Seyfarth Synopsis: Because of a new law effect January 1, 2019, employers in Illinois should review and, if necessary, revise, their expense reimbursement policies to avoid a new source of potential class action exposure.
Employers with operations/employees in Illinois, as you ring in the new year, please add the following to your list of New Year's Resolutions:
Create, review, and/or revise expense reimbursement policies.
Effective January 1, 2019, an amendment to the Illinois Wage Payment and Collection Act ("IWPCA") requires that Illinois employers reimburse employees for "all necessary expenditures or losses incurred by the employee within the employee's scope of employment and directly related to services performed for the employer." 820 ILCS 115/9.5.
The statute defines "necessary expenditures" as "all reasonable expenditures or losses required of the employee in the discharge of employment duties and that inure to the primary benefit of the employer." 820 ILCS 9.5(a). An employer may be liable under the new law if the employer "authorized or required the employee to incur the necessary expenditure." 820 ILCS 115/9.5(b). Although not explicit in the statute itself, the Illinois expense reimbursement law arguably was written with an eye toward compensating employees who use personal devices (e.g. personal cellular telephones and laptops) for work purposes. But the new law is not limited to personal devices (and may include expenses such as work-related mileage and costs of certain tools and equipment), and because it is an amendment to the IWPCA, employees may bring a claim as an individual or class action seeking to recover the non-reimbursed expense as well as damages of two percent per month that the expense is not reimbursed, plus attorneys' fees and costs. The ability for employees to bring class action claims for alleged failure to reimburse expenses under this new law markedly increases the risk and potential exposure for Illinois employers. As such, Illinois employers should take proactive steps to avoid running afoul of the statute.
With this amendment, Illinois becomes the eighth U.S. jurisdiction to statutorily impose expense reimbursement requirements on employers (the others being California, Iowa, Montana, New Hampshire, North Dakota, South Dakota, and Washington DC). The Illinois law was modeled after California Labor Code § 2802, which requires employer indemnification for "all necessary expenditures or losses incurred by the employee in direct consequence of the discharge of his or her duties" and has been heavily litigated. For example, California courts have held that employers must reimburse employees when they are required to use their personal cell phones for work, even if the actual cost of an employee's cellphone usage for work cannot be determined - for example, if an employee has an unlimited minutes/texting plan - in which case the employer must reimburse the employee for a "reasonable percentage" of the personal cell phone bill.
Unlike California, however, Illinois' new expense reimbursement law allows employers to establish a written expense reimbursement policy specifying the amount and requirements for such reimbursements. If the company's written policy provides "specifications or guidelines for necessary expenditures" and the employee incurs an expense in excess of those guidelines, the company is not responsible for the excess amount so long as the policy does not indicate that there is either "no reimbursement or de minimis reimbursement." In other words, an employer with a written policy is not required to reimburse a set portion of employee expenses and can reimburse for less than 100 percent of the actual costs provided that the amount stated in the policy is not zero and is not considered "de minimis."
Also, under the new Illinois law, employees are entitled to reimbursement only if they follow the employer's guidelines and submit documentation of the expense within 30 calendar days of incurring the expense (unless the company's policy provides the employee additional time to submit documentation). If the supporting documentation has been lost or does not exist, the employee must provide a signed, written statement in lieu of a receipt. An employee is not entitled to reimbursement if the employer has an established written expense reimbursement policy and the employee fails to comply with that policy as written.
The Illinois Department of Labor has not yet provided guidance on the new law and we may not know how certain undefined terms/phrases such as "directly related," "authorized," "required of the employee," "that inure to the primary benefit of the employer," and "de minimis" will be interpreted until we have such guidance or decisional authority from Illinois courts. In the meantime, however, we recommend that Illinois employers consider the following to best mitigate risk under this new law:
- Evaluate what positions (and how many employees in those positions) may use personal devices for work-related purposes or otherwise incur expenses within the scope of their employment that are "directly related" to their work. Given the proliferation of "bring your own device" (BYOD) policies and employee use of personal cell phones, laptops, tablets, and other equipment for business purposes, employers should consider when and if the use of such devices constitutes a reimbursable business expense under the new Illinois law.
- Review personnel policies to identify employee "requirements" to perform work, such as uniforms, tools and equipment, cell phones, and home telephones, computers, or internet. Review of offer letters, employment contracts, and job descriptions may also help to identify what activities, duties, responsibilities or other requirements may cause employees to incur expenses.
- Have a written expense reimbursement policy; if such a policy exists, an employee must comply with its terms in order to be reimbursed. If your company does not already have an expense reimbursement policy, we encourage you to create one.
- Revise any existing policy to ensure it establishes "specifications and guidelines for necessary expenditures." For example, the policy should provide the amount that the company is willing to reimburse for various categories of expenses and the requirements for reimbursement (i.e. what documentation is required and the timing of submission).
Seyfarth Shaw will continue to monitor developments, including any guidance provided by the Illinois Department of Labor and any decisional authority on the new Illinois expense reimbursement law.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.