Who Pays the Bill for Updates to the At-Home Office in the Era of Teleworking, the Employer or the Employee?

Photo by Augusto Lopes on Unsplash

Rachel Ford, Associate Member, University of Cincinnati Law Review

I. Introduction

The Covid-19 pandemic turned work as Americans knew it on its head.[1] As “nonessential” businesses shut their doors to follow Covid-19 ordinances,[2] employers and employees scrambled to figure out how to continue operations without coming into close contact with others. For 71% of working Americans, this led to an abrupt transition to working from their kitchen tables and home offices.[3] Employees could no longer rely on their employers’ comfortable, ergonomic office chairs and standing desks when working, nor could they rely on employers’ fully equipped supply room when printing documents, taking notes, or flagging pages. Pew Research found that only 20% of working Americans worked from home before the Covid-19 outbreak in March 2020.[4] Thus, it is likely that 51% of working Americans did not have the requisite infrastructure to work from home full time.[5] In simpler terms, it is likely that 51% of Americans had to purchase supplies when transitioning to working from home full time.[6] According to Global Workplace Analytics president Kate Lister, the average employer saves around $11,000 per year “‘for every full-time employee that works home 50% of the time.’”[7] Before the Covid-19 pandemic, working from home was seen as a privilege, and the majority of employees absorbed the costs in favor of the perk they were getting.[8] Now that employees are forced to work from home, their mindsets have changed with regard to “covering their home office expenses,”[9] and employers are likely saving even more. The question this article seeks to answer is who pays for these work-related purchases, the employer or the employee?

A few states have statutes requiring the employer to reimburse its employees for work-related expenditures.[10] Other states have statutes speaking to the notion that employers can reimburse employees for work-related but do not mandate the reimbursement.[11] At least eight states and the District of Columbia have statutes speaking to this issue.[12] Additionally, federal law is not silent on this issue; the Fair Labor Standards Act (“FLSA”) has a provision regarding employer reimbursement.[13] Because of this variety of standards, the answer to this issue is given the all-too-familiar “it depends” on which state’s laws govern. However, it also depends on whether the employer and employee have an agreement regarding reimbursement.

II. Background and Discussion

Like many other employment law issues, the issue of whether an employer must reimburse an employee for work-related expenditures depends on the governing state. In this section, the federal standard for employer reimbursement requirements discussed, along with the two states that require mandatory employer reimbursement: California and Illinois.

A. The Majority of States: The Fair Labor Standards Act

According to the Supremacy Clause of the Constitution, the Constitution and all federal laws made under it preempt state laws that contradict their federal counterparts.[14] So, for example, no state can enact a minimum wage beneath the federal minimum wage because the federal minimum wage takes supremacy over any state minimum wage enactment. This concept controls the issue of employer reimbursement for work-related expenditures, and the FLSA is the governing statute.

The FLSA was first enacted in 1938 to establish a minimum wage, overtime pay, recordkeeping, and child labor standards and has been amended many times since.[15] The FLSA and the Code of Federal Regulations briefly speak to the issue of employer reimbursement for an employee’s work-related purchases under the guise of its minimum wage standard.[16] The FLSA and the Code of Federal Regulations do not require employers to reimburse employees for work-related expenses generally; they only require employer reimbursement when employee work-related expenditures would push the employee’s pay below the mandated minimum wage[17] and overtime compensation thresholds.[18] So, for the majority of states that do not have statutes speaking to employer reimbursement, the FLSA and corresponding code provision’s baseline standard will apply.

Under the FLSA’s standard, what work-based expenses should an employer expect to pay? Many cases have spoken to this issue under a variety of contexts, such as travel and visa expenses,[19] pre-employment expenses,[20] physical examinations and drug tests,[21] and telephone expenses.[22] Ultimately, the standard under the FLSA is if the employee-paid expense forced the employee’s wage under the federally-required minimum, the employer is required to reimburse the costs the employee paid.[23] This does not apply to the cost of furnishing an employee with “board, lodging, or other facilities,” which can be considered as an employees’ wages per 29 U.S.C. § 203(m).[24]

