Gattuso v. Harte-Hanks Shoppers, Inc., No. S139555.

CourtUnited States State Supreme Court (California)
Writing for the CourtKennard
Citation169 P.3d 889,67 Cal.Rptr.3d 468
PartiesFrank GATTUSO et al., Plaintiffs and Appellants, v. HARTE-HANKS SHOPPERS, INC., Defendant and Respondent.
Docket NumberNo. S139555.
Decision Date05 November 2007
67 Cal.Rptr.3d 468
169 P.3d 889
Frank GATTUSO et al., Plaintiffs and Appellants,
v.
HARTE-HANKS SHOPPERS, INC., Defendant and Respondent.
No. S139555.
Supreme Court of California.
November 5, 2007.

[67 Cal.Rptr.3d 471]

Hollins • Schechter, Andrew S. Hollins, Kathleen M.K. Carter, Jeffrey R. Gillette, Santa Ana, Alicia K. Berry and Christine R. Arnold, for Plaintiffs and Appellants.

Tosdal, Smith, Steiner & Wax and Thomas L. Tosdal, San Diego, for Employee Rights Center as Amicus Curiae, on behalf of Plaintiffs and Appellants.

Seyfarth Shaw, Raymond R. Kepner, Los Angeles, Ann Haley Fromholz, John A. Van Hook and Holger G. Besch, Los Angeles, for Defendant and Respondent.

Winston & Strawn, Lee T. Paterson, Los Angeles, Tyler M. Paetkau, Robert Spagat, San Francisco, and Julia Lapis Blakeslee, Los Angeles, for Employers Group as Amicus Curiae, on behalf of Defendant and Respondent.

Paul, Hastings, Janofsky & Walker and Paul Grossman, Los Angeles, for California Employment Law Council as Amicus Curiae, on behalf of Defendant and Respondent.

KENNARD, J.


Labor Code section 2802, subdivision (a), requires an employer to indemnify its employees for expenses they necessarily incur in the discharge of their duties.1 May an employer satisfy this statutory obligation by paying employees increased wages or commissions instead of separately reimbursing them for their actual expenses?

We conclude that an employer may satisfy its statutory reimbursement obligation by paying employees enhanced compensation in the form of increases in base salary or increases in commission rates, or both, provided there is a means or method to apportion the enhanced compensation to determine what amount is being paid for labor performed and what amount is reimbursement for business expenses.

As we will explain, our conclusion differs somewhat from that reached by the trial court and the Court of Appeal, and the differences affect the analysis of another issue presented here, whether the trial court abused its discretion in denying class certification. Accordingly, we reverse the Court of Appeal's judgment and remand the matter to that court for further proceedings consistent with our opinion.

I

Defendant Harte-Hanks Shopper, Inc. (Harte-Hanks) is a California corporation that prepares and distributes advertising booklets and leaflets in California, including the PennySaver and the California Shopper. The company is organized geographically in three business units: the Northern California unit, the Southern California unit, and the San Diego (or Sutton) unit. To sell advertising space in its publications, Harte-Hanks employs both outside and inside sales representatives. Outside sales representatives meet customers in person at their places of business in assigned geographical territories, while inside sales representatives contact customers by telephone. Outside sales representatives must drive their own automobiles to contact customers, while inside sales representatives work in their employer's offices using employer-owned telephone equipment. Harte-Hanks compensates both outside and inside sales representatives by commissions on advertising sales or by a combination of base salary and commissions. With few exceptions,2

67 Cal.Rptr.3d 472

Harte-Hanks does not separately reimburse outside sales representatives for their automobile expenses.

Plaintiff Frank Gattuso is an outside sales representative in Harte-Hanks's Southern California unit. Plaintiff Ernest Sigala was an outside sales representative in the same unit until January 2000, when his employment with Harte-Hanks terminated. They brought this action on behalf of themselves and other Harte-Hanks outside sales representatives seeking indemnification under section 2802 for expenses incurred in using their own automobiles to perform their employment duties. In response to the complaint, Harte-Hanks took the position that it satisfies its obligation under section 2802 to compensate outside sales representatives for automobile expenses by paying them higher base salaries and higher commission rates than it pays to inside sales representatives.3

The trial court asked the parties to brief this issue: "Does Labor Code section 2802 permit an employer to pay increased wages or commissions instead of indemnifying actual expenses necessarily incurred in the discharge of an employee's duties?" After receiving briefing and hearing oral argument, the trial court issued an order accepting Harte-Hanks's argument that section 2802 permits an employer to pay increased salaries or commissions instead of separately reimbursing the employee for actual expenses necessarily incurred in discharging employment duties. The trial court further concluded that the amount or rate of reimbursement could be determined by agreement between employer and employee or, in the absence of an agreement, could be any reasonable amount.

