Cochran v. Schwan’s Home Service, Inc.
When an employer requires work-related calls on a personal cell phone, section 2802 reimbursement is always owed — a reasonable percentage of the bill — and it makes no difference whether the plan was unlimited, whether the employee changed plans, or whether someone else paid.
Cochran v. Schwan’s Home Service, Inc. (2014) 228 Cal.App.4th 1137
Wage & Hour
Expense reimbursement
Lab. Code § 2802
In brief. A class of 1,500 customer service managers was denied certification because the trial court thought section 2802 liability turned on each employee’s individual cell phone plan and on who actually paid the bill. Division Two reversed, announcing the rule in the opinion’s first sentence: “We hold that when employees must use their personal cell phones for work-related calls, Labor Code section 2802 requires the employer to reimburse them. Whether the employees have cell phone plans with unlimited minutes or limited minutes, the reimbursement owed is a reasonable percentage of their cell phone bills.” (Cochran v. Schwan’s Home Service, Inc. (2014) 228 Cal.App.4th 1137, 1140.) The liability showing is correspondingly spare: “an employee need only show that he or she was required to use a personal cell phone to make work-related calls, and he or she was not reimbursed.” (Id. at p. 1145.) The disposition is a reversal of a certification denial, not a merits judgment.
By Jonathan J. Delshad
Founder & Editor-in-Chief
Facts
The statutory text. Section 2802, subdivision (a) provides that “[a]n employer shall indemnify his or her employee for all necessary expenditures or losses incurred by the employee in direct consequence of the discharge of his or her duties, or of his or her obedience to the directions of the employer . . . .” (Cochran v. Schwan’s Home Service, Inc. (2014) 228 Cal.App.4th 1137, 1143–1144.) Its purpose, as the Supreme Court put it in Gattuso v. Harte-Hanks Shoppers, Inc. (2007) 42 Cal.4th 554, 562, is “ ‘to prevent employers from passing their operating expenses on to their employees.’ ” (Cochran, supra, 228 Cal.App.4th at p. 1144.) Gattuso also holds that in calculating the amount due “the employer may consider not only the actual expenses that the employee incurred, but also whether each of those expenses was ‘necessary,’ which in turn depends on the reasonableness of the employee’s choices. [Citation.]” (Ibid., quoting Gattuso, supra, 42 Cal.4th at p. 568.)
The claim. Colin Cochran filed a putative class action against Schwan’s Home Service, Inc. on behalf of customer service managers “who were not reimbursed for expenses pertaining to the work-related use of their personal cell phones,” pleading violation of section 2802, unfair business practices under Business and Professions Code section 17200 et seq., declaratory relief, and statutory penalties under Labor Code section 2699, the Private Attorneys General Act of 2004. (Cochran, supra, 228 Cal.App.4th at p. 1140.) He moved to certify; Home Service opposed and separately moved to deny certification. (Ibid.)
The first hearing. At the October 24, 2012 hearing the trial court found the class ascertainable, sufficiently numerous at 1,500 people, and Cochran typical and adequate, with qualified counsel. (Cochran, supra, 228 Cal.App.4th at p. 1140.) It then broke the section 2802 claim into four elements — expenditures by the managers; expenditures necessarily incurred in the discharge of their duties; employer knowledge or reason to know; and failure to exercise due diligence to reimburse — and found that common questions predominated as to the last three. (Id. at pp. 1140–1141.)
The first element was the problem. Home Service argued that the expenditure element “is subject to . . . individual questions because many people now have unlimited data plans for which they do not actually incur an additional expense when they use their cell phone,” so that determining whether an expense was incurred “will require an examination of each class member’s cell phone plan . . . .” Cochran responded “that whether [a class member] actually incurred an expense when using their personal cell phone for work is an issue of damages and individualized damages do not impact the commonality analysis.” The trial court took Home Service’s side, finding that Cochran “misstate[d] the elements of a failure to reimburse claim” because “[t]he showing of an actionable expenditure or loss by . . . class member[s] pertains to [Home Service’s] liability, not to class members’ damages as it is set forth in . . . section 2802. If the class member[s] did not incur . . . loss[es], there can be no liability.” (Cochran, supra, 228 Cal.App.4th at p. 1141.)
