Alert
Alert
By Paula M. Weber,
09.03.14
In a far-reaching decision, the California Second District Court of Appeal held in Cochran v. Schwan’s Home Serv., Inc., Cal. Ct. App. No. B247160, (August 12, 2014) that California Labor Code section 2802 requires employers always to reimburse employees who are required to use personal cell phones for work-related calls for a reasonable percentage of their cell phone bills, even when employees have cell phone plans with unlimited minutes or the plans are paid for by third parties.
As technology has become affordable and ubiquitous, employers have allowed, and with more frequency required, employees to use their own electronic devices—cell phones, laptops, tablets, home computers, etc.—and their personal service plans in the performance of their jobs. This approach simplifies the lives of employees who don’t have to carry and manage multiple devices, and it saves employers the cost of providing devices and service plans. However, it raises serious data security and intellectual property issues. Now it may also create unexpected liability for California employers.
California Labor Code section 2802 requires an employer to:
“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, or of his or her obedience to the directions of the employer.”
Employers are used to reimbursing employees under this section for mileage, travel costs and other direct expenses that employees incur solely as a result of their work. In Cochran, the appellate court held that the reimbursement obligation under this section is also triggered when employees must use their personal cell phones for work but do not incur any additional expense.
The plaintiff in Cochran filed a putative class action against Home Service, Inc., a grocery delivery company, on behalf of 1,500 customer service managers who allegedly used their personal cell phones for work-related calls. As is common, the employer did not reimburse these employees for any portion of their personal cell phone bills. The trial court denied class certification, holding that Cochran could not prove liability on a class-wide basis because many of the customer service managers would likely have cell phone plans with unlimited minutes or plans paid for by others. The trial court concluded that these customer service managers would not have actually incurred any “loss” when they used their cell phones for work-related purposes and that the employer would therefore have no reimbursement obligation to these employees.
The appellate court disagreed and held that reimbursement is always required, and that to comply with section 2802 the employer must pay a “reasonable percentage” of the employee’s cell phone bill.
The court stated very starkly:
"If an employee is required to make work-related calls on a personal cell phone, then he or she is incurring an expense for purposes of section 2802. It does not matter whether the phone bill is paid for by a third person, or at all. In other words, it is no concern to the employer that the employee may pass on the expense to a family member or friend, or to a carrier that has to then write off a loss. It is irrelevant whether the employee changed plans to accommodate worked-related cell phone usage. Also, the details of the employee’s cell phone plan do not factor into the liability analysis. Not only does our interpretation prevent employers from passing on operating expenses, it also prevents them from digging into the private lives of their employees to unearth how they handle their finances vis-à-vis family, friends and creditors. To 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."
Unanswered Questions and Recommendations for Employers
Cochran leaves many questions unanswered:
We have no clear answers to these questions. The Cochran decision radically expands the employers’ obligation to reimburse employees and does so without any significant support outside of the court’s own thinking. The court did not cite other judicial decisions addressing this issue nor any academic research. Nor did the court explore the broader implications of its holding in the analysis of the issue. Thus, employers are left with little but speculation as to how the law will develop. Despite this uncertainty, there are steps an employer can, and should, take.
Employees often have less sophisticated anti-hacking, anti-virus and encryption software on their personal devices. There is a risk of those devices being lost without the employee informing the employer. Employees also tend to be less than rigorous in backing up the data on personal devices. All of this means that data is more vulnerable to loss and systems are more vulnerable to damage when employers allow or require employees to use their own devices.
Equally important is what happens to important and sensitive information when the employee leaves. If the information is on a personal device, getting control of that device in order to transfer or delete the information is often much more difficult than it would be if the employer owns the device and the service contract. This increases the difficulty or preventing intentional misappropriation of sensitive information or simply loss of valuable information that sits on the ex-employee’s device.
Cochran offers no guidance on the methodology to be used for arriving at the reimbursement rate. The analysis might involve review of personal versus business usage by a statistically significant number of employees in each job category, review of published data on the percentage of business usage of personal devices, or just an exercise of reasonable judgment based on articulated factors. The employer could also request that the employee submit a reimbursement request showing the amount of usage, similar to mileage reimbursement requests, although this would likely be deemed burdensome to both employees and the company. Each employer will need to evaluate the level of risk it faces and what it is willing to spend on the analysis to alleviate that risk. What we can say for certain is that the risk of liability will be significantly reduced if the employer is providing reimbursement and can show a good-faith effort to set a reasonable rate for the reimbursement.