On July 11, 2023, in unanimous court opinion, a three judge San Francisco appellate court panel overturned a trial court ruling in favor of International Business Machines Corporation (IBM), holding that employers are required under California law to reimburse employees for work from home expenses regardless of whether such work from home was the result of government actions to combat the COVID-19 pandemic. The recent opinion from the First Appellate District arises from an action brought against IBM under California’s Private Attorneys General Act (PAGA, Labor Code § 2699 et seq.) for violations of Labor Code section 2802(a), which requires employers to reimburse employees “for all necessary expenditures…incurred by the employee in direct consequence of the discharge of his or her duties.”
Recall that in March of 2020, in response to the COVID-19 pandemic, California’s Governor issued an executive order requiring residents to stay at home except as needed to maintain operations in critical sectors. As alleged in the case brought on behalf of lead plaintiff Paul Thai against IBM (San Francisco Superior Court Case No. CGC-2-588422), Mr. Thai was employed by defendant IBM at the time of the executive order. Following the Governor’s executive order, IBM directed its thousands of employees to work from home. Thai v. Int'l Bus. Machines Corp., No. A165390, 2023 WL 4443934, at *1-2 (Cal. Ct. App. July 11, 2023). According to the plaintiffs, however, IBM failed to reimburse its employees for the expenses “necessarily incurred to perform their work duties from home.” Id. Specially, the complaint against IBM alleged that Mr. Thai and his IBM coworkers “personally paid for the services and equipment necessary to do their jobs while working from home” but “IBM never reimbursed its employees for these expenses, despite knowing that its employees incurred them.” Id. at *2. In the court’s opinion, it is not entirely clear what expenses Mr. Thai and his coworkers “personally paid for” but the court does note that “IBM does not dispute that the expenses at issue are the types of expenses IBM paid for at its offices” and that “before the pandemic, ‘IBM provided its employees with office space and all the other tools that form the basis of [plaintiffs’] claims.’” Id. at *6.
Early in the underlying litigation, IBM sought dismissal of the action (through a procedure referred to in California as a “demurrer”) and ultimately the trial court sided with IBM, ruling that “‘Plaintiffs are unable to allege IBM's instructions to employees to work from home [were] the independent, direct cause of Plaintiffs and the Aggrieved Employees incurring necessary business expenses...’ Because ‘IBM was acting in response to government orders,’ there was an ‘intervening cause precluding direct causation by IBM.’” Id. at *2.
Central to the appellate court’s opinion was that the trial court – and IBM – were reading the California law requiring employee expense reimbursement (Labor Code section 2802(a)) “as if it requires reimbursement only for expenses directly caused by the employer” thereby inserting “into the analysis a tort-like causation inquiry that is not rooted in the statutory language. … Instead, the plain language of section 2802(a) flatly requires the employer to reimburse an employee for all expenses that are a ‘direct consequence of the discharge of [the employee's] duties.’” Id. at *4.
Specifically, California Labor Code section 2802(a) provides: “An employer shall indemnify his or her employee 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 statute doesn’t delineate what such expense may be. Instead, subdivision (c) of section 2802 only defines “necessary expenditures or losses” as including “all reasonable costs, including, but not limited to, attorney's fees incurred by the employee enforcing the rights granted by this section.” According to the court in Thai, “Section 2802 is designed to protect workers from bearing the costs of business expenses that are incurred by workers doing their jobs in service of an employer.” Thai, supra, at *3 (citing Gallano v. Burlington Coat Factory of California, LLC, 67 Cal.App.5th 953, 963 (2021)). “‘In light of the remedial purpose of statutes that regulate ‘wages, hours and working conditions for the protection and benefit of employees,’” the court said, “‘the statutory provisions are to be liberally construed with an eye to promoting such protection...’” Id. at *3 (quoting Gallano, supra).
In doing so in the Thai case, the court focused in on whether “‘the expenditures or losses were incurred in direct consequence of the employee's discharge of his or her duties, or obedience to the directions of the employer…’” Id. (emphasis added). IBM had argued: “It was only after March 2020 that Plaintiff began to incur work-from-home expenses, not because his job duties changed -- he concedes they did not -- but because the government required him to stay at home. The government's order was thus an intervening cause, foreclosing any possible allegation that IBM was the direct cause.” Id. at *3. The Thai court rejected the argument, noting that a similar argument had been rejected by a federal district court in a recent case brought against Amazon where the plaintiff sought reimbursement under section 2802 for “expenses he incurred while working from home during the COVID-19 pandemic.” Thai, supra at *3 (citing Williams v. Amazon.com Services LLC No. 22-cv-01892-VC, 2022 WL 1769124 decided June 1, 2022.)
In agreeing with the federal court in the Amazon case, the Thai court stated: “Under the statutory language, the obligation 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. It may be true that the Governor's March 2020 order was the ‘but-for’ cause of certain work-from-home expenses, but nothing in the statutory language can be read to exempt such expenses from the reimbursement obligation. Effectively, section 2802(a) allocates the risk of unexpected expenses to the employer, which is consistent with the Legislature's intent in adopting the statute. Id. at *4. Explained differently, the court said that “section 2802(a) refers to expenses that are the ‘direct consequence of the discharge of [an employee's] duties,’ not to expenses that are ‘directly caused by the employer.’” Id. at *4.
The court in the Thai case also rejected IBM’s argument – based on a ruling in a 2015 case regarding police officer training referred to as In re Acknowledgment Cases, 239 Cal.App.4th 1498 (2015) – that the “work-from-home expenses are neither ‘inherent’ to its business nor for its ‘benefit,’ given the public health purpose behind the Governor's March 2020 order.” Thai, supra, at *4. First, the court noted that the underlying reimbursement statute does not contain the “inherent” or “benefit” terminology advanced by IBM. Then the court said that, even if those terms were relevant, “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.” Id.
The Thai court also distinguished other more recent cases that had held employers did not have to reimburse employees for masks, sanitizer and similar COVID personal protective equipment (PPE), which had held that such expenses were not reimbursable because such expenses were “not a direct consequence” of work duties but were rather items that were “‘generally usable’ personal items for which employers need not reimburse employees.” Id. at *5 (referring to cases in which UPS and BJ’s Restaurants apparently prevailed, although the court also noted a conflicting federal court opinion against Federal Express which upheld a claim for reimbursement for expenses of masks and sanitizing wipes).
Employees – and the plaintiff’s lawyers – are likely to hail this new opinion from the California appellate courts as being helpful to employees who work from home (and often cited in new cases to be brought for expense reimbursement claims). Employers – and their defense lawyers – are likely to decry the ruling as yet one more example of how California’s laws have been weaponized against employers in the state.
The one glimmer of hope the Thai court holds out to employers is almost hidden in a footnote, following a brief mention of the necessity that the expenses be a “direct” consequence of the employees work duties “rather than due to something else.” Thai, supra, at *4. In footnote 11, the court stated that “it may be that the ‘direct consequence’ language is relevant in determining whether and to what extent expenses that an employee was already incurring for personal reasons are reimbursable under section 2802.” Id. [emphasis added](citing Gattuso v. Harte-Hanks Shoppers, Inc., 42 Cal.4th 554, 568 (2007)[determination of “actual expense[s]” for use of personal automobile for work requires apportionment of automobile “expenses between business and personal use”] and Cochran v. Schwan's Home Serv., Inc., 228 Cal.App.4th 1137, 1144 (2014)[employer must pay “some reasonable percentage of the employee's cell phone bill” even if employee did not incur an extra expense].)