Los Angeles-Area Employers Must Reimburse Employees for Work-Related Calls on Personal Cell Phones

Authors: Beth P. Zoller, XpertHR Legal Editor, and Alice Gilman

August 25, 2014

An employer is required to reimburse employees who use their personal cell phones for work-related purposes, a California appeals court has ruled.

The ruling in Cochran v. Schwan's Home Service, Inc. sheds light on important issues for employers with respect to BYOD (Bring Your Own Device), the practice of allowing employees to use their own personal devices such as cell phones and tablets for work-related purposes. The case also serves as a reminder to employers that, in order to reimburse employees for their work-related use of a personal cell phone on a tax-free basis, they must comply with certain rules of the Internal Revenue Code (IRC).

Although the ruling applies only to employers operating in California's Second Appellate District - which hears appeals from San Luis Obispo, Santa Barbara, Ventura and Los Angeles counties - employers throughout the state should consider following it anyway. In the absence of conflicting rulings from other California appeals courts, a similar lawsuit filed in other California jurisdictions would likely succeed if the court hearing it finds the Cochran ruling persuasive.

Details of the Ruling

In Cochran, an employee who was required to use his personal cell phone for work-related purposes, but was not reimbursed by his employer, sought to bring a class action lawsuit in state court against his employer on behalf of himself and 1,500 customer service managers. A state trial court, however, refused to certify the class. It ruled that, although the class was large enough, the proliferation of unlimited data plans, for which employees did not incur additional costs for work-related phone calls, made it impossible to assess the employer's liability on a class-wide basis.

After considering whether employees would have bought a different cell phone plan to account for their business usage, the trial court concluded that each employee's cell phone plan would need to be inspected to determine the extent of the employer's liability. The employee appealed the denial of class certification.

The appellate court reversed the trial court's ruling. It said an employer must always reimburse an employee for reasonable expenses related to the mandatory, work-related use of a personal cell phone, not just in situations in which an employee incurs an extra expense that he or she would not have otherwise incurred absent the requirements of the job.

"To be in compliance with [California's labor code], the employer must pay some reasonable percentage of the employee's cell phone bill. Because of the differences in cell phone plans and worked-related scenarios, the calculation of reimbursement must be left to the trial court and the parties in each particular case." The appellate court remanded the case to the trial court with instructions to certify the class and allow the employee to use statistical sampling to determine the employer's liability.

How Can an Employer Protect Itself?

In light of this ruling, an employer should protect itself and minimize the risk of liability by developing and implementing workplace policies and procedures governing employee use for work-related purposes of personal cell phones and other electronic devices. Options include the following:

• Provide a cell phone to employees for business use. Under Internal Revenue Code (IRC) § 132, the value of a cell phone provided to employees for business reasons and, for employees who are required to use their personal cell phones at work, an employer's reimbursement of employees' monthly phone and data plan charges, qualify as tax-free working condition fringe benefits to the employees. However, to be tax-free, an employer must have a substantial, noncompensatory business purpose for requiring employees to use cell phones (e.g., an employer must be able to contact employees at all times for work-related emergencies, employees must be available to speak with clients when away from the office, or employees need to speak with clients located in other time zones outside of their usual business hours). Moreover, any personal use by an employee of an employer-provided cell phone qualifies as a de minimis fringe benefit, which is also tax-free to the employee.
• Implement a written policy requiring employees who use their personal cell phones for business to substantiate business use of the phone by submitting a log of whom they called and the purpose and length of each call. This will satisfy the IRC's business expense substantiation rules. An employer should clearly spell out the reimbursement procedures: what will be reimbursed and how employees should submit expenses for reimbursement. Additionally, the employer should detail what constitutes acceptable use as well as protocols for what should happen if the device is lost, stolen or needs to be repaired.
• If the actual cost of an employee's work-related use of his or her personal cell phone cannot be determined, because his or her calling plan has unlimited minutes, reimburse the employee for a "reasonable" percentage of his or her personal cell phone bill. This should be done according to a written employer-employee agreement entered into when the employee is hired, or before the employee begins using his or her personal cell phone for work-related purposes.

Full disclosure: One of the attorneys representing Schwan's Home Service, Alan Rupe, is also an author for XpertHR.