Employers May Be Liable For Work-From-Home Expenses

Seyfarth Synopsis: The California Court of Appeal found an employer liable under Labor Code section 2802 for employee work-from-home operating expenses, despite Governor Gavin Newsom’s 2020 stay-at-home order, which precluded employees from working at their regular places of work. The Court held that these expenses were directly consequential to the discharge of the employees’ work duties. Thai v. International Business Machines Corporation

The Facts

Paul Thai was employed by International Business Machines Corporation (IBM). In March 2020, Governor Newsom issued an Executive Order mandating that residents stay home because of the COVID-19 pandemic. As a result, Thai and other IBM employees began working from home. In connection with their work-from-home, Thai and other IBM employees incurred various expenses, including those associated with internet access, telephone headsets and service, and computers and computer accessories.  

Labor Code section 2802(a) requires employers to compensate employees for necessary expenditures or losses incurred in direct consequence of the employees' duties, or for the employees' obedience to the employers' directions. 

Thai sued IBM for violating Labor Code section 2802 by failing to reimburse its California employees for the business expenses incurred while working from home. The trial court sustained IBM's demurrer, holding that Governor Newsom’s 2020 stay-at-home order was an intervening cause, i.e., Thai could not successfully allege facts that IBM directly caused its California employees to incur the business expenses at issue. 

The Court Of Appeal's Decision

On appeal, the Parties disputed whether the Governor’s stay-at-home order precluded IBM’s liability for reimbursement of business expenses. The Court of Appeal concluded that it did not. 

IBM argued that it was not liable under Section 2802 because it was not the direct cause of the business expenses. The Court of Appeal concluded that IBM’s argument was inconsistent with Section 2802’s plain language, which does not require the employer to be the direct or proximate cause of the expenses. Rather, the Court of Appeal reasoned that the analysis depends upon whether the expenses incurred were directly related to the employee’s duties—the statute does not have carve-outs for intervening causes.

IBM argued that Section 2802 is intended to reimburse employees only for expenses that are “inherent” to the business, and that are incurred for the employer’s “benefit.” The Court of Appeal rejected this argument because Section 2802 does not contain such limiting language. And, the Court of Appeal noted, even if such language could be read into the statute, the expenses the employees incurred were inherent to IBM’s business and the work the employees performed was for IBM’s benefit. Because the expenses were operating expenses that were in direct consequence of the employees’ discharge of their duties for IBM, the Court of Appeal concluded that Section 2802 applied.  

IBM further argued that the expenses were “generally usable” items and, therefore, could not be covered by Section 2802. The Court of Appeal rejected this argument, and noted that when the employees worked in IBM offices, IBM paid for these very expenses—the fact of working from home did not change IBM’s responsibility. 

What Thai Means For Employers

Liability under Section 2802 may not be avoided even if the decision to work from home was at the direction of an outside entity (e.g., the Governor). This means that even if an employee is required to work from home due to a government mandate, then the employer may remain responsible to reimburse employees for any reasonable business expenses incurred that are necessary for the work performed by an employee from home in compliance with the mandate. Employers should take this opportunity to review their practices regarding work-from-home for compliance with California’s expense reimbursement law.