On July 7, the California Court of Appeals issued a decision in Espejo v. The Copley Press, No. D065397, with potentially far-reaching implications for companies facing current or future expense-reimbursement class action claims. In a superficial analysis, the court ruled that expenses qualify as “wages” for purposes of California’s unfair competition law, Bus. & Prof. Code, § 17200 et seq. That holding potentially expands companies’ exposure in claims for unpaid expenses under California Labor Code § 2802; the ruling paves the way for plaintiffs to bring additional “piggyback” claims for waiting time penalties under California Labor Code § 203 and wage statement penalties under California Labor Code § 226.

The court also ruled that employers who pay employees “enhanced compensation” to cover their expenses must tell employees how much of their pay covers expenses at or near the time of payment. Otherwise, the employer will get no credit for such payments.

The trial court awarded plaintiffs more than $4.95 million in damages on their expense claim and in prejudgment interest, plus an additional $6.1 million in attorneys’ fees. However, the court of appeals remanded for recalculation of the expenses (as well as the attorneys’ fees) to give The Copley Press credit for the expenses that records showed it did pay.

Key Takeaway: Employers in California need to take a close look at their expense-reimbursement policies and practices because the risk of not properly reimbursing expenses just got more costly. In addition, employers who pay employees “enhanced compensation” must correctly identify it to employees.