Plaintiffs then moved the trial court (1) to certify a plaintiff class defined as all current and former Harte-Hanks outside sales representatives who were not reimbursed for the expenses they incurred in using their own automobiles after January 1, 1998, to discharge their employment duties; (2) to certify themselves as the class representatives; and (3) to appoint their attorneys as class counsel. After receiving evidence in the form of declarations and depositions, the trial court denied the motion for class certification. The court took the view that plaintiffs had not shown common questions of fact and law, giving this explanation: "Plaintiffs' claim for unpaid business expenses under [section 2802] turns on the determination of two issues (1) whether each individual Harte-Hanks outside sales representative has an agreement about the manner in which he is compensated for expenses, or (2) whether the compensation paid to each individual sales representative is reasonable to compensate for business expenses incurred. The determination of whether there was a meeting of the minds and whether reimbursement was reasonable necessarily requires an individualized inquiry

67 Cal.Rptr.3d 473

as to each outside sales representative. The requirement of commonality therefore is not met, and Plaintiffs' claim for unpaid business expenses cannot be maintained as a class action."

Plaintiffs appealed from the order denying class certification, and on appeal they also challenged the earlier order interpreting section 2802. The Court of Appeal affirmed, agreeing with the trial court's interpretation of section 2802 and concluding that the trial court did not abuse its discretion in denying plaintiffs' motion for class certification. The Court of Appeal denied plaintiffs' petition for rehearing, and we granted plaintiffs' petition for review.

II

Section 2802, subdivision (a), provides: "An 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, even though unlawful, unless the employee, at the time of obeying the directions, believed them to be unlawful." Subdivision (c) of section 2802 defines "necessary expenditures or losses" as including "all reasonable costs...."

A related provision, section 2804, expressly prohibits waiver of the rights afforded under section 2802. Section 2804 provides: "Any contract or agreement, express or implied, made by any employee to waive the benefits of this article or any part thereof, is null and void, and this article shall not deprive any employee or his personal representative of any right or remedy to which he is entitled under the laws of this State."

A. Legislative History

Sections 2802 and 2804 were enacted in 1937 as part of the original Labor Code.4 (Stats.1937, ch. 90, §§ 2802, 2804, pp. 258-259.) Section 2802 was derived from former section 1969 of the Civil Code, which had been enacted in 1872.5 Section 2804 was derived from a 1907 amendment to former section 1970 of the Civil Code. (Stats.1907, ch. 97, § 1, p. 120.) In 2000, the Legislature amended section 2802 to its present form. (Stats.2000, ch. 990, § 1.) Section 2804 has not been amended since its enactment in 1937.

At the time of the 2000 amendment of section 2802, legislative committee analyses identified the purpose of that provision: "The author [of the amending legislation] states that Section 2802 is designed

67 Cal.Rptr.3d 474

to prevent employers from passing their operating expenses on to their employees. For example, if an employer requires an employee to travel on company business, the employer must reimburse the employee for the cost of that travel under Section 2802." (Sen. Rules Com., Off. of Sen. Floor Analyses, analysis of Sen. Bill No. 1305 (1999-2000 Reg. Sess.) as amended Aug. 18, 2000.)

B. Appellate Decisions Construing or Applying Section 2802

Relatively few appellate decisions have construed or applied section 2802, and none of those decisions has much relevance to the issue here. Not relevant here, for example, are decisions concerning an employer's obligation under section 2802 to pay legal expenses that an employee incurs in defending a third party action based on the employee's job-related conduct. (E.g., Plancarte v. Guardsmark (2004) 118 Cal.App.4th 640, 647-648, 13 Cal.Rptr.3d 315; Jacobus v. Krambo Corp. (2000) 78 Cal.App.4th 1096, 1100-1101, 93 Cal.Rptr.2d 425; Devereaux v. Latham & Watkins (1995) 32 Cal.App.4th 1571, 1583, 38 Cal.Rptr.2d 849; Grissom v. Vons Companies, Inc. (1991) 1 Cal.App.4th 52, 56-59, 1 Cal.Rptr.2d 808; Douglas v. Los Angeles Herald Examiner (1975) 50 Cal.App.3d 449, 457-461, 123 Cal.Rptr. 683.) Also unhelpful here are decisions concerning section 2802's application to public entity employers. (E.g., In re Work Uniform Cases (2005) 133 Cal.App.4th 328, 345, 34 Cal. Rptr.3d 635 [public entities not required to pay the cost of employee uniforms];...

