The Internal Revenue Service today issued the 2008 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.California's DLSE has maintained that employers are required to reimburse employees for business miles driven at the IRS mileage rate in order to comply with California Labor Code section 2802. However, this year, the California Supreme Court ruled in Gattuso v. Harte-Hanks (as discussed here) that the reimbursement rate does not have the be the IRS mileage rate but can be negotiated by parties as long as it fully reimburses the employee. The Court stated:
Beginning Jan. 1, 2008, the standard mileage rates for the use of a car (including vans, pickups or panel trucks) will be:
* 50.5 cents per mile for business miles driven;
* 19 cents per mile driven for medical or moving purposes; and
* 14 cents per mile driven in service of charitable organizations.
The new rate for business miles compares to a rate of 48.5 cents per mile for 2007. The new rate for medical and moving purposes compares to 20 cents in 2007. The rate for miles driven in service of charitable organizations has remained the same.
We agree that, as with other terms and conditions of employment, a mileage rate for automobile expense reimbursement may be a subject of negotiation and agreement between employer and employee. Under section 2804, however, any agreement made by the employee is null and void insofar as it waives the employee’s rights to full expense reimbursement under section 2802.UPDATE: On June 23, 2008, the IRS announced that the mileage rate would increase effective July 1, 2008 to 58.5 cents a mile for all business miles driven. Click here to read updated post.
For it is true that everywhere men turn their eyes today much of the world has a truly wild and savage hue. No man, if he be truthful, can say that the specter of war is banished. Nor can he say that when men or communities are put upon their own resources they are sure of solace; nor be sure that men of diverse kinds and diverse views can live peaceably together in a time of troubles.The article that this passage was taken from has appeared the day before Thanksgiving every year since 1961 in the Wall Street Journal. It is a great reminder that despite our day-to-day frustrations and disagreements, our country is great, and we have much to be thankful for.
But we can all remind ourselves that the richness of this country was not born in the resources of the earth, though they be plentiful, but in the men that took its measure. For that reminder is everywhere -- in the cities, towns, farms, roads, factories, homes, hospitals, schools that spread everywhere over that wilderness.
We can remind ourselves that for all our social discord we yet remain the longest enduring society of free men governing themselves without benefit of kings or dictators. Being so, we are the marvel and the mystery of the world, for that enduring liberty is no less a blessing than the abundance of the earth.
We previously posted about the proposed regulations here.
Below is the speech Rep. Frank gave in support of ENDA from the House floor yesterday:
Senator Edward Kennedy (D-Mass) announced he is planning to introduce ENDA in the Senate in the near future. Senator Kennedy has not indicated whether his version of ENDA will include the gender-identity provisions that causes so much controversy in the House.
Regardless of which version is introduced in the Senate, ENDA will almost certainly not become law as President Bush has indicated that he will veto either version of ENDA.
Even in the unlikely event that ENDA would become law, it would have little impact on California employers as discrimination based on an employee's sexual orientation is already prohibited. Click here for a DFEH publication briefly describing an employer's obligations under California law.
You may have read some of our posts (here for example) about the EEOC’s recent losses and/or dressing downs by the courts. Well, the hits keep on coming, and now it is the U.S. Supreme Court chastising the EEOC for the way it conducts business.
Ross Runkel at the Employment Law Blog notes that while the issue in front of the Supreme Court in Federal Express v. Holowecki was a simple one, the oral arguments “turned into a judicial pile-on, seeing which Justice could be the most critical of the way the EEOC does business.”
Ross further commented:
I'll give the award to Justice Scalia. When the government's lawyer stood up to talk, the lawyer didn't get past his formal introduction before Justice Scalia jumped on him.
"JUSTICE SCALIA: Mr. Heytens, let me tell you going in that my -- my main concern in this case, however the decision comes out, is to do something that will require the EEOC to get its act in order, because this is nonsense: These regulations that are contradicted by forms; this failure to give notice, but it's okay because it's a charge anyway.
