separate counsel was deemed necessary); Douglas v. Los Angeles Herald-Examiner, 50 Cal. App. 3d 449 (1975)
(expenses incurred by employee in defending lawsuit filed as a result of services rendered by employee in course and
scope of employment).
42 Cal. 4th 554 (2007) (noting the issue was not before the Court).
Gattuso, 42 Cal. 4th at 568-71, 574.
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