Employee Claims on the Rise: Unreimbursed Business Expenses

California employers must always be vigilant when navigating the often-perilous landscape of labor and employment laws to avoid claims from employees (and their attorneys). There has been a significant uptick in a particular type of claim for unwary employers: unreimbursed business expenses.

Since 2000, Labor Code Section 2802 has required employers to reimburse their employees for business expenses the employee incurred in carrying out their duties for the employer. Most employers are aware of this requirement and have policies in place to reimburse employees for things like mileage incurred for business-related travel. Prior to 2020, claims for unreimbursed business expenses were rarely the primary driver for wage and hour claims or lawsuits because the amounts owed to the employee were generally relatively modest, and the claims were very specific to the individual employee. Plaintiff’s attorneys often treated unreimbursed business expense claims as extras, focusing instead on the meatier wage and hour claims of meal and rest period violations and unpaid overtime.

Like with so many things, all of that changed with the onset of the COVID-19 pandemic in 2020. Suddenly, many employers were forced to close their physical, in-person worksites, and we saw a huge increase in the number of employees working from home. It is both predictable and completely understandable that amid responding to a global pandemic, employers may have overlooked that their suddenly remote workforce was incurring business expenses that had not previously been considered or reimbursed. If an employer requires or encourages an employee to work remotely, the employer is obligated to reimburse the employee for all expenses incurred to perform that work. There is no such obligation to reimburse expenses when the employer merely allows an employee who chooses to work remotely to do so, and the employee could otherwise perform work on site.

Business expenses incurred by remote workers may be less obvious than mileage reimbursement for travel for business trips. Some examples include internet, cell phone usage, equipment (such as chairs or a desk) for setting up a home office, and utilities such as electricity. Employers must reimburse employees for these expenses even when the employee’s actual costs (such as in the case of an unlimited cell phone plan) do not go up. Fortunately, employers do not have to reimburse their remote employees for all expenses associated with personal cell phone use, internet, and utilities- only that which represents the approximate percentage representing business use. Employers have the obligation to reimburse employees for business expenses even if the employee does not request reimbursement, if the employer knows or reasonably should have known that the employee incurred the expenses.

Because so many employees were suddenly forced into a remote work situation, there has been a significant rise in the number of class-action and representative lawsuits under the Private Attorney’s General Act (“PAGA”[1]) for unreimbursed business expenses. Unfortunately for employers, these claims become very expensive very quickly. If an employer did not properly reimburse its employees for business expenses, the employer is liable not only for the amount of the business expense, but also for the employee’s attorney’s fees, as well as statutory penalties. Below is an illustration of how quickly the expenses can balloon up.

Real World Example: A California marketing company has 30 employees. In March of 2020, in response to the COVID-19 lockdown orders, the entire company began working remotely. The company provided laptops for all 30 employees. Employees were required to log in to the Company’s internet portal, email every day, and be responsive to calls on their personal cell phones. Employees were required to log on to Zoom meetings with their teams once or twice a week. As of February 2021, the company has not returned to on-site work. For purposes of simplified math, assume each employee’s average business expense for cell phone, internet, and other utilities is $30/month. The company did not reimburse its employees for these expenses.

$30 per month x 30 employees x 12 months = $10,800

There is a civil penalty under PAGA of $100 per employee, per pay period in which the expenses were not reimbursed. The company has 2 pay periods per month.

$100 x 24 pay periods x 30 employees = $72,000

On top of the expenses and penalties, the employees are entitled to recover their attorney’s fees, which, if the case goes to trial, would easily be $200,000- $300,000. The Company would also incur its own defense costs in comparable amounts.

$10,800          Business expenses

$72,000          PAGA penalties

$250,000        Employee’s attorney’s fees

$250,000        Employer’s own defense costs


As illustrated above, the consequences for not properly reimbursing business expenses are severe. The good news is that the issue can be resolved before a claim is ever made, and employers can avoid the bulk of the potential exposure. Employers are encouraged to audit their business expense reimbursement policies and identify if there are any expenses that have not been reimbursed. If any unreimbursed business expenses are discovered, employers can reimburse employees for those expenses without the time, worry, and expense of fighting a lawsuit. Employers are encouraged to act quickly to avoid any claims or lawsuits for unreimbursed business expenses.

As always, we are here to support your employment law and HR needs. Please reach out to us if you have any questions whatsoever.


The Holden Team

[1] Labor Code Section 2699. PAGA lawsuits allow one employee with even a single labor code violation to bring a lawsuit on behalf of all other employees, for multiple labor code violations, without the other employees needing to do anything to be included in the lawsuit. PAGA claims are like class-action lawsuits, but are easier for employees to bring, because they do not have to get the class certified before proceeding with the substantive allegations of a lawsuit.