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August 29, 2023
A recent decision of a California Court of Appeals serves as a reminder that, even when a government order mandates that employees work at home, employers in California still are required to reimburse necessary expenses incurred in direct consequence of the employee’s discharge of their duties. Thai v. International Business Machines Corp., 93 Cal. App. 5th 364 (July 11, 2023).
Thai’s employment and work at home
Paul Thai was an employee of International Business Machines Corporation (IBM). To perform his job, he required, among other things, internet access, telephone service, a telephone headset, and a computer and accessories.
On March 19, 2020, in response to the COVID-19 pandemic, California Governor Gavin Newsom issued an order requiring residents to stay at home except as needed to maintain operations in critical sectors. Accordingly, IBM directed its employees, including Thai, to work at home. Thai and his coworkers personally paid for the services and equipment necessary to do their jobs while working from home. Despite knowing that its employees incurred these expenses, IBM did not reimburse them.
Thai sues.
Thai sued IBM under California’s Private Attorney General Act (PAGA)[1] for alleged violation of Labor Code section 2802, which requires an employer to reimburse an employee “for all necessary expenditures … incurred by the employee in direct consequence of the discharge of his or her duties.” For more information on PAGA, see our recent article.
The lower court ruled in favor of IBM, concluding that the Governor’s order was an intervening cause of the work-from-home expenses that absolved IBM of liability under Section 2802. The appellate court reversed.
Thai’s burden of proof
To prevail on a Section 2802 claim, an employee must prove that (1) the employee made expenditures or incurred losses; (2) the expenditures or losses were incurred in direct consequence of the employee’s discharge of duties, or obedience to the directions of the employer; and (3) the expenditures or losses were necessary.
The statute’s use of the term “direct” supports Thai’s position.
Only the second element was at issue in this case. IBM argued that Thai and his coworkers began to incur work-from-home expenses only after the government required them to stay at home. Thus, IBM argued, the government’s order was an intervening cause. The appellate court disagreed, finding that IBM was reading the statute as if it requires reimbursement only for expenses directly caused by the employer – a causation requirement that does not exist in the statute. Instead, the obligation to reimburse turns on whether the expenses were due to performance of Thai’s duties for IBM, and the appellate court held that they were.
The appellate court also rejected IBM’s reference to the Merriam-Webster dictionary definition of “direct” – “marked by absence of an intervening agency, instrumentality, or influence.” Using this definition, IBM argued that only expenses directly caused by the employer, without any intervening cause, are covered by Section 2802. Again, the court looked to the statutory language. Section 2802 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.” Thus, the appellate court reasoned that the statute’s use of the term “direct” makes clear that the expenses must be a consequence of the work duties, rather than due to something else.
The expenses were inherent to IBM’s business and for its benefit.
IBM next argued that the broad purpose of Section 2802 is to require an employer to bear all of the costs inherent in conducting its business and to indemnify employees from costs incurred in the discharge of their duties for the employer’s benefit. IBM alleged 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. The appellate court observed that Section 2802 does not contain the “inherent” or “benefit” language. Regardless, it rejected IBM’s argument because, following the March 2020 shelter-in-place order, the work-from-home expenses were inherent to IBM’s business and the work performed was for the benefit of IBM.[2]
The expenses that Thai incurred are different than COVID-era personal protective equipment.
IBM next pointed to other COVID-era cases holding that Section 2802 did not obligate the employer to reimburse its employees for the costs of personal protective equipment, such as masks and hand sanitizer. The appellate court held that those cases were distinguishable from this one. In those cases, the plaintiff’s need for masks and similar protective equipment was not a direct consequence of her work duties because those items were “generally usable” personal items. By contrast, at issue in this case are operating costs incurred by employees in performance of their work duties for IBM at home.
IBM paid these same expenses for employees working at the office.
Lastly, the appellate court noted that IBM does not dispute that the expenses at issue are the types of expenses for which IBM paid at its offices. The only question is whether the circumstances under which the expenses were being incurred at employees’ homes following the March 2020 order changes IBM’s reimbursement obligation. As the appellate court concluded its opinion, “the answer is no.”
The author of this article, Patricia Tsipras, is a member of the Bar of Pennsylvania. This article is designed to provide one perspective regarding recent legal developments, and is not intended to serve as legal advice in Calfornia, Pennsylvania, or any other jurisdiction, nor does it establish an attorney-client relationship with any reader of the article where one does not exist. Always consult an attorney with specific legal issues.
[1] After recognizing a shortage of government resources to pursue enforcement of Labor Code violations, the California Legislature enacted PAGA. PAGA created new civil penalties for Labor Code violations and allows aggrieved employees, acting as “private attorneys general,” to bring a civil action against an employer on behalf of themselves and other current or former employees to recover civil penalties for Labor Code violations that they have sustained.
[2] The appellate court also rejected IBM’s argument that Thai’s expenses were akin to training costs that should be borne by the employee. IBM argued that this case was like requiring newly hired police officers to attend and graduate from a police academy – an intervening government mandate. The appellate court disagreed, finding that analogy misplaced. IBM’s case does not involve training but rather operating expenses incurred in the discharge of duties for IBM. The police officer training and licensure is general and portable to different employers and, thus, not incurred in direct consequence of the discharge of duties for a particular police department.
