Supreme Court Affirms Employer’s Ability to Reimburse Employee Business Expenses with Additional Income

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On Monday, November 5, 2007, the California Supreme Court issued its long-awaited decision in Gattuso v. Harte-Hanke Shoppers, Inc., confirming an employer’s ability to satisfy its obligation under Labor Code section 2802 to reimburse employees for all their business expenses with

additional income. In Gattuso, the Supreme Court held nothing in Labor Code section 2802 precluded an employer from paying additional income to cover employee business expenses as long as there was an agreement containing a method or formula to determine how much of the

compensation was intended to cover employee business expenses. However, the additional compensation must be adequate, after taxes, to cover all of the business expenses incurred by the employee.

In our February 2007 Employment Law Commentary, we described the Gattuso decision as issued by the Court of Appeal. We also reviewed the Labor Commissioner’s proposed regulation dealing with how employers could satisfy their section 2802 regulations. Notably, these proposed

regulations prohibited reimbursement for employee business expenses with increased compensation. These regulations have not been finalized; the Labor Commissioner has until the end of December 2007 to issue them or they will expire.

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