(April 28, 2022) - Bryan Cave Leighton Paisner attorney Karina Lo reviews state laws requiring employers to pay employees for work-related expenses and considers how the COVID-19 pandemic impacts employer obligations to cover "necessary" expenses.

With employees now working remotely in greater numbers than ever before, employers should be mindful that with remote employees may come an obligation to reimburse them for the costs of working remotely. Currently, at least eleven states and the District of Columbia have statutes addressing employer obligations to reimburse employees for work-related expenses.

In Illinois, for example, the Wage Payment and Collection Act, as amended, requires employers to reimburse for "necessary expenditures or losses incurred by the employee within the employee's scope of employment and directly related to services performed for the employer."¹

Likewise, Iowa Code section 91A.3(6) states that "[e]xpenses by the employee which are authorized by the employer and incurred by the employee shall be reimbursed in advance of expenditure or be reimbursed not later than thirty days after the employee's submission of an expense claim."

Similarly, in California, Labor Code section 2802 requires employers to reimburse employees for "all necessary expenditures or losses incurred by the employee in direct consequence of the discharge of his or her duties[.]"

North Dakota Century Code section 34-02-01 states that "[a]n employer shall indemnify the employer's employee ... for all that the employee necessarily expends or loses in direct consequence of the discharge of the employee's duties as such or of the employee's obedience to the directions of the employer even though such directions were unlawful, unless the employee at the time of obeying such directions believed them to be unlawful."

Even the federal Fair Labor Standards Act (FLSA) requires reimbursement of business expenses if they cause an employee's wages to fall below the applicable minimum wage or otherwise affect their overtime wages.²

Many of these statutes use the word "necessary" to describe the expenses that must be reimbursed. Prior to COVID-19, even with California and other states broadly construing their statutes in favor of employees, remote work expenses were traditionally not considered "necessary," or reimbursable. This was especially true where employees chose to work remotely, rather than in the office.

However, with the pandemic and the accompanying regulations encouraging or sometimes requiring employees to work remotely, employers' reimbursement obligations began to change and, in some instances, expand. Employers must now ask themselves which remote expenses are considered "necessary."

Unfortunately, there is no clear, bright-line rule. As a result, there has been a sharp increase in employee lawsuits over reimbursement of business expenses incurred as a result of working remotely during the pandemic.

Amazon.com is just one employer facing litigation over an alleged failure to reimburse necessary business expenses of its employees who were required to work remotely during the COVID-19 pandemic.³

In some states, employers are still not required to reimburse the costs of working remotely (such as high-speed internet access, secure routers and office equipment) if the employee could work in a facility of the employer but has chosen to work from home instead. But even that may begin to change as remote work becomes more prevalent.

And employers that require employees to work remotely — such as by hiring workers in locations where the employer has no facility — should take care to understand the applicable state law regarding reimbursement of expenses incurred by those employees. Those reimbursable expenses may include the cost of outfitting and maintaining a home office. And employers should bear in mind that, in most cases, the employee will be protected by the law of the state in which the employee lives and works.

In addition to understanding the legal obligation, employers should ensure that they have a clear, written reimbursement policy. The policy should clearly outline what may be considered a reasonable, necessary business expense and how an employee may request reimbursement of such expenses.

Employers may also want to consider electing to provide employees with a reasonable monthly stipend, or paying a percentage of the employee's internet, phone, and/or utility expenses.

1 820 ILCS 115/1.

2 See 29 C.F.R. § 531.35.

3 See Williams v. Amazon.com Services LLC, Case No. 3:22-cv-01892, filed in the United States District Court for the Northern District of California.