California’s Pandemic Stay-at-Home Order Didn’t Excuse Employer’s Obligation to Reimburse Necessary Work-From-Home Expenses

The California Court of Appeal held in Thai v. International Business Machines Corp. that even if government-mandated stay-at-home orders during the COVID-19 pandemic were an intervening cause of employees working from home and incurring necessary business expenses, the employer is still liable under California Labor Code Section 2802 to reimburse the employees for those expenses.

California Labor Code Section 2802 states, “An employer shall indemnify his or her employees for all necessary expenditures or losses incurred by the employee in direct consequence of the discharge of his or her duties, or of his or her obedience to the directions of the employer.”

The issue in Thai v. International Business Machines Corp. was whether International Business Machines Corporation (IBM) was obligated to reimburse its employees for computer, internet, and phone-related expenses they incurred as a result of working at home during the COVID-19 pandemic, where working at home was required not by IBM but by Governor Gavin Newsom’s stay-at-home order.

The plaintiffs claimed that they and other employees paid for the services and equipment necessary to do their jobs while working from home, but that IBM never reimbursed its employees for these expenses.

TRIAL COURT’S FOCUS ON CAUSATION

The trial court sustained IBM’s demurrer (without leave to amend) to the plaintiffs’ claim for penalties under California’s Private Attorneys General Act (PAGA) predicated on an alleged violation of Section 2802.

The trial court concluded that the governor’s order was an intervening cause of the work-from-home expenses that absolved IBM of liability under Section 2802. The trial court reasoned that the plaintiffs were unable to allege that IBM’s instructions to employees to work from home were “the independent, direct cause of” employees incurring “necessary business expenses.”

COURT OF APPEAL’S REVERSAL

In reversing the trial court’s judgment for IBM, the Court of Appeal rejected applying a tort-like causation inquiry (such as the intervening cause concept in a negligence action) when analyzing Section 2802 claims.

Instead, the court read the plain language of Section 2802 to require three elements for a cause of action: (1) the employee made expenditures or incurred losses; (2) the expenditures or losses were incurred in direct consequence or 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.

As to the second element, the court reasoned that the employer’s obligation to provide reimbursement “does not turn on whether the employer’s order was the proximate cause of the expenses; it turns on whether the expenses were actually due to performance of the employee’s duties.” The court also reasoned that Section 2802 effectively “allocates the risk of unexpected expenses to the employer,” citing a strong public policy that favors reimbursement of employees and a legislative intent that duty-related losses should ultimately fall on employers.

Here, the court accepted as true the claim that the plaintiffs required the use of internet access, telephone service, a telephone headset, and a computer and accessories to be able to accomplish their duties. It assumed that IBM provided those items to its employees working in its offices, but did not reimburse them for personally paying for those services and equipment while working from home.

The court reasoned that following the governor’s stay-at-home order in March of 2020, “the work-from-home expenses were inherent to IBM’s business and there can be no question that the work performed was for the benefit of IBM.”

As a result, the court concluded that even if the government order was the “but-for” cause of the work-from-home expenses, IBM would still be liable under Section 2802 for the reimbursement of such expenses.

PRACTICAL IMPLICATIONS FOR EMPLOYERS

California has a long-established requirement that employers must reimburse their employees for expenses incurred as a necessary part of performing their work duties. Thai found that this requirement applies to expenses incurred when employees must work from home, even if due to a government order.

Under the facts presented in Thai, employees were required to work from home and the court assumed that the expenses at issue were incurred as a direct consequence of the employees’ discharge of their duties. The court did not consider a situation where employees choose to work from home despite the employer also allowing them to work from the office, and employers can continue to argue that voluntary work from home expenses are not subject to reimbursement under California law.

Thai also acknowledged that employers can challenge the reasonableness and necessity of the type and amount of expenses incurred by an employee, even if the expenses were necessary in carrying out work duties, noting that the court was not considering “what expenditures can be considered ‘reasonable costs’ of working from home … or to what extent an employer must reimburse an employee for expenses incurred for both personal and work purposes.”

In this regard, the court referenced an earlier decision which found that when an employer required an employee to have a cellphone, the employer must pay “some reasonable percentage of the employee’s cellphone bill” even if employee did not incur an extra expense.