Hybrid work, telework, flex work – all these terms have become commonplace since the COVID-19 virus made trips into the office unsafe during the height of the pandemic. And now, even with vaccines readily available and life returning to some semblance of  “normal,” many employers are still offering employees work from home options.

According to data compiled by the Bureau of Labor Statistics, 34.5% of businesses increased telework for some or all their employees during the pandemic; and of those businesses, 60.2% report they expect to keep those arrangements permanent.

 
For the companies that are allowing flexibility with telework, there are benefits such as cost savings in office space requirements. For employees, the benefits include avoiding long commutes and more time with family. Because of this, hybrid work arrangements are expected to continue to be more common over the next decade.


And because these new arrangements created by an emergency are expected to continue, it is important for employers and employees alike to understand the labor laws that apply to these arrangements.


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Marie Burke Kenny Partner Procopio

Playing Favorites

“There are many traps for the unwary California employer when managing and navigating issues involving remote work,” said Marie Burke Kenny, a partner at Procopio who specializes in labor and employment law.

 
At the top of those list of traps is potential for discrimination toward a protected class. In California, protected categories include race, religious creed, color, national origin, ancestry, physical disability, mental disability, medical condition, genetic information, marital status, sex (which includes pregnancy, childbirth, breastfeeding, and related medical conditions), gender, gender identity, gender expression, age, sexual orientation, military or veteran status, immigration status, protected medical leaves, domestic violence victim status and political affiliation.


“When considering whether to allow or disallow employees to work remotely, employers can find themselves facing allegations of discrimination or favoritism if employees are unhappy with the remote work decision,” Burke Kenny said. “For example, an employee may allege that the employer’s decision to deny remote work was based on the employee’s gender or race.”  


Burke Kenny advises businesses to involve human resources specialists in drafting hybrid work policies to ensure there is no discrimination in the decision-making process.


“For example, Human Resources can conduct a discrimination analysis to determine that there is no disparate treatment or an adverse impact on employees in protected categories,” she said, adding that even a neutral policy can have a discriminatory impact.

 
“If an employer’s remote work policy results in 70% of minority employees being denied remote work, that it is an example of a policy that might become legally problematic. At that point, it is necessary to show that the employer has taken whatever steps it can to avoid a discriminatory impact and has either made modifications to the remote work policy or cannot make modifications because of business necessity – [for example] all the protected class employees work in a department that requires in-person work.”


Potential workplace discrimination around hybrid work extends beyond protected class issues.


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Adam Rosenthal Partner Sheppard Mullin

“Over the next few years, employers with a large number of hybrid employees should closely monitor the impact of hybrid work on promotions and employee advancement,” said Adam Rosenthal, a partner in the Labor and Employment Practice Group at Sheppard Mullin.


Rosenthal explained a possible scenario that might trigger a discrimination claim: A company tells employees that they only need to come into the office two days a week but can come in more often if they prefer to.  A manager prefers to work in the office every day and tells his team that they can follow the three-day remote policy but if they are “serious” about their careers, they should be in the office at least four days.  


“Now, all things being equal, if it becomes apparent that employees who spend more time in the office with the manager are being promoted based on the manager’s decision to favor those employees or based on the manager’s subconscious distance bias – favoring employees the manager sees more often – this could result in potential risks to the employer,” he said. “One risk is that a manager in this scenario would be violating the company’s own policy by discouraging employees to exercise their ability to work remotely a few days a week.”

 
The distance bias in promotions also puts an employer in jeopardy for violating protected classes because, Rosenthal points out, research shows women (especially with children), older workers and disabled employees are more likely to prefer working from home.  
“In other words, if the manager puts too much focus on employees coming into the office, that could result, intentionally or otherwise, in a claim that the manger discriminated against employees in these protected classes,” he said.


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Christopher Olmsted Employment Law Compliance Attorney, Shareholder Ogletree Deakins

To avoid accusations of discrimination, companies should prepare a written remote work policy, said Christopher Olmsted, an employment law compliance attorney at Ogletree Deakins.


“Such a policy could describe the various criteria a company will consider when determining whether any given position will be permitted to work remotely. Some positions may require direct in-person supervision or collaboration with others, while others may not,” he said. “The ability of workers to sustain the overall quality and quantity of work performed in the remote location may be relevant.”