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  • James v. Group, Case No.: 14-CV-1756-AJB-JMA.
    • United States
    • United States District Courts. 9th Circuit. United States District Court (Southern District of California)
    • 2 Diciembre 2015
    ...their operating expenses on to their employees." Gattuso v. Harte–Hanks Shoppers, Inc. , 42 Cal.4th 554, 562, 67 Cal.Rptr.3d 468, 169 P.3d 889 (2007). The duty to reimburse under section 2802 is triggered when "the employer either knows or has reason to know that the employee has ......
  • Herrera v. Zumiez, Inc., No. 18-15135
    • United States
    • United States Courts of Appeals. United States Court of Appeals (9th Circuit)
    • 19 Marzo 2020
    ...on the reasonableness of the employee's choices." Gattuso v. Harte-Hanks Shoppers, Inc. , 42 Cal.4th 554, 67 Cal.Rptr.3d 468, 169 P.3d 889, 897 (2007). For example, where an employer is required to indemnify employees' automobile expenses, the employer does not have to indemnify unnece......
  • Haytasingh v. City of San Diego, D076228
    • United States
    • California Court of Appeals
    • 9 Julio 2021
    ...75 Cal.App.4th 48, 55, 88 Cal.Rptr.2d 891 ; accord Gattuso v. Harte-Hanks Shoppers, Inc. (2007) 42 Cal.4th 554, 567, 67 Cal.Rptr.3d 468, 169 P.3d 889 ), I would hold that the 5 m.p.h. speed limit of section 655.2 applies to every boat owner or operator except when a properly illuminated gov......
  • Orange Cnty. Water Dist. v. Alcoa Global Fasteners, Inc., D070771
    • United States
    • California Court of Appeals
    • 1 Junio 2017
    ...indemnity" statutes. (See, e.g.,Gattuso v. Harte-Hanks Shoppers, Inc. (2007) 42 Cal.4th 554, 559, 560, 67 Cal.Rptr.3d 468, 169 P.3d 889 ;Daza v. Los Angeles Community College District (2016) 247 Cal.App.4th 260, 265, 202 Cal.Rptr.3d 115 ; Kantor v. Housing Authority of Fresno County (1......
  • Request a trial to view additional results
92 cases
  • James v. Group, Case No.: 14-CV-1756-AJB-JMA.
    • United States
    • United States District Courts. 9th Circuit. United States District Court (Southern District of California)
    • 2 Diciembre 2015
    ...passing their operating expenses on to their employees." Gattuso v. Harte–Hanks Shoppers, Inc. , 42 Cal.4th 554, 562, 67 Cal.Rptr.3d 468, 169 P.3d 889 (2007). The duty to reimburse under section 2802 is triggered when "the employer either knows or has reason to know that the employee has in......
  • Herrera v. Zumiez, Inc., No. 18-15135
    • United States
    • United States Courts of Appeals. United States Court of Appeals (9th Circuit)
    • 19 Marzo 2020
    ..."depends on the reasonableness of the employee's choices." Gattuso v. Harte-Hanks Shoppers, Inc. , 42 Cal.4th 554, 67 Cal.Rptr.3d 468, 169 P.3d 889, 897 (2007). For example, where an employer is required to indemnify employees' automobile expenses, the employer does not have to indemnify un......
  • Haytasingh v. City of San Diego, D076228
    • United States
    • California Court of Appeals
    • 9 Julio 2021
    ...75 Cal.App.4th 48, 55, 88 Cal.Rptr.2d 891 ; accord Gattuso v. Harte-Hanks Shoppers, Inc. (2007) 42 Cal.4th 554, 567, 67 Cal.Rptr.3d 468, 169 P.3d 889 ), I would hold that the 5 m.p.h. speed limit of section 655.2 applies to every boat owner or operator except when a properly illuminated gov......
  • Orange Cnty. Water Dist. v. Alcoa Global Fasteners, Inc., D070771
    • United States
    • California Court of Appeals
    • 1 Junio 2017
    ...as "statutory indemnity" statutes. (See, e.g.,Gattuso v. Harte-Hanks Shoppers, Inc. (2007) 42 Cal.4th 554, 559, 560, 67 Cal.Rptr.3d 468, 169 P.3d 889 ;Daza v. Los Angeles Community College District (2016) 247 Cal.App.4th 260, 265, 202 Cal.Rptr.3d 115 ; Kantor v. Housing Authority of Fresno ......
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