"This whole situation can be traceable back to the agency, and I -- whoever ends up bearing the burden of it, it's the agency's fault, and this scheme has to be revised."
Hopefully the U.S. Supreme Court’s comments knock some sense back into the agency – but we are not holding our breaths.
In Gattuso v. Harte-Hanks, the California Supreme Court shed some light on the relatively unexamined issue by the courts of expense reimbursement. At issue in the case was whether Harte-Hanks could reimburse its outside sales force for mileage by paying a higher “lump sum” in the form of wages and/or commissions, as opposed to paying a specified sum for each mile driven. The Supreme Court ultimately held that employers may reimburse employees under the lump sum method, but also provided an excellent examination of:
- Employer's obligations under alternative methods of reimbursing employees for expenses,
- Who bears the burden of proof when challenging the reimbursement amount (short answer: the employee - as explained below),
- Whether employers and employees can independently negotiate an expense reimbursement amount (short answer: yes, and this amount does not have to be the IRS mileage rate), and
- What a court needs to consider in determining whether expenses incurred by the employee were “reasonable” and, therefore, reimbursable (short answer: this is a individualized analysis for each employee).
1. Reimbursement Method One: Actual Expense Method
The Court first examined the actual expense method that employers can utilized in reimbursing employees for business costs. The Court held that the actual expense method is the most accurate, but it is also the most burdensome for both the employer and the employee. The actual expenses of using an employee’s personal automobile for business purposes include: fuel, maintenance, repairs, insurance, registration, and depreciation.
To calculate the reimbursement amount using the actual expense method the employee must keep detailed and accurate records of amounts spent in each of these categories. Calculation of depreciation will require information about the automobile’s purchase price and resale value (or lease costs). In addition, the employee must keep records of the information needed to apportion those expenses between business and personal use. This is generally done by recording the miles driven for business and personal use. Then the employee submits this information for the employer to calculate the reimbursement due.
2. Method Two: Mileage Reimbursement Method
The Court recognized that employers may simplify calculating the amount owed to an employee by paying an amount based on a “total mileage driven." The Court recognized that the mileage rate agreed to between the employer and employee is “merely an approximation of actual expenses” and is less accurate than the actual expense method. Therefore, the employee may challenge the amount of reimbursement. However, if the employee challenges the amount reimbursed, the employee bears the burden to show how the “amount that the employer has paid is less than the actual expenses that the employee has necessarily incurred for work-required automobile use (as calculated using the actual expense method), the employer must make up the difference.”
Therefore, the employee must prove his case by producing the records of: fuel, maintenance, repairs, and depreciation, among other items as discussed above under the actual expense method. This analysis involves what the employee actually spends, and whether the expenses were “reasonable." This is a very difficult hurdle to overcome as the records required to meet the burden of proof under Gattuso need to be very detailed. In addition, the Court all but said that in determining what is “reasonable” requires an individualized review by the judge, which supports the argument that these types of cases are not appropriate for class-wide treatment.
The Court also held that the reimbursement rate can be negotiated by parties as long as it fully reimburses the employee, and the amount does not have to be set at the IRS mileage rate, which is contrary to the DLSE’s opinion (I guess depending on which opinion letter you read). The Court stated:
We agree that, as with other terms and conditions of employment, a mileage rate for automobile expense reimbursement may be a subject of negotiation and agreement between employer and employee. Under section 2804, however, any agreement made by the employee is null and void insofar as it waives the employee’s rights to full expense reimbursement under section 2802.
3. Method Three: Lump Sum Payment
Under this method, the employee need not submit any information to the employer about work-required miles driven or automobile expenses incurred. The employer merely pays a fixed amount for automobile expense reimbursement. The Court stated that these type of lump sum payments are often labeled per diems, car allowances, and gas stipends.
In permitting lump sum expense reimbursement payments, the Court held:
We agree with Harte-Hanks, and also with the trial court and the Court of Appeal, that section 2802 does not prohibit an employer’s use of a lump-sum method to reimburse employees for work-required automobile expenses, provided that the amount paid is sufficient to provide full reimbursement for actual expenses necessarily incurred.