Two further individualized inquiries were identified: whether Cochran or his girlfriend paid his phone bill — implying the same question for every class member — and whether class members had “purchased . . . different cell phone plans because of their work cell phone usage.” Finding no management plan for these questions, the court ordered further briefing and deferred the superiority question. (Cochran, supra, 228 Cal.App.4th at p. 1141.)
The statistical plan. Cochran’s supplemental brief argued that liability could be established with statistical evidence and representative testimony, supported by the declaration of an economist and statistician who offered two methods: assume damages of $2 per day (the amount he said Home Service had reimbursed putative class members in 2006 and 2007), or conduct a survey. (Cochran, supra, 228 Cal.App.4th at p. 1141.) The survey option came with a 22-question draft instrument and an implementation plan — an advance letter asking class members to locate their cellular telephone records, telephonic administration with up to five call attempts at varying days and times, tracing of nonworking numbers, and analysis of the data “for potential nonsampling errors through standard statistical procedures, and finally used for analysis of reported losses and expenditures by class members.” (Id. at pp. 1141–1142.)
Procedural history
At a second hearing on January 31, 2013 the trial court denied certification on two grounds: lack of commonality, and that a class action was not a superior method of litigating the claims. (Cochran, supra, 228 Cal.App.4th at p. 1142.) It observed that the question “whether the cell phone charges [Cochran] allegedly incurred were incurred and paid for by him or by his live-in girlfriend” had been resolved only after Cochran was examined; that Home Service “would be entitled to ask whether each driver purchased a different cell phone plan, because of their work cell phone usage”; and that Home Service had therefore “demonstrated that these individual issues exist for” class members. It further added that statistics from a survey could not be used to prove liability, especially because there was no pattern or practice regarding the expenditures or losses of class members. (Ibid.)
The trial court’s conclusion framed the appeal: “[Cochran] has not demonstrated how the cell phone plans and method of payment exhibited by a portion of the class will accurately reflect the plans and method of payment for the entire class. . . . Therefore, individualized inquiries of the class members’ cell phone plans and payments are necessary to determine liability. This inquiry for 1500 class members, as evidenced by the four-page 22 question survey, will overwhelm the liability determination. Therefore, common questions do not predominate . . . .” (Cochran, supra, 228 Cal.App.4th at p. 1142.)
The review standard did the structural work. Certification is discretionary, but the Court of Appeal emphasized that “appellate review of orders denying class certification differs from ordinary appellate review.” The reviewing court considers only the reasons the trial court stated and “must ignore any unexpressed reason that might support the ruling,” affirming if any stated reason “was valid and sufficient to justify the order” and supported by substantial evidence — but reversing “if the trial court used improper criteria or made erroneous legal assumptions, even if substantial evidence supported the order,” because “[a] trial court’s decision that rests on an error of law is an abuse of discretion. [Citations.]” (Cochran, supra, 228 Cal.App.4th at p. 1143, quoting Knapp v. AT&T Wireless Services, Inc. (2011) 195 Cal.App.4th 932, 939.) Once the court concluded that the trial court’s premises about section 2802 were legally wrong, substantial evidence could not save the order.
Issue
The court stated it in one sentence: “Does an employer always have to reimburse an employee for the reasonable expense of the mandatory use of a personal cell phone, or is the reimbursement obligation limited to the situation in which the employee incurred an extra expense that he or she would not have otherwise incurred absent the job?” (Cochran, supra, 228 Cal.App.4th at p. 1144.)
A subsidiary question followed: whether the trial court’s three assumptions — that a third party’s payment of the bill defeats an expenditure, that liability depends on whether the employee changed plans because of work use, and that liability cannot be determined without examining each class member’s plan — were legally sound. (Cochran, supra, 228 Cal.App.4th at p. 1144.)
