Alerts and Updates

California Appellate Court Tells Employers to Pay Part of Employees' Cell Phone Bills or Face Class Action Liability

September 2, 2014

While the law in this area continues to evolve, employers with California-based employees may wish to work with legal counsel to determine best practices related to expense reimbursements.

On August 12, 2014, the California Court of Appeal, Second Appellate District, ruled in Cochran v. Schwan's Home Service, Inc. that employers are required to reimburse employees for all business-related calls made or received on an employee's personal cell phone. In what is likely to be an influential decision, the court stated:

"We hold that when employees must use their personal cell phones for work-related calls, Labor Code section 2802 requires the employer to reimburse them. Whether the employees have cell phone plans with unlimited minutes or limited minutes, the reimbursement owed is a reasonable percentage of their cell phone bills."

In this case, employee Colin Cochran sought to bring a class action lawsuit on behalf of himself and similarly situated employees for his employer's alleged failure to reimburse its employees for use of their personal cell phones for work-related calls. The trial court denied class certification for the claim, holding that the claim was not suitable for class treatment because individual issues predominate. The trial court reasoned that individual inquiries would be required to determine whether an employee actually suffered an injury, citing that many employees have "unlimited minutes" plans or do not pay their own cell phone bill.

The appellate court disagreed with the trial court's reasoning, holding that any business-related costs passed on to a third party, whether or not actually passed to the employee, were a violation of California Labor Code section 2802, which requires an employer to indemnify employees for all business-related expenses. The appellate court further reasoned that it was irrelevant whether the employee had an "unlimited minutes" plan or actually paid his or her cell phone bill because the sole issue is whether the business should be required to reimburse the expense. The court held that "[t]o show liability under section 2802, an employee need only show that he or she was required to use a personal cell phone to make work-related calls, and he or she was not reimbursed."

What This Means for Employers

Because an employee need only show that the employer did not provide reimbursement for work-related calls made on a personal cell phone, employers may want to review and update their cell phone and reimbursement policies to specify that the work-related calls required to be made on personal cell phones are eligible for reimbursement. The policies should require employees to track and submit expense reports related to any work-related calls. If the actual cost cannot be determined, the policy should state that the employee will be reimbursed for a "reasonable percentage" of the bill. The court did not provide guidance on what constitutes a "reasonable percentage."

To the extent employers require employees to use a cell phone for work, employers should consider providing their employees with cell phones and/or voice and texting plans.

Finally, employers can potentially avert the issue altogether by clarifying that cell phones are not needed and should not be used for work.

Potential Impact on Other Policies and Practices

The court's holding in this case may have far-reaching implications. By analogy, the court's reasoning could also apply to an employee's use of personal electronics to access a company's electronic communication systems (i.e., accessing email and voicemail from a personal computer, tablet, cell phone or home phone). If this ruling survives further challenges, an employer could be held liable to reimburse a "reasonable percentage" of an employee's home Internet, cell phone or home phone bill based on an employee’s accessing email and voicemail from these devices.

While the law in this area continues to evolve, employers with California-based employees may wish to work with legal counsel to determine best practices related to expense reimbursements.

For Further Information

If you have any questions about this Alert, please contact any of the attorneys in our Employment, Labor, Benefits and Immigration Practice Group or the attorney in the firm with whom you are regularly in contact.

Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.