 
Olmsted added that employee access to equipment, documents or data and data security are other common considerations for such policies and the policy should be applied “in a uniform way to avoid accusations of discrimination or favoritism.”


Tracking Hours and Wages


Another area of concern for employers when offering non-salaried employees to work from home is compliance with state and federal wage and hour laws.


“When employees work remotely, employers remain obligated to accurately record and pay for all hours worked, ensure that meal and rest breaks occur, as well as many other compliance issues,” Olmsted said. “Some employees working remotely may perform incidental tasks while off the clock, neglecting to record the time. For example, they may be more inclined to respond to an after-hours email or text message while off the clock.”


If an employee skips legally required breaks, they could later claim the pressure of work forced them to do so and seek legal action later for unpaid wages or penalties, Rosenthal added.


Burke Kenny said California employers should provide their hourly employees with a written agreement governing remote work that reminds them of wage and hour requirements.

 
Those requirements include accurately recording all time worked; not working while off the clock; taking a first 30-minute unpaid, uninterrupted meal period within five hours of starting work and a second 30-minute unpaid, uninterrupted meal period within ten hours of starting work, and taking a paid, uninterrupted 10-minute rest period for every four hours worked or major fraction thereof, for example every 3.5 hours.


Rosenthal pointed out that the California Supreme Court in recent years has expanded the definition of work to include anywhere the employer controls wages, hours or working conditions of an employee; where the employer “suffers of permits” the work (for example, if the employer requires employees to work, even if the employee does not perform work, the employee must be compensated for that time); and also where the employee is “engaged” to work by the employer.  

 
“The net-net for employers is that if they have non-exempt employees working remotely, it is important to carefully monitor all the time they work, and pay employees accordingly,” Rosenthal said. “This means, for example, that if a manager receives an email from a non-exempt employee at 8:30 p.m., when reviewing the employee’s weekly time records, the manager should check to see if the employee accounted for working that evening.”

 
In that case, Rosenthal said he would advise companies to pay the employee for unrecorded off-the-clock work and remind the employee of their obligations.


Relocation Reductions


Another legal issue around compensation for work-from-home is reducing pay of employees who have relocated to less expensive cities while retaining their job.

 
“Recently, a well-known and respected global technology company modified its compensation policies for remote employees based on the cost of living in the employee’s new local. According to several news reports, the company has faced considerable backlash from employees who saw their wages decrease, even though they are doing the same jobs,” Rosenthal said. “I recommend that employers who are considering changing compensation based on remote or hybrid working relationships, contemplate not only the legal issues, but also weigh how the decision will impact employee morale and engagement.”


Legally, companies can reduce an employee’s pay unless the employee is covered by a union collective bargaining agreement or has an employment contract.


“This means that employers can enact policies that reduce employee compensation based on where the employee works, such as if a remote employee relocates permanently to another city, or if an employee works from home four days per week,” he said.
 “However, all adjustments to pay must be clearly communicated to the employee in advance of any changes and must be made in a non-discriminatory manner. As with most personnel decisions, an employer must have a legitimate business reason or reasons for reducing an employees’ compensation.  It is important to remember that even if an employer can reduce an employee’s compensation, that does not necessarily mean they should do so.”
 
Expenses and Safety


Another area of potential liability for employers who permit remote work involves the reimbursement of expenses.  


“California employers are required to reimburse employees for any reasonable and necessary expenses incurred while performing work on behalf of an employer,” Burke Kenny said. “If an employer decides to require employees to work from home, California law requires employers to reimburse employees for expenses such as internet service, cellphone, office supplies and any other expense that is reasonably and necessarily incurred by employees in order to work remotely.”


To prevent liability for expense reimbursement claims under California Labor Code section 2802, an employer should elect to either reimburse employees for all actual expenses incurred or calculate a reasonable stipend based on “objective and legitimate criteria” while allowing employees to negotiate the amount of the stipend.  


“It is important to document the expense reimbursement method and require employees to sign an acknowledgment of the documentation,” she added.


For employees who choose to work from home and not work from an available physical office, employers could argue that expenses are not reasonable or necessary, although California law is not yet clear if voluntarily working from home alleviates the responsibility of employers to pay for expenses, Burke Kenny said.


