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IMPROPER EXPENSE REIMBURSEMENTS CAN RESULT IN COSTLY LITIGATION
By Ron Chapman, Jr.
The number of employment-related lawsuits continues to rise, and new theories of liability are always emerging. Even something as innocuous as reimbursement of expenses can result in costly litigation.
Two real-world examples prove the point.
In Tedesco v. Innovo Group, Inc. , Michael Tedesco was the vice-president of sales and marketing for Innovo. After Innovo terminated Tedesco's employment, he filed suit for, among other things, the reimbursement of expenses he claimed were due. Specifically, after he was fired, Tedesco turned in receipts and claimed entitlement to $31,038 in reimbursements. In defending the claim, Innovo presented evidence to “suggest” that some of Tedesco's expenses were personal rather than business expenses. For example, there was evidence that Tedesco arranged a trip to visit a friend and that some of the expenses were “questionable.” Nevertheless, Innovo's evidence was insufficient, the jury awarded Tedesco $27,000 in expenses, and the Texas Court of Appeals upheld the jury verdict. Had Innovo's controls on expense reimbursements been better, it probably could have avoided both the $27,000 and the legal fees associated with defending the claim.
In Gattuso v. Harte-Hankes Shoppers, Inc. , the employer required its sales representatives to drive their own automobiles on sales calls and compensated them by paying higher base salaries and/or higher commission rates. One of the sales representatives filed a class action lawsuit, arguing this method of expense reimbursement was unlawful. The California Supreme Court ruled the employer's method of reimbursement was permissible, but the employer still had to identify the amounts representing payment for labor performed and the amounts representing reimbursement for expense reimbursement. In other words, the employer still had to track and document expense reimbursements carefully.
Summary
As these two cases demonstrate, employers should have a clear expense reimbursement policy and monitor claims for reimbursement carefully. Such steps can avoid costly litigation down the road.
Ron Chapman, Jr. is a shareholder in the Dallas office of Ogletree Deakins, a labor and employment law firm with 35 offices across the country. He is Board Certified in Labor & Employment Law by the Texas Board of Legal Specialization and can be contacted at 214.987.3800. This information is not intended to constitute legal advice and should not be relied upon in lieu of consultation with appropriate legal advisors in your own jurisdiction. It may not be current as the laws associated with the subjects of the article change frequently.
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