Inaccurately reimbursing workers for business-related driving expenses costs many companies thousands of dollars every year (about $3,000 dollars per employee each year, in our experience). Large companies regularly lose hundreds of thousands of dollars year after year because of this, often without realizing their mistake.
However, this is nothing compared to the costs of class action lawsuits. In recent years, workers have successfully sued their employers for as much as $7 million dollars to compensate for inequitable reimbursement practices. In the state of California, these lawsuits are fast becoming the rule, not the exception, because California Labor Code section 2802 is particularly strict.
If you haven’t enacted a fair, accurate, and defensible vehicle reimbursement program, you may already be at risk.
California Labor Code section 2802 has been around for a long time (since 1937, to be exact). The code ensures that “An employer shall indemnify his or her employee for all necessary expenditures or losses incurred by the employee in direct consequence of the discharge of his or her duties.” This was commonly interpreted as being limited to the costs of equipment or tools used on the job.
In 2005, though, the expense reimbursement landscape changed. Harte-Hanks Shoppers, Inc. lost a long legal dispute with employees when the Supreme Court of California ruled that the company was inaccurately reimbursing employees who drive for business (in this case, outside sales representatives). The company paid $7 million to employees, and suffered a subsequent 6% drop in earnings as a result.
Harte-Hanks may have been one of the first companies to be penalized for inequitable reimbursement practices, but it was far from the last.
Companies Pay the Price for Inaccurate Reimbursements
Companies in California have recently paid millions in similar settlements. RadioShack paid a $4.5 million settlement when their policy was found in violation of CA 2802 (the company only reimbursed mobile workers if they followed proper company procedure when submitting expenses). Crossmark, Inc., reached a $1 million settlement with nearly 6,000 employees who claimed they were not fairly reimbursed for travel and business-related expenses. Toys “R” Us has been involved in a similar lawsuit for allegedly not fully reimbursing employees who were required to attend offsite meetings (at least seven per year), transport materials, and more. Walgreens recently paid $23 million as part of nine consolidated class action lawsuits filed in California federal court, $1.5 million of which was for violating CA 2802.
Make no mistake, this is not strictly a “California problem.” Employees in other states are following suit. Domino’s drivers in Georgia recently filed a suit alleging they received less than minimum wage through the pizza company’s $1 flat rate per delivery policy. Out of Kansas, Jimmy John’s sandwich shop faced a class action lawsuit from 300 delivery drivers claiming they were made to pay for their own vehicle insurance, and maintenance, and use their personal cell phones’ GPS apps, for which they were not reimbursed. The drivers allege they were effectively paid below minimum wage for their services.
Judging from the settlements in California, these lawsuits will be anything but cheap.
An Avoidable Disaster
What do all these lawsuits have in common? Each could have been avoided easily with an accurate vehicle reimbursement methodology. In the past, mobile workforce managers had to choose between the often time-consuming process of developing and implementing custom fixed and variable rate (FAVR) reimbursement programs and relying on simple, but risky reimbursement alternatives. Fortunately, this is no longer the case.
Recent advances in mobile, software, and hardware technology have made implementing and administering FAVR programs easier than ever. Comprehensive platforms can streamline all areas of FAVR program management, allowing busy mobile workforce managers to focus on their core business. Implementing FAVR programs to provide accurate reimbursements that save money and protect your business from costly lawsuits has never been easier (or more important).
The Bottom Line
Inaccurate reimbursement programs regularly cost companies thousands of dollars per employee each year. Add in the threat of potential lawsuits, and those costs can reach the millions. The same technology that has reshaped the modern office and allowed workers to remain effective on the road has made implementing fair and accurate vehicle reimbursement programs easier than ever before. Want to learn more? Let’s talk.