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Was Gattuso v. Hart Hanks Really A Win For Employers?
By Kathleen M.K. Carter, Managing Principal, Hollins • Schechter
Lawyers across California have been touting the Supreme Court decision in Gattuso as a "win"for employers. But, was it really?
The legal question framed by the Court in interpreting California Labor Code section 2802 was "May an employer satisfy [its] statutory obligation [to indemnify employee expenses] by paying employees increased wages or commissions instead of separately reimbursing them for their actual expenses?"
The answer from our Supremes: "We conclude that an employer may satisfy its statutory reimbursement obligation by paying employees enhanced compensation in the form of increases in base salary or increases in commission rates, or both, provided there is a means or method to apportion the enhanced compensation to determine what amount is being paid for labor performed and what amount is reimbursement for business expenses."
The Supreme Court's answer to the question as framed might sound at first like a celebratory "yes," but employers need to keep reading and take heed. The most glaring word in the answer was "provided" which places some heavy burdens on employers choosing this option.
What does it mean? It means that as an employer, you can call expense reimbursement "wages" being paid for labor performed versus "wages" being paid for expense reimbursement.
But wait. That isn't all. If you elect this option, you will need to make sure that you know the amount of your employees' expenses and that you have paid enough wages such that after withholdings you have covered the expenses.
The sum effect of the 61 word conclusion from the Court: If you want to reimburse your employee expenses using Harte-Hanks' proposed plan for enhanced wages or commissions, prepare yourself to overpay for your business expenses, overpay your employer taxes and track your employees expenses to confirm that you have actually overpaid enough!
If this arrangement is still appealing to you then congratulations on a recent win from the Supreme Court! If this doesn't work for your current business model or strategy, then stick to more traditional methods for expense reimbursement and you will avoid the pitfalls "provided" by the Supreme Court's holding in Gattuso.
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The legal question framed by the Court in interpreting California Labor Code section 2802 was "May an employer satisfy [its] statutory obligation [to indemnify employee expenses] by paying employees increased wages or commissions instead of separately reimbursing them for their actual expenses?"
The answer from our Supremes: "We conclude that an employer may satisfy its statutory reimbursement obligation by paying employees enhanced compensation in the form of increases in base salary or increases in commission rates, or both, provided there is a means or method to apportion the enhanced compensation to determine what amount is being paid for labor performed and what amount is reimbursement for business expenses."
The Supreme Court's answer to the question as framed might sound at first like a celebratory "yes," but employers need to keep reading and take heed. The most glaring word in the answer was "provided" which places some heavy burdens on employers choosing this option.
What does it mean? It means that as an employer, you can call expense reimbursement "wages" being paid for labor performed versus "wages" being paid for expense reimbursement.
But wait. That isn't all. If you elect this option, you will need to make sure that you know the amount of your employees' expenses and that you have paid enough wages such that after withholdings you have covered the expenses.
The sum effect of the 61 word conclusion from the Court: If you want to reimburse your employee expenses using Harte-Hanks' proposed plan for enhanced wages or commissions, prepare yourself to overpay for your business expenses, overpay your employer taxes and track your employees expenses to confirm that you have actually overpaid enough!
If this arrangement is still appealing to you then congratulations on a recent win from the Supreme Court! If this doesn't work for your current business model or strategy, then stick to more traditional methods for expense reimbursement and you will avoid the pitfalls "provided" by the Supreme Court's holding in Gattuso.
Return to Articles
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