Business Expense Reimbursement: Key Compliance for California Employers
Introduction
California law requires employers to reimburse employees for all necessary expenditures and losses incurred in direct consequence of performing job duties or following employer instructions. Failure to fully reimburse these costs results in employer liability.
Lab. Code § 2802(a).
Essential Elements of a Reimbursement Claim
To prevail, an employee must prove:
Expenses or losses were incurred directly due to discharging job duties or obeying employer directions;
The expenditures or losses were necessary and reasonable;
The employer failed to reimburse for the full amount; and
The uncompensated amount.
“Necessary expenditures or losses” may include costs an employee would have incurred even if those costs were also a direct consequence of job duties or employer instructions.
Lab. Code § 2802(a).
Scope of Reimbursement
Reimbursement under Labor Code section 2802 covers a broad array of expenses and losses—including certain personal expenses when incurred for business purposes. For example, an employee’s personal cellphone bill may be partially reimbursable if used for work-related calls.
Cochran v. Schwan’s Home Serv., Inc., 228 Cal. App. 4th 1137, 1144 (Ct. App. 2014).
Reasonableness of Employee Choices
When calculating reimbursable amounts, employers may consider whether an employee’s choices—like selecting a high-priced vehicle, specific brands, or costly providers—are reasonable for performing the job. Only reasonable expenses are necessary and subject to reimbursement under the statute.
Gattuso v. Harte-Hanks Shoppers, Inc., 42 Cal. 4th 554, 568 (Cal. 2007).
Practical Guidance for California Employers
Reimburse all reasonable and necessary business expenses, whether incurred at the worksite or remotely.
Review and document your expense reimbursement policy for clarity and compliance.
If work-related activity causes a personal expense, determine a fair portion for business use.
Assess and document the reasonableness of employee choices influencing costs.
Do not pass operating expenses onto employees or contractually waive reimbursement rights.
Bottom Line
California employers must reimburse employees for necessary and reasonable business expenses resulting from job duties or employer instructions. Attention to scope, reasonableness, and careful documentation is key to compliance and risk management.
Citations
Lab. Code § 2802(a); Cochran v. Schwan’s Home Serv., Inc., 228 Cal. App. 4th 1137 (Ct. App. 2014); Gattuso v. Harte-Hanks Shoppers, Inc., 42 Cal. 4th 554 (Cal. 2007).
