Most California small business owners are completely oblivious to the fact that they may be required to reimburse their employees for at least a portion of their personal cell phone bills. As ludicrous as that may sound, it’s the law—according to a California Court of Appeal. The decision, Cochran v. Schwan’s Home Service, Inc., came down last fall, and its forcing companies (big and small) to reevaluate their cell phone policies to avoid potential lawsuits.
Cochran held that “when employees must use their personal cell phones for work-related calls, Labor Code section 2802 requires the employer to reimburse them.” The Court refers to a provision of the California Labor Code requiring employers to reimburse employees for “all necessary expenditures or losses incurred by the employee in direct consequence” of their work, or in “obedience to the directions of the employer.” Thus for example, an employer would be required—under this provision—to reimburse an employee who ran his or her personal credit card for business purposes, perhaps to make copies at FedEx Office or to mail a package for business purposes. But can you really be required to reimburse an employee for their cell phone bill when they would be paying for service regardless of their employment with your company?
Apparently, the answer is yes. The employer in Cochran tried raising that very argument, and the Court held that it didn’t matter. Even if the employee would be paying for unlimited minutes and unlimited data out of pocket, the Cochran decision holds that employers “must pay some reasonable percentage of [their] employee’s cell phone bill[s].” The rationale—for what it’s worth—is that “[o]therwise, the employer would receive a windfall because it would be passing its operating expenses onto [its] employee[s].”
As such, we fully expect to see a rash of lawsuits in the near future with employees alleging that they should have been compensated for their personal cell phone services. Accordingly, to avoid the threat of litigation, it’s prudent to review your cell phone policy at this juncture to ensure that you are in compliance with the Labor Code. If your employees are expected to be accessible by phone or email outside of work—or if they are expected to have a cell phone (or other such device) for work purposes on the job—then it’s necessary to either provide them a work device [no one said it had to be nice], or to pay a reasonable percentage of their bill.
In any event, if your employees are not expected to have or use a cell phone, smart phone or tablet then it’s probably prudent to make that clear in order to avoid the allegation that you required use these devices. But, it’s also important to be consistent. Indeed, you may be in trouble if you say ‘no cell phone use is necessary’ if you thereafter give your employees reason to believe that they are expected to be accessible by email or phone outside of normal work hours. As they say, actions speak louder than words. Either way it’s a good idea to update your cell phone policy in your employee handbook.
Again, it’s important to emphasize that the Cochran decision requires employers to compensate employees when they must use their personal phones for work purposes, even if they have unlimited minutes. Presumably, even if the employee uses the phone for text messaging on work-related matters, Cochran requires the employer to pay a portion of his or her cell phone bill. But it’s difficult to say how much the employer must reasonably pay. It likely requires a rough approximation of how much the employee uses the phone for work related purposes.
Further, it’s hard to say how far Cochran will be stretched. To be sure, the decision raises other thorny questions—especially for businesses that allow employees to telecommute. Companies may even have an obligation to cover a portion of their employees’ home internet services bill if Cochran’s rationale is extended further. But what about the costs of their personal computer, or the employees’ home mortgage? It’s really hard to say where the madness stops.
Perhaps the best approach is to emphasize that telecommuting is—to the extent your company allows it—a privilege, and to emphasize that an employee choosing to work from home is willfully opting against using space and resources already provided by the company (at no cost to the employee). Indeed, the principle point of the Cochran decision is that employers cannot force employees to subsidize the cost of their operation. So if you require an employee to work from home, you may well have to provide some additional forms of compensation, whereas that should probably be avoided for employers who provide adequate work space, computers and other necessary tools.
Finally, on a side note, it’s important to recognize that time-spent responding to work emails and on the phone—even if conducted outside of usual work hours—is compensable for non-exempt employees. Accordingly, your policies should either discourage non-exempt employees from responding to work related emails and calls outside of work hours, or require them to record and report their time. Failure to do so may result in claims for unpaid wages—which gets costly quickly.
NFIB Small Business Legal Center’s Model Employee Handbook
If you do not have an employee handbook, check out the NFIB Small Business Legal Center’s Model Employee Handbook*. It’s free, as part of our Legal Guide Series, including our Guide to Wage & Hour Law, our Guide to Independent Contractors and more great resources.