California’s Labor Code section 2802 requires employers to reimburse employees for necessary expenses or losses incurred in the discharge of their duties.

As the COVID-19 pandemic took hold in early 2020, state and local governments issued stay-at-home orders. The sudden change to stay-at-home work caught many businesses by surprise, and compelled many employees, who were accustomed to a traditional office environment, to adapt to remote culture. Employees, who may not have had pre-existing home offices, may have incurred expenses to facilitate or even create their new home/work environment. This situation raised an important question: Were employers obligated to compensate employees for incurred business expenses when they resulted from government stay-at-home orders?

 The California Court of Appeal’s recent decision in Thai v. International Business Machines Corporation answered this question in the affirmative; California’s stay-at home orders did not absolve an employer’s responsibility to reimburse employees for expenses.

Lower Court Found Reimbursement Not Necessary

In Thai, an employee was permitted to work from home after the governor issued an executive order requiring California residents to stay at home. To perform his duties, the employee allegedly needed internet access, telephone service, a headset, a computer, and other accessories, none of which the employer provided. Consequently, the employee was added to a pending class action in San Francisco Superior Court. He sued for civil penalties under the Private Attorneys General Act (PAGA) alleging the employer violated Labor Code section 2802.

The employer defended against the lawsuit by successfully arguing that the state’s stay-at-home order directly caused the business expenses; therefore, the employer should not be liable for expenses incurred due to remote work. The lower court agreed. Because the state’s stay-at-home order was the direct cause or “an intervening cause of the work-from-home expenses,” it ruled that the employer should not be held liable under section 2802 for business expenses. The employee appealed.

An Employers’ Duty to Reimburse Expenses Did Not Change Due To Stay-At-Home Work

The Court of Appeal reversed and reinstated the employee’s claim. The court held that employees who perform remote work are entitled to reimbursement for business expenses under Labor Code section 2802, even if it resulted from the state’s stay-at-home order.

The court first looked to legislative history for further clarification on Labor Code section 2802’s intended purpose. The court emphasized that Labor Code section 2802 was “designed to protect workers from bearing the costs of business expenses incurred by workers doing their jobs in service of an employer,” and intended to prevent employers from passing their operating expenses directly to their employees. The court could not find anything in section 2802 that  created an exemption for employers to avoid reimbursement obligations. Rather, the primary inquiry for an employer’s reimbursement obligations is whether any of the expenses incurred were due to an employee’s performance of his or her duties or due to receiving directions from an employer.

The employer argued that work-from-home expenses were not “inherent” to its business or for its “benefit,” given the public health rationale behind the stay-at-home orders. Moreover, the employer relied on a federal district court decision (decided during the COVID-era in California) where reimbursement of expenses in the context of the use of personal protective equipment was found not necessary. However, the court was not persuaded.

It found that the employer’s primary focus on the state’s stay-at-home order causing employees to transition to remote work was misplaced and went against how Labor Code section 2802 should be interpreted. Moreover, the court considered an employee’s need for personal protective equipment (or “generally usable personal items”) distinct from an employee’s need for items or services to perform his or her job duties. Although an employer may not need to reimburse for general personal items, an employer can still be held responsible when operating expenses are incurred as a direct consequence of an employee performing his or her duties. By allowing employees to work from home, the court reasoned that employers derived some benefit when they allowed and expected employees to continue their work from home. Thus, the mere fact that the state’s stay-at-home order ultimately caused employees to transition to remote work was of no significance.

Employer Takeaways

The Thai case is a good reminder that employers cannot entirely avoid responsibility for business expenses incurred during remote work, even if those costs are triggered by external factors. Although the state’s stay-at-home orders are no longer in place, employers who have embraced either remote work or a hybrid return-to-work model still should review their business expense reimbursement policies. In instances where employees incur expenses to fulfill their job responsibilities, employers should assess whether reimbursement is necessary.