California Appellate Court Holds Failing to Reimburse Expenses May Be Cause for Constructive Discharge

Vasquez v. Franklin Management Real Estate Fund, Inc., No. B245735 (December 31, 2013): A California Court of Appeal recently held that an employee may proceed with his claim that his employer constructively discharged him in violation of public policy by allegedly failing to reimburse work-related expenses.

Jorge Vasquez was hired as a maintenance technician for Franklin Management Real Estate Fund, Inc. in May 2009, at the rate of $10 per hour for 40 hours per week. According to Vasquez, shortly after he was hired, his supervisors directed him to drive his own vehicle for work-related errands such as trips to the hardware store and various properties owned by Franklin Management. He drove an average of 30 miles per day without reimbursement for gas or vehicle maintenance. He claimed that he repeatedly requested reimbursement for his mileage but was refused. In August 2010, he told his supervisor that he could not “tolerate the work environment of only being paid $10.00 per hour, not being paid for gas and having to drive around town for work without being reimbursed for mileage.” That month, Vasquez quit his job, stating he had “no choice but to resign.”

In November 2010, Vasquez sued Franklin Management for constructive discharge in violation of public policy and intentional infliction of emotional distress. The trial court dismissed both claims for failing to state a claim. The California Court of Appeal affirmed the trial court’s decision on the claim for intentional infliction of emotional distress, but disagreed regarding the claim for constructive discharge. The Court of Appeal focused on Vasquez’s argument that without the mileage reimbursement, his pay was effectively reduced to below minimum wage.

Under California law, proving a claim for constructive discharge requires a showing that “the employer either intentionally created or knowingly permitted working conditions that were so intolerable or aggravated at the time of the employee’s resignation that a reasonable employer would realize that a reasonable person in the employee’s position would be compelled to resign.”

The Court of Appeal acknowledged that, generally, an employer’s failure to reimburse expenses is not sufficient grounds for constructive discharge. However, in this case, Franklin Management was passing its business expenses on to its low wage workers like Vasquez, thereby reducing his hourly pay to below the minimum wage. In a footnote, the court calculated that based on Vasquez’s allegations, he was effectively paid $7.94 per hour—an amount lower than the state’s $8 per hour minimum wage. Thus, the Court of Appeal allowed Vasquez to proceed with his claim, holding that California’s minimum wage policy serves as “a fundamental policy for purposes of a claim for wrongful termination or constructive discharge in violation of public policy.”

According to Keith Watts, a shareholder in the Orange County office of Ogletree Deakins: “The Court of Appeal has just created a new way to go after employers in wage and hour litigation. Employers across California can now expect to find constructive discharge as one more ‘add on’ to the expanding list of claims in some wage and hour suits. Now is an excellent time for employers to carefully scrutinize their practices regarding employee reimbursements. Employers that are not properly reimbursing employees under Labor Code Section 2802, may suffer the same misfortune as the company in Vasquez v. Franklin Management did.”