Employers Responsible for Employees’ Business Expenses Incurred During Stay-At-Home Orders

Employers Responsible for Employees’ Business Expenses Incurred During Stay-At-Home Orders

A recent Court of Appeal held that although government COVID-19 mandates required remote work arrangements, employers are still responsible for reimbursements of business expenses that occurred during that time (Thai v. International Business Machines Corp., No. A165390 (July 11, 2023).

Remember, in the hectic days of March 2020, when the COVID-19 pandemic was beginning, state and local governments issued a hodgepodge of emergency orders to mitigate the spread of the virus. Generally, these orders required all but certain classes of workers to stay home for a period of time — some lost their jobs while others shifted to working from home.

Many businesses were ill equipped to handle the immediate and unexpected transition to remote work, requiring employees to supply their own workspaces, equipment and utilities that were necessary to continue their work from home. For businesses with California employees, potential expense reimbursements are due under California Labor Code section 2802, which requires employers to reimburse employees for all necessary expenses or losses incurred in the discharge of their duties or at the direction of their employer.

In Thai, Paul Thai worked for IBM in a role that allowed him to work from home. When Governor Gavin Newsom issued an executive order requiring California residents to stay at home except as needed to maintain operation in critical sectors, IBM required those employees, including Thai, that could work from home to do so.

To perform his work at home, Thai alleged that he needed internet access, telephone service, a headset, a computer and accessories amongst other things to continue to perform his job, and he personally paid for any services and equipment necessary to perform his job duties. IBM knew that Thai and other employees incurred these expenses and decided not to reimburse employees for them. As a result, Thai joined a class action lawsuit under the Private Attorneys General Act alleging IBM’s violation of California Labor Code section 2802.

IBM moved to dismiss the class action lawsuit, arguing that the government orders directly caused the employees’ expenses, and, as a result, IBM is not required to reimburse those expenses. Thai appealed.

On appeal, the only issue is the second element of California Labor Code section 2802 —the employee incurred the losses or expenses as a direct consequence of their job duties or at the direction of their employer. IBM argued that Thai only incurred the remote work expenses due to the government mandates, not because of any job duty change. As a result, the government orders were an intervening cause of the remote work expenses, and IBM could not be directly responsible for them because it didn’t cause them.

The court was unpersuaded. First, it cited several prior cases that have imputed a public policy to California Labor Code section 2802 that businesses cannot pass on business expenses to their employees, and that employers’ obligations under Section 2802 are very broad. Second, in June 2022, a nearly identical case in federal court, Williams v. Amazon.com Services LLC, rejected this exact argument. California Labor Code section 2802 doesn’t have a causation requirement so the only question is — did Thai incur business expenses in the direct discharge of his job duties or at the direction of his employer? The answer is yes.

IBM also separately cited a case known as In re Acknowledgement Cases, that involved Los Angeles Police Department (LAPD) police officers who were required to go through an academy before starting their duties. The LAPD realized that it was paying officers to go through the academy, and then those officers would leave within a few years. To recoup training costs, the LAPD enforced a policy that would require officers to pay back a prorated portion of the costs if they left the LAPD within a certain time frame after graduating from the academy.

LAPD officers sued alleging that this violated California Labor Code section 2802. In that case, the court held that training that is needed to gain a license to do a job (e.g., passing an academy to become a police officer) is not an expense because it is a general requirement and portable to different employers. In other words, that training was not a direct consequence of their discharge of their duties or for the benefit of the employer.

However, the court disagreed that the government mandates during the early pandemic were the same as licensure trainings. Although the government required employees to stay at home, employees doing the same work at home as they were doing at the office meant that these expenses were in the discharge of their job duties. Further, unlike required licensing which the employee may use at various employers in the same industry, Thai’s ongoing duties were strictly for the benefit of IBM.

Employee reimbursement questions related to remote work were commonplace throughout the pandemic, and this decision provides clear direction for employers to reimburse all necessary business expenses that an employee incurs necessary to discharge their duties. Employers should consult with legal counsel if there are questions whether an employee’ expense was either necessary or a consequence of the discharge of their duties.

Matthew J. Roberts, Labor Law Helpline Manager, Employment Law Counsel/Subject Matter Expert 

CalChamber members can read more about Expense Reimbursement in the HR Library. Not a member? Learn how to power your business with a CalChamber membership.

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