California Supreme Court Approves Compensation Practice of Using Clearly Delineated Lump-Sum Payments for Reimbursing Employee Expenses

On November 5, 2007, the California Supreme Court issued its opinion in Gattuso v. Harte-Hanks Shoppers, Inc., holding that an employer may indemnify employees for reasonable and necessary business expenses under California Labor Code § 2802 (Section 2802) by paying employees enhanced compensation in the form of salary or commissions. The Court concluded, however, that there must be a means or method for apportioning the enhanced compensation between expense reimbursement and wages/salary, so as to delineate which amount is for labor performed and which is to meet its reimbursement obligation.