Holding
“We hold that when employees must use their personal cell phones for work-related calls, Labor Code section 2802 requires the employer to reimburse them. Whether the employees have cell phone plans with unlimited minutes or limited minutes, the reimbursement owed is a reasonable percentage of their cell phone bills.” (Cochran v. Schwan’s Home Service, Inc. (2014) 228 Cal.App.4th 1137, 1140.) On the threshold question, “[t]he answer is that reimbursement is always required. Otherwise, the employer would receive a windfall because it would be passing its operating expenses on to the employee. Thus, to be in compliance with section 2802, the employer must pay some reasonable percentage of the employee’s cell phone bill.” (Id. at p. 1144.) All three of the trial court’s assumptions were erroneous: it “does not matter whether the phone bill is paid for by a third person, or at all”; “[i]t is irrelevant whether the employee changed plans to accommodate work-related cell phone usage”; and “the details of the employee’s cell phone plan do not factor into the liability analysis.” (Ibid.) The resulting liability standard is minimal: “an employee need only show that he or she was required to use a personal cell phone to make work-related calls, and he or she was not reimbursed. Damages, of course, raise issues that are more complicated.” (Id. at p. 1145.) What the court did not decide: the amount owed — “[b]ecause of the differences in cell phone plans and work-related scenarios, the calculation of reimbursement must be left to the trial court and parties in each particular case” (id. at p. 1144) — and whether this class should be certified. The order denying certification is reversed and the motion is to be reconsidered under the court’s construction of section 2802 and the principles of Duran v. U.S. Bank National Assn. (2014) 59 Cal.4th 1, with both sides permitted to revise their papers. (Id. at pp. 1140, 1145.) “All other issues are moot.” (Id. at p. 1145.)
Reasoning
1. The windfall principle supplies the answer. The court did not parse the statutory text at length. It reasoned from the purpose Gattuso identified — preventing employers from passing operating expenses to employees — and treated the “no extra expense” argument as a windfall claim: if the employer escapes the obligation because the employee’s plan was unlimited, “the employer would receive a windfall because it would be passing its operating expenses on to the employee.” (Cochran, supra, 228 Cal.App.4th at p. 1144.) The court went no further than that. (Editor’s observation, not the court’s reasoning: the economic substance of an unlimited plan is that the employee has prepaid for capacity, so the employer’s use of that capacity is a benefit conferred whether or not it generates an incremental charge. The opinion rests on the windfall rationale alone and does not say this.)
2. Who paid the bill is irrelevant — and the reason is privacy, not just doctrine. The court’s answer to the live-in-girlfriend point is categorical: “If an employee is required to make work-related calls on a personal cell phone, then he or she is incurring an expense for purposes of section 2802. It does not matter whether the phone bill is paid for by a third person, or at all. In other words, it is no concern to the employer that the employee may pass on the expense to a family member or friend, or to a carrier that has to then write off a loss.” (Cochran, supra, 228 Cal.App.4th at p. 1144.) The court then gave a second, independent justification: “Not only does our interpretation prevent employers from passing on operating expenses, it also prevents them from digging into the private lives of their employees to unearth how they handle their finances vis-a-vis family, friends and creditors.” (Id. at pp. 1144–1145.) That privacy rationale is doing real work — it explains why the court refused to let the liability inquiry open a door to household financial discovery.
3. Plan details are a damages question, not a liability question. The trial court had accepted Home Service’s framing that expenditure is an element of liability, so that plan-by-plan variation defeated commonality. The Court of Appeal relocated the entire inquiry: “the details of the employee’s cell phone plan do not factor into the liability analysis,” and “[d]amages, of course, raise issues that are more complicated.” (Cochran, supra, 228 Cal.App.4th at pp. 1144–1145.) That relocation is what makes the certification ruling untenable, because the governing rule is that “ ‘if the defendant’s liability can be determined by facts common to all members of the class, a class will be certified even if the members must individually prove their damages.’ [Citations.]” (Id. at p. 1142, quoting Brinker Restaurant Corp. v. Superior Court (2012) 53 Cal.4th 1004, 1022.)