“In California, employers are obligated to reimburse employees for business related expenses,” Olmsted said, and pointed to a court case decided in 2014 that held that employers should reimburse employees for the required business use of personal cell phones. “Other expenses relating to working remotely should also be reimbursed, although the true extent of the requirement has yet to be decided by California courts.”


Another expense that may come up for employers offering work from home to employees but is yet to be settled in law is safety and health precautions for home-based work environments.


Cal/OSHA Guidance


“Generally, employers have an obligation to keep the workplace free from recognized serious hazards, including ergonomic hazards,” Rosenthal said. “However, federal OSHA and Cal/OSHA have issued guidance that they will not conduct inspections of employee home offices or hold employers liable for dangers at an employee’s office.”  


Although ergonomic safety may not currently be a requirement for employees, Rosenthal said employers should consider offering limited or one-time reimbursements for certain ergonomic items such as special chairs, desks or keyboards.


“Providing ergonomically appropriate workstations for an employee’s home office can reduce or mitigate the risk of certain workers’ compensation claims,” he said.

 
Because remote work is most often performed on home computers, another safety concern for employers is data security and privacy.


“When employees work remotely, the risk of data breaches increases,” Olmsted said. “Devices or documents can get lost or stolen. Employees may use unsecured Wi-Fi. Information may become accessible to other household members.”


Olmsted advises employers to customize data security, privacy and confidentiality polices to cover remote working environments and apply technological solutions to limit risk of data breaches.

 

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Kaveh Imandoust Certified Public Accountant RJS Law

Expenses and Taxes
 
In addition to paying expenses, employers need to consider how those expenses are tracked and potential taxes employers are exposed to, said Kaveh Imandoust, J.D., M.B.T. and Certified Public Accountant at tax law firm RJS Law.

 
“While there are a variety of expenses related to an employee working remotely, there are requirements that must be met to be able to harvest the benefit,” he said. “Unfortunately, the Tax Cut and Jobs Act has disallowed deductions for unreimbursed employee expenses since the 2018 tax year.”  

 
However, expense incurred by an employee for a legitimate business purpose that was authorized and reimbursed by the employer would be a tax-free reimbursement to the employee under an accountable plan. As such, the reimbursement should not be included as income on the employee’s W2, Imandoust said.

 
Employer accountable plans must meet three criteria to be honored: The expense must have a business connection; the expense must be substantiated within a reasonable period; and the employee must return any money not spent within a reasonable period.  


Examples of legitimate business purpose that are deductible include home office (including depreciation), cellphone, supplies, internet, dues and subscriptions. Examples of non-legitimate expense are entertainment – nightclubs, country clubs, sporting events, etc.


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Sam Imandoust Tax Attorney RJS Law

According to Sam Imandoust, Esq., LL.M. tax attorney at RJS Law, another tax issue for employers is the potential for remote employees to subject the employer to multistate taxation as having an employee in a state may satisfy a state’s definition of “doing business” between the employer and the state allowing the state jurisdiction to tax the employer, Imandoust said. In California, an employer is doing business in the state if California payroll compensation exceeds either a threshold amount of $63,726 or 25% of total payroll.  


Public Law 86-272, a federal statute that presents states from asserting their right to impose a tax based on net income, “only shields employers who sell tangible personal property to an outside state and the only other connection to that state is the solicitation of orders,” Imandoust said. “A remote employee performing any job duties outside of that limited scope would likely generate nexus for that state to tax the employer.”

 
As work from home models become more widely adopted, states are enacting new regulations to protect their interests,” Imandoust said.

 “It is prudent to consult with your tax counsel as you embark on taking on new employees in new jurisdictions to fully understand the tax exposure that will be onboarded with the new personnel,” he added.
 
Online Harassment


Although there are not different laws governing harassment of employees working at the office or from home, employers should train employees and supervisors on how to prevent and report harassment – and make an extra effort to pay attention to online activity.

 
“Software platforms such as Zoom and Microsoft Teams have given employees greater access into the personal lives of their co-workers,” Rosenthal said. “The relative informality of seeing into co-workers’ home lives can lead to employees crossing clear lines of professionalism, which could lead to claims of harassment.”


Rosenthal, who wrote a book on harassment issues titled “Managing Employees Without Fear: How to Follow the Law, Build a Positive Work Culture, and Avoid Getting Sued,” said leaders need to adopt “practical measures” for both in-person and remote workers “to foster a culture of compliance, particularly around preventing harassment in the workplace.”