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25 Feb

February 2021 California HR Legal Updates

Posted at

1:17pm

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Ninth Circuit Decision Impacts Employers Expense Reimbursement Procedures

Update Applicable to:
All California employers.

What happened?
The Ninth Circuit Court of Appeals held that an employer’s per diem expense reimbursement payments functioned as compensation for work rather than business expense reimbursements. As a result, the employer was required to factor those per diem payments into employees’ “regular rate of pay.” An employee’s regular rate of pay is used to calculate overtime under the Fair Labor Standards Act (FLSA) and California Labor Code. It is also used to calculate double-time, sick leave, and reporting time pay in California.

What are the details?
The following breakdown of the applicable court case and what it may mean for employers is provided by the California Labor and Employment Law Blog.

The Case: Clarke v. AMN Services

AMN is a healthcare staffing company that places hourly-paid clinicians on short-term assignments. Each week AMN paid traveling clinicians a per diem amount to reimburse them for the cost of meals, incidentals, and housing while working over 50 miles away from their homes. AMN did not report these payments as wages and classified them as tax-exempt.

AMN used a number of factors to calculate the per diem payment, including the extent to which clinicians worked their scheduled shifts. Notably, under the per diem policy, the payments could decrease if clinicians worked less than their scheduled shifts, and work hours in excess of those scheduled could be “banked” and used to “offset” missed or incomplete shifts. Additionally, AMN provided “local” clinicians per diem payments under the same policy, but such payments were reported as taxable wages.

The Ninth Circuit determined that these characteristics indicate that the per diem payments to traveling clinicians functioned as compensation for hours worked, and not expense reimbursements. The court relied heavily on AMN’s decision to pay both local and traveling clinicians under the same per diem policy but treat payments to local clinicians as wages. The Court also noted that “AMN offers no explanation for why ‘banked hours’ should effect” per diem payments, and found “the only reason to consider ‘banked hours’ in calculating” per diems is to compensate clinicians for hours worked.”

“Many California employers implement a business expense reimbursement policy aiming to fully reimburse employees for all expenses they incur, while (1) minimizing administrative burdens and expenses, and/or (2) avoiding the creation of preferential work assignments and a perverse incentive for employees to “incur” expenses.

The process of submitting, reviewing and processing expense reimbursements is cumbersome. It also can be a liability minefield. Generally, an employer must reimburse an employee when it knows or had reason to know the employee incurred a necessary business expense. Thus, employers may be obligated to reimburse employees even if they do not actually request reimbursement. This issue leads some employers to adopt a flat-sum reimbursement policy in which the amounts paid are at least partially fixed, such as AMN’s per diem policy. And they often issue these payments automatically, without obtaining documentation of the expenses from employees. This issue is especially important during the COVID-19 pandemic because California employers often use fixed expense reimbursement amounts for computer and other expenses for remote workers.

The Clarke decision should concern any employer with a business expense policy that includes such flat-sum or automatic reimbursement payments. Significant liability can arise if reimbursement payments, in whole or in part, are deemed to function as wages that must be factored into the regular rate of pay. And, of course, plaintiffs arguing such payments were actually “wages” may then also claim they were not properly reimbursed for their business expenses. Employers should carefully review any flat-sum or automatic reimbursement policies and procedures to ensure that they do not present any of the dangers illustrated in the Clarke decision.”

What do employers need to do?
Employers utilizing per diem reimbursement procedures should review the facts of the case and update their workplace policies if there seem to be too many similarities. Clients may need to consult their employment attorney if they have questions.

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Various “Hero” Hazard Pay Ordinances Adopted Around the State

Update Applicable to:
Large California grocery store employers with employees located in Long Beach, Santa Monica, Los Angeles, or Oakland.

What happened?
Several cities and counties have passed ordinances requiring specific employers to pay hazard pay to their employees while they work during the COVID-19 pandemic.

What are the details?
Currently, three main cities in California have passed some sort of ordinance related to “hero” or hazard pay for these employees, while one, Santa Monica, is still tentative. The impacted employers vary from each ordinance but generally speaking, they all impact large grocery store operators in the state. 

Included below are summaries of who each of these ordinances apply to with a link to an article covering the ordinance.

Long Beach’s Ordinance applies to “grocery stores” with more than 300 grocery workers nationally and more than 15 employees per grocery store within the city of Long Beach.

Los Angeles’ Ordinance (the ordinance has passed as of early February 2021) applies to large publicly traded employers, or employers that have at least 300 employees nationwide and more than 10 employees per store in the unincorporated areas of Los Angeles County.

Oakland’s Ordinance applies to employers that operate large grocery stores in Oakland. Specifically, a “covered employer” is one who employs 500 or more employees nationwide, or is a franchise associated with a franchisor or a network of franchises with franchisees that employ more than 500 employees in the aggregate, regardless of where those employees are employed.

Santa Monica is still tentative, and is still waiting “for county supervisors to finalize their own ordinance.” However, it should be expected in the near future.

What do employers need to do?
Large grocery store employers should review the linked articles to review the necessary changes that may be required of them in various locations.

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COVID-19 Sick Leave Programs Extended

Update Applicable to:
Most Sonoma County, San Francisco, and City of Los Angeles employers.

What happened?
Employers in these three jurisdictions will need to continue to provide their existing COVID-19-related paid sick leaves that are required of them due to local ordinances. Each order has been extended for varying amounts of time with slight alterations, like no longer being applicable for non-profit companies, and extending the COVID-19 sick pay hours bank without refreshing it.

An article that does a great job of summarizing the changes and duration of the increases in each area can be found here.

What do employers need to do?
Employers in these areas should read the linked article above and possibly train their management staff on the changes if needed.

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