The Court made it clear that employers paying a lump sum amount, however, have the extra burden to separately identify the amounts that represent payment for labor performed and the amounts that represent reimbursement for business expenses.
Specifically, the military spouse law provides that:
- Employers with 25 or more employees in the United States to allow eligible employees to take up to 10-days off from work, on an unpaid basis, when his/her spouse is on leave from deployment during a period of military conflict;
- Eligible employees are defined as employees who work at least an average of 20 hours per week and whose spouse is a member of the United States Armed Forces, National Guard, or Army Reserve on active duty in an area of military conflict;
- Employees must provide notice to the employer within 2 business days of receiving official notice that his/her spouse will be on a leave from deployment.
An employer’s obligations in conducting background checks and providing references for former employees is an extremely nuanced area of employment law and could expose an employer to significant liability. As explained below, conducting background checks/reference checks is critical for employers to defend themselves from negligent hiring/supervision claims. However, when conducting background checks employers must also be careful not to invade the employee’s privacy rights, and be aware that many background checks could fall under the Fair Credit Reporting Act (FCRA) (and the California equivalent of this Federal law), which require the employer to comply with additional requirements. We will be providing a series of posts related to these issues over the next few weeks. This first post focuses on employers’ potential liability under a negligent hiring or supervision cause of action.
Negligent Supervision - Standard
An employee who has been harassed or discriminated against, or otherwise injured by the acts of another employee, may attempt to sue the employer for negligence in supervision of the other employee. For example, an employee may state a cause of action against an employer in retaining an employee who allegedly sexually harassed the plaintiff. (Hart v. Nat'l Mortgage & Land Co., 189 Cal.App.3d 1420, 1426 (1987)). Similarly, third-parties who do not work for the employer, but who have been injured by an employer’s agent may also allege a negligence claim against an employer.
In order to establish a cause of action for negligent supervision, a plaintiff must prove: (1) the existence of a legal duty of employer to employee to use due care; (2) that the defendant-employer breached that duty; (3) any breach proximately caused plaintiff's damages; and (4) damages.
An employer's duty, is breached only when the employer knows, or should know, facts which would warn a reasonable person that the employee presents an undue risk of harm to third persons in light of the particular work to be performed. As one court stated, the “cornerstone of a negligent hiring theory is the risk that the employee will act in a certain way and the employee does act in that way.”
A court held that a student sexually molested by a teacher could pursue claim against the teacher's employer (which was the school district) for negligent hiring and supervision, if the persons responsible for hiring and/or supervising teachers knew or should have known of teacher's prior sexual misconduct towards students, and that the teacher posed reasonable foreseeable risk of harm to students under his supervision.
In another case, a teacher admitted on his employment application that he had been arrested for public indecency and had a bench warrant out for his arrest. The teacher kidnapped and assaulted several children at the school, and the children’s representatives prevailed against the school under a negligent hiring claim because the school failed to investigate the teacher’s disclosures about his background and hired him anyway.
General Rule For Employers
It is critical that employers take reasonable steps to conduct appropriate background checks on its employees to ensure that the employee does not present a knowable risk to other employees or third-parties. Furthermore, if an employer knows or reasonably should know that an employee poses a risk to other employees or third parties, an employer needs to take appropriate precautions, which could include terminating the employee, in order to protect other employees or third parties. Next time we will discuss the balance of obtaining appropriate information during the background check without violating an employee’s privacy rights.
GATTUSO (FRANK) v. HARTE-HANKS SHOPPERS, INC.
S139555 (B172647; Los Angeles County Superior Court – BC247419)
Argued in San Francisco 9-06-07
This case includes the following issue: May an employer comply with its duty under Labor Code section 2802 to indemnify its employees for expenses they necessarily incur in the discharge of their duties by paying the employees increased wages or commissions instead of reimbursing them for their actual expenses?
Opinion(s) in the above case(s) will be filed on:
Thursday, November 5, 2007 at 10:00 a.m.