29 C.F.R. § 531.35 deals with reimbursement of items that are “tools of the trade,” and, for this reason, the majority of work-from-home expenses are likely to be included under 29 C.F.R. § 531.35.[25] Under 29 C.F.R. § 531.35, the crux to whether a specific expense is eligible for employer reimbursement depends on whether (1) the item is primarily used for the benefit of the employer and (2) the item is a normal living expense.[26] If the item is primarily used for the benefit of the employer and is not a normal living expense, the employer cannot deduct the item’s cost from the employee’s wage “to the extent it reduces pay below the minimum wage.”[27] Additionally, training expenses and other pre-employment expenses are allowed to be deducted from the employee’s wage so long as the deduction does not reduce the employee’s wage below the federal minimum wage.[28] However, an employer may not require an employee to return wages already paid to the employee.[29]

While it is important for employers to adhere to this requirement, the standard seems quite easy to meet: an employee’s work-specific expenses, which are primarily used for the benefit of her employer and are not normal living expenses, cannot be so high as to force her wages below the federal minimum wage. Yet, employers are still encouraged (by their legal counsel) to consider negotiating reimbursement agreements with their employees or provide their employees with a fixed monthly stipend for work-related expenses.[30] Before businesses were forced to close their doors due to the Covid-19 pandemic, employers likely did not have to worry about this issue because many remote workers did not earn wages close to the federal minimum.[31] Even now, when employers are encouraged and sometimes required to offer teleworking, low-wage workers are less likely to have the option to work remotely.[32] Because of this, the FLSA’s standard for employer reimbursement does not apply to many employers.

B. Mandatory Reimbursement

Two states have mandatory reimbursement statutes: California and Illinois.[33] While both require mandatory employer reimbursement, there are minor differences. This section will discuss both mandatory employer reimbursement standards.

i. California

California Labor Code § 2802 governs the mandatory employer reimbursement standard.[34] § 2802 requires an employer to indemnify his or her employee for all necessary expenditures or losses incurred by the employee in direct consequence of the discharge of his or her duties, or of his or her obedience to the directions of the employer, even though unlawful, unless the employee, at the time of obeying the directions, believed them to be unlawful.[35]

The statute explains that “necessary expenditures or losses” includes “all reasonable costs,” including attorneys’ fees relating to the employee’s enforcement of § 2802.[36] Simply by looking at the plain language of the statute, § 2802 is broad and covers any reasonable employee expense. California courts have held that determining whether an expense is “necessary” pursuant to § 2802 depends on “the reasonableness of the employee’s choices.”[37] Consequently, California courts have held personal cell phone usage for work-related calls as required reimbursement, especially if the employer mandates use of the employee’s personal cell phone.[38]

Under § 2802, California legislators and courts have created a broad standard for employer reimbursement of employee expenses. However, if an employer provides an in-person opportunity for an employee and the employee elects to work from home, the expenses are not considered “necessary expenditures or losses incurred by the employee in direct consequence of the discharge of his or her duties.”[39] The question remains unanswered in California courts of whether reasonable expenses must be indemnified when an employee is required to telework.

ii. Illinois

820 ILCS 115/9.5 requires an employer to reimburse “an employee for all necessary expenditures or losses incurred by the employee within the employee’s scope of employment and directly related to services performed for the employer.”[40] The statute defines “necessary expenditures” as “all reasonable expenditures or losses required of the employee in the discharge of employment duties and that inure to the primary benefit of the employer.”[41] The statute exempts costs due to the employee’s negligence, normal wear, and theft that is not the result of the employer’s negligence.[42] The statute also requires employees submit requests for indemnification 30 days after the purchase.[43] Employers who have an established, written expense reimbursement policy are exempted from the statute.[44]

Thus, both employers and employees must be aware of this statute; employees must start the indemnification process, and employers must pay reasonable, work-related expenses. If employers are even more prepared, they will create written reimbursement policies to avoid the statute’s purview altogether. This statute is relatively new – it was enacted in 2019 – so there is no case law defining what expenses are “reasonable” and what expenditures are “necessary.” Because there is no caselaw, some lawyers are using California caselaw to interpret the Illinois statute.[45] However, the Illinois statute seems to be slightly more conservative than the California statute, with its exemption section for employers who have written policies and its requirement that employees start the indemnification process.

Because the Illinois statute provides more clarity, it is superior to both the California statute and the federal regulation. Also, it is reasonable; it mandates employer reimbursement incurred within the employee’s scope of employment and directly related to the employee’s work for the employer. The Illinois statute does not let employers get out of paying for expenses that directly benefit it, but it requires the employee to ask for a reimbursement.

