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.

Join the Labor and Employment team at Weintraub Tobin as we present the final session of our three part wage and hour series.

Summary of Program

The ever increasing number of claims filed with the Department of Labor and California Labor Commissioner for unpaid overtime, and the increasing number of wage and hour class action lawsuits, highlight the importance of correctly classifying employees as exempt or non-exempt. This seminar is designed to help employers and HR professionals gain a more thorough understanding of the various exemptions available under California law and learn how to conduct an exemption analysis in order to reduce potential liability.

Program Highlights

  • A discussion of the exemptions available.
  • Checklists for determining if your employees are exempt.
  • How to conduct a self-audit to ensure that employees are properly classified.
  • What to do if your employees have been misclassified.

Date:    September 25,  2014

Time:  9:30 a.m. – 11:30 a.m.

For additional information and details of this seminar, please click here.  To register for this seminar, please email Ramona Carrillo at rcarrillo@weintraub.com.

While Governor Brown hailed the Legislature on August 30, 2014 for its passage of the new Healthy Workplaces, Healthy Families Act” (Assembly Bill 1522) our prior post was incorrect when it stated that he signed the new bill into law on August 30th.  In fact, the Governor signed the new bill into law on September 10, 2014.  The law becomes effective July 1, 2015.

For a full discussion of the new law, see our prior blog post at: Governor Brown Signs Paid Sick Leave Bill Into Law.

Readers of this blog are familiar with our coverage of the various cases involving high tech firms in Silicon Valley such as Google and Adobe involving alleged “no poaching” agreements that they would not solicit each other’s employees for possible employment.  Both the U.S. Government and plaintiff class action attorneys have alleged that such conduct violates anti-trust laws and/or constitutes unfair competition under California law for violating the provisions of Business and Professions Code section 16600 regarding the prohibitions on non-compete agreements.

Earlier this week, a similar class action lawsuit was filed against various entertainment companies, including DreamWorks Animation SKG and the Walt Disney Co., accusing these companies of agreeing not to “poach” each other’s animation and visual effect artists.  The suit also alleges that the defendants agreed to fix wages and salary ranges for these employees.  The plaintiffs in this new action will likely follow the “roadmap” set forth in the Silicon Valley litigation.  It remains to be seen what other industries may be targeted with similar lawsuits in the near future.

For more details concerning this latest lawsuit, please see “DreamWorks Animation, Disney sued over alleged no-poaching scheme,” Los Angeles Times, September 8, 2014.

On August 30, 2014, the Governor signed Assembly Bill 1152 into law and said “tonight, the Legislature took historic action to help hardworking Californians. This bill guarantees that millions of workers — from Eureka to San Diego — won’t lose their jobs or pay just because they get sick.”

The new law is called the “Healthy Workplaces, Healthy Families Act.”  Beginning on July 1, 2015, both public and private employers (of any size) will be required to provide eligible employees with paid sick leave “at the rate of not less than one hour per every 30 hours worked.” Eligible employees are those employees who have worked 30 or more days within a year after their date of hire.  Under the new law, exempt employees are deemed to work a 40 hour workweek.  Employees are to be compensated at the same wage as the employee normally earns during regular work hours.  The rate of pay shall be the employee’s hourly wage.  If the employee in the 90 days of employment before taking accrued sick leave had different hourly pay rates, was paid by commission or piece rate, or was a nonexempt salaried employee, then the rate of pay shall be calculated by dividing the employee’s total wages (not including overtime premium pay) by the employee’s total hours worked in the full pay periods of the prior 90 days of employment.

There are a few exceptions in which employers are not required to offer the new paid sick leave benefit and they relate mainly to employees who are covered under a collective bargaining agreement, or who work in the construction industry, the home healthcare industry, or the airline industry.

Click here to read the full article.