4. Whether the employee changed plans is beside the point. The third assumption — that an employee who did not upgrade a plan because of work use suffered no loss — falls with the first two: “It is irrelevant whether the employee changed plans to accommodate work-related cell phone usage.” (Cochran, supra, 228 Cal.App.4th at p. 1144.) Under the court’s rule the obligation attaches to the required use, not to any change in the employee’s consumption behavior.
5. Error of law, therefore abuse of discretion. The reversal follows mechanically from the standard of review. Because the trial court’s stated reasons rested on legal assumptions the Court of Appeal held erroneous, the order could not stand regardless of the evidentiary support for it, and the court said only that “[b]ecause the trial court made erroneous legal assumptions, the denial of class certification must be reversed.” (Cochran, supra, 228 Cal.App.4th at p. 1145.)
6. Duran is preserved as a constraint on remand, not resolved. The opinion is careful about statistical proof. It recites Duran’s framework — sampling is “a methodology based on inferential statistics and probability theory,” inferences from part to whole are justified “[only] when the sample is representative,” and representativeness turns on population variability, sample size, randomness or selection bias, and margin of error — and notes that at certification a trial court “should consider . . . whether a [statistical] plan has been developed.” (Cochran, supra, 228 Cal.App.4th at p. 1143, quoting Duran, supra, 59 Cal.4th at pp. 31, 38, 38–46.) It also records that Duran “stopped short of deciding whether sampling ‘should be available as a tool for proving liability in a class action,’ ” while warning that statistical methods “be employed with caution.” (Id. at p. 1143, quoting Duran, supra, 59 Cal.4th at pp. 40, 41.) The direction on remand is to apply Duran “to the degree that the class representative . . . proposes to use statistical sampling evidence to establish either liability or damages” (id. at p. 1140) — an instruction that leaves the sampling question genuinely open.
There was no dissent; Chavez, J., and Ferns, J., concurred. (Cochran, supra, 228 Cal.App.4th at p. 1145.)
Significance
Cochran is the decision practitioners cite for the proposition that California employers must reimburse mandatory work use of personal cell phones, full stop. That is accurate as far as it goes, but two features of the opinion are routinely lost.
The first is what the case actually decided procedurally. This is a reversal of an order denying class certification, not a merits judgment, and not a holding that this class must be certified. The trial court was directed to reconsider the motion under the correct construction of section 2802 and under Duran, with both sides free to revise their papers. (Cochran, supra, 228 Cal.App.4th at pp. 1140, 1145.) The opinion establishes the substantive rule and then hands the certification question back.
The second is the deliberate asymmetry between liability and damages. The court made liability nearly self-proving — required use plus non-reimbursement — while conceding that damages “raise issues that are more complicated” and expressly refusing to specify a formula, leaving the calculation “to the trial court and parties in each particular case.” (Cochran, supra, 228 Cal.App.4th at pp. 1144–1145.) That asymmetry is the source of both the decision’s power and its residual uncertainty: liability is easy to establish and the amount remains contested case by case.
Doctrinally the case sits directly downstream of Gattuso, which held that section 2802 does not dictate a reimbursement method and that a lump-sum or enhanced-compensation approach is permissible if apportioned and sufficient. Cochran supplies the complementary rule at the front end: the obligation exists regardless of the employee’s plan structure or payment arrangements. Read together, Gattuso governs how an employer may pay and Cochran governs whether it must.
The privacy rationale has also had a life of its own. By holding that the employer has no legitimate interest in “digging into the private lives of their employees to unearth how they handle their finances” (Cochran, supra, 228 Cal.App.4th at p. 1145), the court gave plaintiffs a ready answer to discovery aimed at household payment arrangements in reimbursement cases generally, not only cell phone cases.
The Supreme Court denied review on November 25, 2014 (S221319). As always, confirm current status with a citator before relying on the decision.
