The Employer's Legal Resource: Reimbursing Employee Business Expenses Could Cost You More Than You Think
Last month the Oklahoma Supreme Court decided a case that should have HR managers and supervisors reviewing and perhaps rethinking policies for reimbursing employees for expenses on business trips.
Two employees of a North Carolina company, Carolina Forge, flew to Joplin on the company dime to call on one of Carolina Forge's customers. Carolina Forge paid for the employees' use of a rental car and gave the employees $600 cash for expenses.
The employees spent the morning touring the customer's facility and delivering a presentation to the customer's representatives, then took them to lunch and to play a round of golf. After golf, the employees' interaction with the customer ended, and the employees had dinner together (without the customer) in Joplin.
After dinner, the employees decided to drive to a casino 30 miles away in Miami, Oklahoma. After spending "several hours" at the casino and consuming alcohol, the employees got in the car to return to Joplin. They began traveling west on the interstate highway, when they needed to be traveling east to return to Joplin. When the employee driving the rental car attempted to do a U-turn in an opening of a lane barricade he collided with an 18 wheeler, resulting in the death of one of the employees, and injuries to the other employee and the passengers in the 18 wheeler.
The passengers in the 18 wheeler sued Carolina Forge, alleging it was liable for negligent entrustment of the rental car and negligence under the doctrine of respondeat superior. The district court granted summary judgment to Carolina Forge, finding the employees were not in the course and scope of their employment at the time of the accident and Carolina Forge did not negligently entrust the rental vehicle to the employees. The Supreme Court reversed, holding that under the facts, the case should be heard by a jury who should decide both issues.
First, with respect to negligent entrustment, the Court noted that one who supplies a car to another can be liable for negligent entrustment if that person knows or has reason to know the driver is intoxicated or has a "propensity" for becoming intoxicated. Here, Carolina Forge supplied the car because it paid for renting it. The evidence indicated Carolina Forge reimbursed employees for all money spent on alcoholic beverages - not just the alcohol consumed while entertaining customers. In particular the employee driving the rental car had been reimbursed by Carolina Forge for expenses for liquor on prior business trips. Carolina Forge did not maintain any corporate procedure, guideline, policy, or protocol regarding drinking and driving rental vehicles paid for by Carolina Forge. The Court held that a jury should decide if Carolina Forge, at the time it paid for the rental car for its employees, knew or should have known its employees were likely to drive the rental car while intoxicated. And, for purposes of the negligent entrustment theory, the issue of whether the employees were acting within the course and scope of their employment at the time of the accident did not matter, as liability for negligent entrustment arises from the act of entrustment, not from the relationship of the parties.
Next, the court addressed Carolina Forge's liability for negligence under a respondeat superior theory. Here, of course, there would have to be evidence that the negligence occurred in the course of employment and was within the scope of the employees' authority to hold Carolina Forge liable. Although the employees had finished calling on their customer and drove to the casino after dinner, the Supreme Court found it significant that the employees had unlimited use of the rental car, Carolina Forge put no limitations on where the employees could drive the rental car (and specifically did not instruct the employees not to leave Joplin), Carolina Forge reimbursed the employees for expenses for meals and drinks even when the employees were on personal time, and Carolina Forge would have reimbursed the employees for any meals and alcohol consumed at the casino. The Court noted in particular that "[a]t the time of the accident Carolina Forge had no written corporate procedure, guideline, policy, or protocol as to what expenses were and were not paid for or reimbursed by Carolina Forge." The Court held that, on these facts, a jury could conclude that the employees' trip to the casino was authorized by Carolina Forge and was included within the course and scope of their employment.
The Supreme Court's opinion provides the framework for an employer to avoid the liability Carolina Forge may face in a jury trial. First and foremost, employers need to have written policies and procedures governing the use of rental cars on business trips. Employers should consider whether an employee should be allowed to use a rental car for personal endeavors. One policy to consider might state that if an employee is allowed to use a rental car partly for business and partly for personal reasons, the employee should pay all expenses incurred in connection with the personal use of the car, including gas and a pro-rated share of the rental expense. Similarly, the written policies and procedures might make it clear that the employee is not being reimbursed for alcohol or entertainment unrelated to the purpose of the business trip.
Of course, it's okay if the employer wants to reimburse the employee for these things - but be prepared to be hauled into court if your employee injures someone.
Perhaps the one recommendation which most employers will embrace and which could provide at least some protection is to specifically spell out that under no circumstance shall the employee use the car if intoxicated, or allow anyone else to use the car if that person is intoxicated.
By Jon Brightmire, firstname.lastname@example.org