III. Conclusion

Clearly, each standard is unique. For this reason, it is important to check each state’s laws to determine whether an employer is required to reimburse employee expenses and what expenses the employer is required to reimburse. Federally, the threshold is low: An employer must reimburse employee expenses that are used primarily for the employer’s benefit if the expense makes the employee’s wages below the federal minimum.[46] The majority of states do not have employer reimbursement requirement codified, so they refer to the federal standard. The highest standards are codified in California and Illinois; both require employers to reimburse employee expenditures, within reason.[47] Other states have codifications slightly higher than the federal standard but not quite as high as California and Illinois.[48] As always, it is important to check each jurisdiction to know its employer-reimbursement rule.

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[1] See Kim Parker, Juliana Menasce Horowitz, & Rachel Minkin, How the Coronavirus Outbreak Has – and Hasn’t – Changed the Way Americans Work, Pew Research Center (Dec. 9, 2020) https://www.pewresearch.org/social-trends/2020/12/09/how-the-coronavirus-outbreak-has-and-hasnt-changed-the-way-americans-work/ (highlighting the newfound perks, struggles, and different ways of working Americans during the Covid-19 pandemic).

[2] See, e.g., Corey Franklin, Karen Milner, & Jamie Westbrook, St. Louis City and County Stay at Home Orders Extended Indefinitely – Will be Reevaluated in Mid-May, FordHarrison (Apr. 17, 2020) https://www.fordharrison.com/st-louis-city-and-county-issue-stay-at-home-orders-effective-march-23-2020 (focusing on the St. Louis City and St. Louis County ordinances requiring all nonessential business to cease in-person activities indefinitely).

[3] Parker, Horowitz, & Minkin, supra note 1 (finding that 71% of Americans currently worked from home due to the Covid-19 pandemic, as compared to a mere 20% who worked at home before the Covid-19 pandemic).

[4] Id.

[5] Id.

[6] See, e.g., Danielle Abril, Computer monitors and other work-at-home essentials are in big demand in the coronavirus era, Fortune (Mar. 16, 2020 at 6:44 PM) https://fortune.com/2020/03/16/work-from-home-tech-products-sales/ (highlighting the sharp increase in demand for working from home products shortly after the Covid-19 outbreak began in the United States).

[7] Kathryn Reed, California employers must reimburse expenses for certain remote workers, lawyers say, The North Bay Business Journal (December 7, 2020), https://www.northbaybusinessjournal.com/article/article/california-employers-must-reimburse-expenses-for-certain-remote-workers-la/?artslide=0.

[8] Id.

[9] Id.

[10] See, e.g., 820 Ill. Comp. Stat. Ann. 115/9.5 (2019); Cal. Lab. Code § 2802 (Deering 2016).

[11] See, e.g., 43 Pa. Stat. Ann. § 260.3 (1977); Iowa Code § 91A.3(6) (2008).

[12] See Navigating Expense Reimbursement for “Work From Home” Employees,McGuireWoods (March 30, 2020), https://www.mcguirewoods.com/client-resources/Alerts/2020/3/navigating-expense-reimbursement-for-work-from-home-employees; Nicole Krueger & Jo Ellen Whitney, Reimbursing Employee Remote Work Costs, JDSUPRA (September 11, 2020), https://www.jdsupra.com/legalnews/reimbursing-employee-remote-work-costs-89593/ (highlighting reimbursement statutes relating to labor and employment in Illinois, California, Massachusetts, Pennsylvania, Montana, Iowa, New York, New Hampshire, and the District of Columbia, collectively).

[13] See 29 C.F.R. 531.35 (1967); see also Kathleen Caminiti & Maxim Doroshenko, Covert Costs Of The COVID-19 Pandemic: Expense Reimbursement For Remote Workers, Fisher Phillips (May 30, 2020), https://www.fisherphillips.com/resources-alerts-covert-costs-of-the-covid-19-pandemic.

[14] U.S. Const. art. VI, cl. 2 (“This Constitution, and the laws of the United States which shall be made in pursuance thereof; … shall be the supreme law of the land; and the judges in every state shall be bound thereby, anything in the Constitution or laws of any State to the contrary notwithstanding.”)

[15] Handy Reference Guide to the Fair Labor Standards Act, U.S. Dept. of Lab. (Sept. 2016) https://www.dol.gov/agencies/whd/compliance-assistance/handy-reference-guide-flsa.

[16] See Fair Labor Standards Act, 29 U.S.C.S. § 206 (LexisNexis, Lexis Advance through Pub. L. No. 116-259, approved December 23, 2020); see also “Free and clear” payment; “kickbacks,” 29 C.F.R. § 531.35 (2020).

