Gattuso v. Harte-Hanks Shoppers, Inc., 42 Cal. 4th 554 (2007)

Frank Gattuso is an outside sales representative for Harte-Hanks, a California corporation that prepares and distributes advertising booklets and leaflets, including the PennySaver and the California Shopper. Rather than separately reimburse outside sales representatives for their automobile expenses, Harte-Hanks paid them higher salaries and commissions than it paid its inside sales representatives. Gattuso and Ernest Sigala filed this class action lawsuit, seeking indemnification under Labor Code § 2802 for the expenses they incurred in using their own automobiles to perform their employment duties. The trial court denied the motion to certify the class and determined that the employer had properly indemnified the employees by paying them an increased amount of base salary and commission compensation. The California Supreme Court agreed with the lower courts’ ruling in part, holding that “an employer may satisfy its statutory business expense reimbursement obligation under section 2802 by paying employees enhanced compensation… provided the employer establishes some means to identify the portion of overall compensation that is intended as expense reimbursement, and provided also that the amounts so identified are sufficient to fully reimburse the employees for all expenses actually and necessarily incurred.” However, the Supreme Court reversed the judgment to the extent it denied class certification on the ground that the lower courts had failed properly to analyze whether common issues predominated. Cf. Solis v. The Regis Corp., 612 F. Supp. 2d 1085 (N.D. Cal. 2007) (company violated Labor Code § 212 by paying its subsidiaries’ employees with checks drawn from an out-of-state bank).