Misguided Ruling in Cochran v. Schwan’s Home Service, 228 Cal. App. 4th  1137 (August 12, 2014)

There is an old saying – I think it is German – that only a fool confuses loss and gain.  Let me add to that notion by noting that I would be an unhappy human if I thought that everything that was good for you was bad for me.  The world doesn’t work that way. Something good can happen to you without it hurting me in any way.   If you disagree with that notion, stop reading now.

In August 2014, the California Court of Appeal considered an employer’s obligation to reimburse its employees for the business use of their personal cell phones. The case boiled down to one central question:

Does an employer always have to reimburse an employee for the reasonable expense of the mandatory use of a personal cell phone, or is the reimbursement obligation limited to the situation in which the employee incurred an extra expense that he or she would not have otherwise incurred absent the job?

The answer from the Court was that reimbursement is always required.  Otherwise, the employer would receive a windfall because it would be passing its operating expenses onto the employee. Thus, to be in compliance with California Labor Code section 2802, the employer must pay some reasonable percentage of the employee’s personal cell phone bill.

On my to-do list is to write a letter to the California Supreme Court urging that the case be de-published (which means divested of any precedential value).  As a matter of public policy, it is a crazy result – the court analyzed section 2802 to determine benefit to the employer, when previous courts have almost always applied a “cost to the employee” test.  The decision finds that an employee must be reimbursed for a cost, regardless of whether the employee actually incurred one.  In so doing, the Court is policing alleged “windfalls” to employers rather than safeguarding employees.

If a phone company’s subscription charge requires that an employee pay $X dollars for X minutes (or a flat fee for unlimited usage) and that employee’s combined employment and non-employment use of the phone falls below X minutes (or fails to hit even a hypothetical limit), then no additional charge has been incurred by the employee.  The employee would pay the same even if he/she did not work for a company that mandated personal cell phone use.

The Cochran Court’s “benefit to the employer” test results in crazy outcomes:   Suppose I drive myself to work rather than take public transportation, getting me to work earlier than my co-workers, and this benefits my employer. Should my employer pay a portion of my car payment?   Another problem with the Court’s ruling is evidenced in its inability to give employers any specific guidance on how much of the monthly cell phone cost they should pay, or any formula or guide for determining its portion.   I believe that is because it is hard to develop a formula for reimbursing a cost that doesn’t exist or is not charged in increments.

Ok, I will step off my soapbox now.

The Cochran Court’s ruling appears pinned to “mandatory use” of personal cell phones.  The Court expressly stated, “If an employee is required to make work-related calls on a personal cell phone then he/she is incurring an expense for purposes of section 2802.”  The question for employers then, is: “Do we mandate personal cell phone use by employees?”  If the answer is “yes,” then employers should discontinue that mandate or begin to reimburse employees for their “costs.”

If an employer elects to reimburse (rather than discontinue any personal cell phone use mandate), it may consider paying a fixed monthly “phone use” allowance toward the obligation. If an employee’s actual cost incurred exceed that allowance, the employee could submit a request for reimbursement for the greater amount.   Generally, courts and the Labor Commissioner will uphold such fixed “allowance” arrangements if they are reasonably based on costs actually incurred.

As I point out above, however, with many phone plans, that “reasonably based” standard might be hard to meet.  That is so because, if an employee’s work use of his/her telephone falls within the minimum cost of the cell phone subscription, there may be no actual cost; but some rationale could likely be developed based on the ratio between cost of service to the employee and some reasonable estimate of work-related phone use.

Alternatively, employers may choose to issue company-owned phones or give employees the option of using either their own phones or a company-issued device and service. If those policies clearly and unambiguously give the employee the choice of a company-provided phone or use of a personal phone, then the employer can plausibly argue that it does not mandate personal phone use by employees.   Given the Cochran ruling it might be prudent to strengthen any policies (to make clear that personal phone use is not mandated). The use of a written notice and signed election form might also be useful.   Of course, some later court might conclude (as some commentators have) that any employee use of a personal phone for business use obligates the employer to bear some portion of the cost of the employee’s phone.