[17] At the time this article is being written, the federal minimum wage sits at $7.25. See U.S. Dept. of Lab., supra note 15. However, there is a large political push to raise the federal minimum wage to $15.00. For more on the political movement for a higher federal minimum wage, see, generally, Fight For $15, https://fightfor15.org/ (last visited February 26, 2021).

[18] Fair Labor Standards Act, 29 U.S.C.S. § 206 (LexisNexis, Lexis Advance through Pub. L. No. 116-259, approved December 23, 2020); see also “Free and clear” payment; “kickbacks,” 29 C.F.R. § 531.35 (2020).; see also McGuireWoods, supra note 12.

[19] Castellanos-Contreras v. Decatur Hotels LLC, 622 F.3d 393, 400 (5th Cir. 2010).

[20] Martinex-Bautista v. D&S Produce, 447 F. Supp. 2d 954, 963 (E.D. Ark. 2006).

[21] Montoya v. CRST Expedited, Inc., 404 F. Supp. 3d 364, 377 (D.Mass. 2019).

[22] Viet v. Le, 951 F.3d 818, 826 (6th Cir. 2020).

[23] Id.

[24] Montoya, 404 F. Supp. 3d at 389-90, quoting Arriaga v. Fla. Pac. Farms, L.L.C., 305 F.3d 1228, 1235 (11th Cir. 2002), quoting 29 U.S.C. § 203(m).

[25] “Free and clear” payment; “kickbacks,” 29 C.F.R. § 531.35 (2020).

[26] Montoya, 404 F. Supp. 3d at 392-93.

[27] Id.

[28] Id. at 393.

[29] Id. quoting Stein v. HHGREGG, Inc., 873 F.3d 523, 535 (6^th Cir. 2017).

[30] See Christina Jaremus, Kyle Petersen, Daniel Small, & Gena Usenheimer, Expense Reimbursements in the Era of Remote Working, Seyfarth Shaw LLP (Jan. 21, 2021), https://www.wagehourlitigation.com/uncategorized/expense-reimbursements-in-the-era-of-remote-working/.

[31] Caminiti & Doroshenko, supra note 13.

[32] Parker, Horowitz, & Minkin, supra note 1.

[33] See Cal. Lab. Code § 2802 (Deering 2016); 820 Ill. Comp. Stat. Ann. 115/9.5 (2019).

[34] Cal. Lab. Code § 2802 (Deering 2016).

[35] Id.

[36] Id.

[37] Gattuso v. Harte-Hanks Shoppers, Inc., 42 Cal. 4th 554, 568, 67 Cal. Rptr. 3d 468, 479, 169 P.3d 889, 897-98 (Cal. 2007) (The court provided an example of when an employee’s choice would require the employer to determine whether it was a reasonable cost: When an employee uses a car for work. Car costs are highly dependent on which car the employee chooses, so the court, in dicta, said that the employer and employee must exercise judgment “to determine whether the expenses incurred were reasonable and therefore necessary”).

[38]  Cochran v. Schwan’s Home Serv., Inc., 228 Cal. App. 4th 1137, 176 Cal. Rptr. 3d 407, 409 (Ct. App. 2014).

[39] Novak v. Boeing Company, NO. SACV 09-01011-CJC(ANx), 2011 U.S. Dist. LEXIS 83031, 2011 WL 9160940, at *3 (C.D. Cal. July 20, 2011), quoting Cal. Lab. Code § 2802 (Deering 2016).

[40] 820 Ill. Comp. Stat. Ann. 115/9.5 (2019).

[41] Id.

[42] Id.

[43] Id.

[44] Id.

[45] See Christopher Hennessy & Jeremy Glenn, Telework May Bring Reimbursement Claims For Ill. Employers, Law360 (Apr. 10, 2020) https://www.law360.com/articles/1260937/telework-may-bring-reimbursement-claims-for-ill-employers.

[46] See “Free and clear” payment; “kickbacks,” 29 C.F.R. § 531.35 (2020).

[47] See Cal. Lab. Code § 2802 (Deering 2016); 820 Ill. Comp. Stat. Ann. 115/9.5 (2019).

[48] See McGuireWoods, supra note 12; Krueger & Whitney, supra note 12 (noting the employer-reimbursement statutes in Massachusetts, Pennsylvania, Montana, Iowa, New York, New Hampshire, and the District of Columbia).