Key quotes
“We hold that when employees must use their personal cell phones for work-related calls, Labor Code section 2802 requires the employer to reimburse them. Whether the employees have cell phone plans with unlimited minutes or limited minutes, the reimbursement owed is a reasonable percentage of their cell phone bills.” (Cochran v. Schwan’s Home Service, Inc. (2014) 228 Cal.App.4th 1137, 1140.)
“The answer is that reimbursement is always required. Otherwise, the employer would receive a windfall because it would be passing its operating expenses on to the employee.” (Id. at p. 1144.)
“It does not matter whether the phone bill is paid for by a third person, or at all.” (Id. at p. 1144.)
“To show liability under section 2802, an employee need only show that he or she was required to use a personal cell phone to make work-related calls, and he or she was not reimbursed. Damages, of course, raise issues that are more complicated.” (Id. at p. 1145.)
Practice pointer
Plead and prove the two facts that matter. Under Cochran the liability case is required use plus non-reimbursement (p. 1145). Build the record around the requirement: written policies, job descriptions, dispatch or on-call practices, supervisor texts and calls, customer-contact expectations, and any bring-your-own-device policy. Everything else — plan type, who paid, whether the employee upgraded — is legally irrelevant to liability and should be resisted as a liability-stage inquiry. Use the privacy rationale in discovery. When an employer propounds discovery into household finances or third-party payment of the bill, Cochran supplies the objection on the merits, not merely on burden: the court adopted its rule in part to prevent employers “from digging into the private lives of their employees” about how they handle finances with family, friends and creditors (p. 1145). Frame plan variation as damages. The single most important move for certification is the one the trial court got wrong: expenditure variation is a damages question, and under Brinker a class may be certified even where members must individually prove damages (p. 1142). Say so explicitly in the certification brief and tie it to Cochran’s holding that plan details “do not factor into the liability analysis” (p. 1144). Bring a real trial plan. Cochran did not bless statistical sampling; it directed the trial court to apply Duran to any sampling proposal for liability or damages (p. 1140). A survey instrument alone is not a plan — address population variability, sample size, randomization and margin of error, and prefer employer-side data (billing reimbursements, call logs, device policies) to class-member recall wherever possible. Do not overstate the holding. The case reverses a certification denial; it does not hold that a cell phone class must be certified, and it does not set the reimbursement amount, which is left to the parties and the court case by case (p. 1144). For employers, the compliance answer is a documented, defensible percentage or stipend for employees who are required to use personal devices, revisited periodically — combined with a policy that either prohibits work use of personal phones or reimburses it.
Open questions
What is a “reasonable percentage”? The court required “some reasonable percentage of the employee’s cell phone bill” but expressly left the calculation “to the trial court and parties in each particular case.” (Cochran, supra, 228 Cal.App.4th at p. 1144.) It gave no floor, no methodology, and no guidance on whether the percentage is measured by usage, by duty status, or by some other metric.
Does the rule extend beyond calls? The holding is written in terms of employees who “must use their personal cell phones for work-related calls” (Cochran, supra, 228 Cal.App.4th at p. 1140), and the record concerned calls. Data, messaging applications, employer software installed on personal devices, and home internet are not addressed.
Sampling for liability. The court noted that Duran “stopped short of deciding whether sampling ‘should be available as a tool for proving liability in a class action’ “ and remanded for application of Duran’s principles rather than resolving the question. (Cochran, supra, 228 Cal.App.4th at pp. 1140, 1143.)
Superiority. The trial court denied certification on both commonality and superiority grounds, but the Court of Appeal addressed only the legal assumptions and stated that “[a]ll other issues are moot.” (Cochran, supra, 228 Cal.App.4th at p. 1145.) Superiority is therefore open on remand.
What “required” means. The liability trigger is that the employee “was required to use a personal cell phone to make work-related calls” (Cochran, supra, 228 Cal.App.4th at p. 1145), but the opinion does not address whether a practical expectation short of a written mandate suffices, or how a voluntary election to use a personal device is treated.
See also: Gattuso v. Harte-Hanks Shoppers, Inc.