california travel business-expense
Determining if hotel stay is a necessary travel expense
<p>In California, employers are required to reimburse employees for work-related travel expenses.</p>
<p>Say that my employer asks me to attend a one-time meeting at 9am in a different city. If the city is only 30 minutes away, it would be reasonable to expect me to drive to the meeting on the morning-of. Conversely, if the city were 6 hours away, it would be reasonable for me to make the drive the night before, and overnight in a local hotel.</p>
<p>However, there's a middle-ground in there where it's not always entirely clear-cut whether it's reasonable to overnight at a local hotel. At what distance does the hotel stay change from a frivolous expense to a reasonable expense? Is there any legal guideline for this? If not, what would happen if the employer and employee disagreed whether a hotel stay was necessary?</p>
<p>(This is a hypothetical question based on something that <em>might</em> happen, not a question based on something that's already happened.)</p>

<h2>An employee must follow the lawful and reasonable directions of their employer</h2>
<h2>An employer must reimburse the employee for reasonable work expenses</h2>
<p>In both cases “reasonable” is an objective legal standard. It doesn’t matter what the employer or the employee thinks, the direction or the expenses are reasonable or they aren’t. That said, if the employer and employee agree that it is (or isn’t) reasonable there isn’t a dispute and the objective question doesn’t have to be answered by a court.</p>
<p>The determination of reasonableness is for the trier of fact to determine --  that is the jury if there is one, or the judge if there isn’t. They will consider the evidence including things like industry practice, what the employer has done in the past, the role of the employee e.g. like whether they work physically or not, how long the workday will be (3h each way drive to do 1h work is different from an 8h workday), etc.</p>
<p>Of course, this is unlikely to ever go to a court. This will probably be resolved by negotiation or by one side or the other accepting the status quo.</p>

<p>In the end, either you and your company come to an agreement, or the matter goes to court. <em>Any</em> agreement will be cheaper than going to court, even if you win. In court, the judge would look at the facts, and decide whether the hotel was a work-related travel expense (quite sure it is) and whether you had the right to create that work-related travel expense.</p>

<blockquote>
<p>At what distance does the hotel stay change from a frivolous expense to a reasonable expense?</p>
</blockquote>
<p>The task of defining clear-cut benchmarks is within the legislator's province, and therefore beyond the judiciary's scope. At the same time, it is unlikely that legislation would define <em>minutiae</em> such as the minimum distance that entitles employee to reimbursement of hotel expenses. By way of illustration, <a href="https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=GOV&amp;sectionNum=17518.5." rel="nofollow noreferrer">section 17518.5</a> of the California Government Code is equivocal even in outlining <em>who</em> may develop a &quot;reasonable reimbursement methodology&quot; in a governmental context, which by definition is more stringent, more heavily regulated than any context premised on the principle of <a href="https://en.wikipedia.org/wiki/Freedom_of_contract" rel="nofollow noreferrer">freedom of contract</a>.</p>
<p>The matter of reasonableness of expenses is fact-intensive. It is up to each party to highlight what makes his position more meritorious than the opposite one.</p>
<p>The more important the early meeting to attend, the greater the employer's interest in ensuring against contingencies that can prevent the employee from attending that meeting: flat tire, car break, traffic jam, and so forth. In turn, the longer the distance, the higher the risk of contingencies that could be preempted by checking into a hotel for purposes of that meeting. Consequently, a precaution that materially tends to advance the employer's business interests qualifies as work-related expense.</p>
<p>The parties also need to ponder how much the multi-hour drive could impact the employee's sharpness in the meeting as well as how long the latter might be. Is saving on hotel expenses worth sacrificing the employee's sharpness because sleep deprivation followed by a tiresome drive? Likewise, is the employer providing alternative accommodations that sufficiently compensate the disruption of how the employee organizes himself?</p>
<p>The particulars of the situation might warrant assessing various other factors. The ones outlined in the two preceding paragraphs exemplify how the matter entails more complexity than merely quantifying a distance.</p>

<p>There is no clear answer or dividing line regarding when a hotel expense is a necessary expenses, which an employer is required by law to reimburse an employee for in California.</p>
<p>The requirement to reimburse private sector employees for their expenses in California (which cannot be contactually waived, <em>see Edwards v. Arthur Anderson LLP</em>, 44 Cal. 4th 937, 951 (2008)) arises under California Labor Code § 2802. It requires employers to reimburse employees, “<strong>for all necessary expenditures or losses incurred by the employee</strong>” when working including include all reasonable costs.</p>
<p>In a lawsuit to enforce this right, an employee must prove that:</p>
<ol>
<li><p>They incurred necessary expenditures;</p>
</li>
<li><p>While in the discharge of their job duties;</p>
</li>
<li><p>The employer knew or had reason to know of the expenditures; and,</p>
</li>
<li><p>The employer did not exercise due diligence towards reimbursement.</p>
</li>
</ol>
<p><em>See Cochran v. Schwan’s Home Services, Inc.</em>, 228 Cal. App. 4th 1137 (2014).</p>
<p>This requirement is very general, isn't subject to detailed regulations, and also doesn't have all that much case law interpreting it. There are perhaps a dozen kinds of expenses that are governed by clear and controlling case law. But, gray area hotel expenses are not among them (and in the case of hotel expenses, &quot;necessary&quot; would involve both an evaluation of the need for lodging, and an evaluation of how lavish a hotel to determine if a hotel that nice was &quot;necessary&quot;, which basically means applying a reasonableness test).</p>
<p>In practice, gray areas are as common as fact patterns in which there is total clarity under California Labor Code § 2802.</p>
<p>This statutory requirement largely restates (somewhat more forcefully) a common law principle of agency law, so the general body of common law agency law including non-California cases provides some guidance that is persuasive, rather than controlling, as do precedents concerning what can be treated as a reimbursable for tax purposes. Since neither of those main bodies of persuasive authority apply the same legal standard as the California statute, however, these cases have only limited usefulness.</p>
<p>Also, while the requirement can't be waived, a reasonable mutual agreement of the employer and employee as to what is and is not a necessary and reimbursable expense, or a reasonable policy imposed by the employer to set standard, while not controlling in a court case to enforce the right, would be given great weight.</p>
<p>What is reasonable and reimbursable is determined as a matter of law only if there is a dispute that is litigated after the fact, on a case by case basis, using the legal standards set forth above, by the jury, in a jury trial, and the judge, in a bench trial, in light of all of the admissible evidence presented at trial.</p>
<p>Whether an expense is &quot;necessary&quot; is a question of fact for the judge or jury at trial as the case may be, although entirely clear fact patterns could be resolved by a judge as a matter of law prior to trial (e.g. buying lotto tickets would usually not be a necessary business expense absent very weird circumstances).</p>
<p>On appeal a trial court decision regarding whether a hotel expense would count as a &quot;necessary expense&quot; would be reviewed on an &quot;abuse of discretion&quot; standard if there was any evidence in the record supporting its necessity. It is possible, in theory, that opposite decisions on a particular expense in factually identical circumstances could both be properly upheld on appeal, in a &quot;close call&quot; fact pattern.</p>
