Illinois Enacts New Employee Expense Reimbursement Law
The Situation: An amendment to the Illinois Wage Payment and Collection Act ("IWPCA") was signed into law by Illinois Governor Bruce Rauner and took effect on January 1, 2019.
The Results: The amendment to the IWPCA provides that employers must reimburse their employees for all necessary expenditures and losses they incur within the scope of their employment, subject to the terms of the employer's expense reimbursement policy.
Looking Ahead: We recommend that all employers have an expense reimbursement policy in place that aligns with the amended law as soon as possible.
The IWPCA was amended, effective January 1, 2019, to require Illinois employers to reimburse their employees for all "necessary expenditures or losses" incurred in the employees' "scope of employment," subject to limited exceptions. The new law also provides that such reimbursement shall be subject to the requirements of the employer's expense reimbursement policy as long as the policy complies with the law.
Reimbursement of Employee Expenses in Illinois
The new Illinois expense reimbursement law, an amendment to the IWPCA (820 ILCS 115/9.5), provides that employers "shall reimburse an employee 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." As defined by the amended statute, the phrase "necessary expenditures" covers "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." The new law specifically excludes "losses due to an employee's own negligence, losses due to normal wear, or losses due to theft unless the theft was a result of the employer's negligence" from the scope of reimbursement.
Though a number of other jurisdictions require employers to reimburse employee expenses (e.g., California, Washington D.C., Iowa, Massachusetts, Montana, New Hampshire, North Dakota, and South Dakota), the new Illinois expense reimbursement law is unique in its treatment of employers' expense reimbursement policies. The Illinois law provides that employees are not entitled to reimbursement if "(i) the employer has an established written expense reimbursement policy and (ii) the employee failed to comply with the written expense reimbursement policy." Moreover, "if the written expense reimbursement policy … establishes specifications or guidelines for necessary expenditures, the employer is not liable … for the portion of the expenditure amount that exceeds the specifications or guidelines of the policy so long as the employer does not institute a policy that provides for no reimbursement or de minimis reimbursement."
Based upon the statutory language, we anticipate plaintiffs will need to satisfy the following requirements to prove a violation of the law:
- The employee incurred a necessary expenditure or loss;
- The necessary expenditure or loss was required of the employee in the discharge of his/her employment duties;
- The necessary expenditure or loss inures to the primary benefit of the employer;
- The necessary expenditure or loss incurred was (i) within the employee's scope of employment and (ii) directly related to services performed for the employer;
- Within 30 calendar days after incurring the necessary expenditure or loss (unless more time is permitted under the employer's written policy), the employee submitted appropriate supporting documentation for the necessary expenditure or loss, or submitted a signed statement regarding any such receipts if documentation is nonexistent, missing, or lost; and
- The employer (i) failed to comply with its own expense reimbursement policy; (ii) authorized or required the employee to incur the necessary expenditure; or, (iii) if the employer has no such policy, the employer failed to reimburse the necessary expenditure or loss.
Similarity to California's Employee Expense Reimbursement Law
The new Illinois law mirrors key language in California Labor Code Section 2802, California's expense reimbursement law. Citing Section 2802, plaintiffs' attorneys have aggressively pursued claims against California employers for failure to reimburse various employee expenses, including home internet and cell phone costs. Given the burden this law has proved to be for California employers, Illinois employers should be aware of the types of lawsuits that have been filed seeking expense reimbursement and the courts' interpretation of the California law.
Given the similarities between the language of the laws and the purposes behind them, Illinois courts may interpret this new law consistently with California's law. First, the California law requires reimbursement for "all necessary expenditures or losses incurred by the employee" so long as those expenses fall within the scope of their employment. In addition, the primary purpose of the California law is to "prevent employers from passing their operating expenses on to their employees." This purpose was also stated as a reason for the Illinois law in congressional floor debates, giving Illinois courts further reason to look to the California law for guidance.
Under the California law, the essential test for whether reimbursement is required is "whether the employer knew or had reason to know that the employee incurred a reimbursable expense" in the scope of the employee's employment. Under that standard, California courts have consistently ruled in favor of reimbursing employees, even if the costs they incur are de minimus. Taking full advantage of that precedent, the plaintiffs' bar has filed lawsuits in California seeking reimbursement for, among other expenses:
- Driving costs (personal vehicles used for business purposes);
- Employees' liability (attorneys' fees, judgments, etc.) to third parties arising from events in the course and scope of employment;
- Travel-related costs, including: (i) mileage; (ii) airfare and rail; (ii) rental car; (iv) other ground transportation; (v) accommodations; (vi) travel-related insurance; (vii) parking; and (viii) tolls;
- Office expenses (including home offices, if necessary);
- Company-branded apparel;
- Cell phones (reasonable amount of plan used for work);
- Home internet (reasonable amount of plan used for work);
- Work-related equipment;
- Client entertainment; and
- Training programs
We anticipate that plaintiffs' attorneys will pursue lawsuits against Illinois employers seeking damages for unreimbursed expenses of the same sort now that the new law has taken effect. In order to prevent costly litigation and ensure that reimbursable employee expenses are predictable, we recommend that Illinois employers take full advantage of a key distinction between the two laws: the IWPCA's inclusion of terms protecting employers who comply with their own written expense reimbursement policies.
Recommendations for Illinois Employers to Address the New Reimbursement Law
One critical difference between California's expense reimbursement law and the amended IWPCA is that, under the new Illinois law, if an employer establishes a written policy delineating necessary employee expenses and the amount of such expenses that are reimbursable, then the employer is not required to reimburse employees who fail to comply with the policy or reimburse the portion of the employee expense that exceeds the policy limits.
Thus, there are several actions we recommend Illinois employers take to minimize potential liability for unreimbursed business expenses under the new Illinois law. Damages for unreimbursed expenses began to accrue on January 1, 2019, so employers are advised to take the following action as soon as possible:
1. Employers should review their current expense reimbursement policy or prepare a new policy to:
- Define as many reimbursable expenses as are necessary for the performance of employees' job duties, taking into consideration expenses identified above that have been the subject of litigation in California;
- Set reasonable reimbursement limits for all expenses defined in the policy (note: reimbursement limits cannot be de minimis or $0);
- Identify what expenses are not required in the performance of employees' job duties;
- Explain the employer's process for employees to submit necessary expenses for reimbursement, including expenses that are not specifically listed in the policy;
- Provide that all reimbursable expenses, along with proper documentation (or a signed statement by the employee), must be submitted within 30 days after the expenses are incurred; and
- Ensure that any employer requirements in the policy (i.e., when expense reimbursements will be paid) are administratively manageable.
2. Disseminate the updated/new policy to employees and managers as soon as possible.
3. Train managers and HR professionals on the new law and the updated/new policy. The training should inform managers and HR of the requirements of the new law, explain what expenses and reimbursement limits are listed in the employer's updated/new policy, and explain how to handle employee claims for expenses that are not specifically listed in the policy.
Two Key Takeaways
If you are an Illinois employer and you currently have a written expense reimbursement policy in place, revisit it to ensure it aligns with the amended IWPCA.
If you are an Illinois employer and you do not have a written employee expense reimbursement policy in place, prepare one as soon as possible that complies with the new Illinois law. Otherwise, employees can seek reimbursement for all "necessary expenditures or losses" they incur within the scope of their employment under Illinois law, with very limited exceptions.
For further information on reviewing and updating current expense reimbursement policies or drafting a new one, or for training on the new law and the updated/new policy, please contact your principal Firm representative or the lawyers listed below. General email messages may be sent using our "Contact Us" form, which can be found at www.jonesday.com/contactus/.
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