Employee Forced To Pay For Her Employer’s Business Losses Has A Potential Labor Code Claim

CATEGORY: Public Education Matters
CLIENT TYPE: Public Education
DATE: Sep 30, 2021

Krizel Gallano worked as a cashier and customer service representative for Burlington Coat Factory (Burlington) at its Daly City store.  In March 2014, loss prevention personnel confronted her in a room at the back of the store about mistakes she purportedly committed that resulted in business losses.  She was then allegedly coerced into signing a statement confessing to the mistakes, which included processing a return of perfume that resulted in a loss of $400 and ringing up items that had been mismarked by other employees with the wrong price tags.  Burlington characterized these mistakes as “fraudulent” returns and other acts of “shoplifting.”

After signing the confession, Gallano was directed to sign a promissory note establishing a personal debt of $880 for the losses her employer had allegedly sustained. Burlington told her that if she paid the amount owed on the promissory note and resigned, it would not pursue criminal charges against her.  Gallano resigned, and no criminal proceedings were ever initiated against her in connection with her employment at Burlington.  However, Gallano received two civil demand letters from a law firm seeking $350 for “shoplifting, theft, or fraud.”

In 2015, Gallano filed a class action complaint against Burlington.  She declared that the purpose of her complaint was to stop Burlington’s “unlawful practice of intimidating its employees into indemnifying the company for [its] ordinary business losses.”  She alleged that Burlington had a practice of mischaracterizing routine retail mistakes as theft, such a processing fraudulent returns or selling mistagged items, and intimidating employees into signing promissory notes to shoulder the debt for the company’s financial losses.  Gallardo asserted a cause of action for violations of Labor Code Section 2802, among other claims.  After significant litigation, the case made its way to the California Court of Appeal.

On appeal, one of the issues the court considered was whether Gallano could maintain a claim for violations of Labor Code Section 2802.  Section 2802 provides that “[a]n employer shall indemnify his or her employee for all necessary expenditures or losses incurred by the employee indirect consequence of the discharge of his or her duties.”  To prove a violation of Section 2802, an employee must therefore establish that: (1) he or she made expenditures or incurred losses; (2) the expenditures or losses were incurred the indirect consequence of the employee’s discharge of his or her duties, or obedience to the directions of the employer; and (3) the expenditures or losses were necessary.

While Burlington argued that Gallano could not meet the first element because she “never paid Burlington any money in relation to the promissory note or the civil demand letters,” the court disagreed.  The Court of Appeal reasoned that to “incur” is “to become liable or subject to.”  When Gallano signed the promissory note, she incurred an economic loss.  She became legally obligated under the promissory note, subject to debt collection efforts, and possible exposure to civil liability.  For these reasons, the court concluded that an employee may incur a “loss” for purposes of Section 2802 when the employer causes or directs the employee to become personally liable for a necessary business-related expense. Thus, Gallano could maintain her claim.

Gallano v. Burlington Coat Factory of California, LLC (2021) 67 Cal. App. 5th 953.


It is unsettled whether Labor Code Section 2802 applies to public entities.  In the teleworking context, however, the most risk adverse approach is to reimburse public employees for some teleworking expenses if the employer requires the employee to work from home because of the COVID-19 pandemic.  LCW attorneys can assist in determining whether agencies need to reimburse certain employee expenses. 

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