The California Court of Appeal for the First Appellate District recently issued its opinion regarding business-related expenses in Thai v. International Business Machines Corporation. The Court found that expenses incurred by employees in direct consequence of performing their jobs may be reimbursable regardless of whether such expenses are directly caused by the employer.
Paul Thai was employed by defendant and respondent IBM. Thai required, among other things, internet access, telephone service, a telephone headset, a computer and accessories in order to perform the functions of his job. On March 19, 2020, Governor Newsom issued a stay-at-home order that instructed all California residents “[t]o stay home or at their place of residence except as needed to maintain continuity of operations of the federal critical infrastructure sectors” and any other additional sectors later designated as critical. After the order went into effect, IBM directed Thai and thousands of other workers to continue performing their regular job duties from home. Thai and the other IBM workers personally paid for the services and equipment necessary to do their jobs while working from home, and IBM did not reimburse them for those expenses.
Thai sought penalties against IBM under the Private Attorneys General Act for alleged violations of California 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. IBM demurred to Thai’s operative complaint, and the trial court sustained the demurrer without leave to amend on the grounds that Governor Newsom’s stay-at-home order was an intervening cause of the work-from-home expenses that absolved IBM of liability under section 2802.
Thai appealed and the Court of Appeal agreed with him, finding that the trial court’s conclusion was not consistent with the statutory language of Labor Code section 2802. The Court stated that the elements of a section 2802 claim are: (1) the employee made expenditures or incurred losses; (2) 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; and (3) the expenditures or losses were necessary. IBM argued that Thai incurred work-from-home expenses not because his job duties changed, but because of an intervening cause – that the government’s requirement that he work from home. However, the Thai Court, relying on a recent federal case, focused on the express language of section 2802 and reasoned that the relevant inquiry is whether an employee incurred expenses in direct consequence of the discharge of his duties or of his obedience to the directions of the employer. Specifically, the Court found that the inquiry was not whether expenses were directly caused by the employer, since that would insert a tort-like causation inquiry into the analysis that is not rooted in the statutory language.
Given this recent decision, employers doing business in California should remain cognizant of any expenses that employees necessarily incur in performing their duties, being sure to properly reimburse for such expenses even when the employer may not be the direct cause, so long as the expenses are related to necessary costs associated with employees performing their jobs. A careful case-by-case analysis is required, as the Thai opinion cites to a different federal district court decision that found that items generally useable in all circumstances, such as masks and hand sanitizer, were not reimbursable.
While expenses may be unanticipated as was as the case during the COVID-19 pandemic work-from-home order, whether something is unforeseen may not relieve an employer from its statutory expense reimbursement obligations.