On July 11, 2023, the California Court of Appeals in Thai v. IBM found that whether an employer is required to reimburse expenses incurred by an employee working from home depends on whether the expenses were a direct consequence of the employee’s performance of duties, rather than whether the expenses were directly caused by the employer. This case matters to all employers whose workforce has suddenly started working from home as a result of the COVID-19 pandemic, and to employers who continue to allow employees to work from home today.
Background Thai v. IBM
Thai, a former IBM employee, needed internet access, a computer and a headset, among other things, to perform his duties. IBM has provided these items to its employees working in its offices. Then the COVID-19 pandemic hit. On March 19, 2020, Executive Order N-33-20 was signed by Governor Newsom, who required all individuals except critical infrastructure workers to stay home. IBM instructed its employees, including Thais, to work from home in accordance with the Order. Thai claimed that he and other employees personally paid for internet and phone services and other items needed to perform their jobs from home, but were not reimbursed by IBM.
A lawsuit was filed in which Thai and another worker claimed a cause of action under the California Private Attorneys General Act (PAGA), alleging that IBM failed to reimburse employees for work-from-home expenses incurred following Governor Newsom’s order in violation of Labor Code Section 2802. The statute requires employers to reimburse employees for reasonable and necessary business expenses incurred by the employee as a direct result of performing their duties. IBM objected, and the San Francisco County Superior Court upheld the objection, noting: “Plaintiffs cannot allege that IBM’s instructions to employees to work from home (were) the direct and independent cause of Plaintiffs and Appellees incurring necessary business expenses. . .” The Court concluded that the Governor’s Order was an “intervening cause” and IBM was merely instructing employees to work from home in response to the Order. Thus, there was no requirement that IBM reimburse employees for their work-from-home expenses under Section 2802.
Decision of the Court of Appeal
On appeal, the Court of Appeal reversed the decision of the lower court in favor of the employer. The plaintiffs argued that the lower court’s decision was inconsistent with the plain language of Section 2802. The relevant statutory language reads: “The employer shall indemnify its employee for all expenses or necessary losses incurred by the employee in direct consequence of the dismissal of his or her duties, or his obedience to the employer’s instructions. . .”
Plaintiffs argued that the statutory investigation required by the statute is whether the employee incurred expenses “as a direct result of the performance of his duties,” not whether the employer himself was the cause of the employee working from home. In its published decision, the Court of Appeal concurred, indicating that, according to the plain language of the statute, the employer’s obligation to reimburse depends on whether the expenses were actually a consequence of the employee’s employment obligations, not whether the employer’s order to working from home was a proximate cause of expenses.
IBM argued that work-from-home expenses must be “inherent” to their business or their “benefit” be reimbursable, and that they were not here, as working from home was for a public health benefit. The Court rejected the argument, noting that Section 2802 does not contain “inherent” or “benefit” language, but even if such language was consistent with the statute, the expenses here were inherent in IBM’s business and the work was performed on behalf of IBM. from IBM. The Court also rejected the employer’s attempts to equate its employees’ remote work expenses with licensing expenses that are portable to different employers and not a consequence of the employee’s work obligations to a specific employer, as well as generally usable expenses. under all circumstances.
The Court did not address what expenses are considered “reasonable” or the extent to which an employer must reimburse an employee for expenses incurred for personal and work reasons.
All employers whose employees have worked from home during the COVID-19 pandemic and/or continue to work from home today should review their telecommuting and expense reimbursement policies in light of this ruling to ensure they are in compliance with Section 2802. Employers should consult experienced professionals with legal advice for guidance due to the uncertainty in the law regarding reimbursement of expenses in the hybrid working world.