California Court Sides With Employees in COVID Expenses Case

By Trent Cotney, Adams and Reese.

Recent California case rules employees should be reimbursed for business-related expenses they covered while working from home.

During the height of the COVID-19 pandemic, did you instruct some or all of your employees to work remotely? If so, did you pay for their work-from-home expenses? If not, you might find a recent California case to be interesting. It ruled that employees should be reimbursed for business-related expenses they covered while working from home.

Understanding the case

In Thai v. International Business Machines Corp., California Ct. App., No. A165390 (July 11, 2023), International Business Machines (IBM) was sued by an employee. The worker claimed that he and thousands of his co-workers paid for many expenses their jobs required after IBM instructed them to work remotely in March 2020. These expenses included telephone and internet service, computers and headsets, and various other items. Although these costs were related to their job duties, IBM never reimbursed the employees.

IBM issued the work-from-home instructions after California Governor Gavin Newsom announced a state order on March 19 of that year. The order directed workers to stay home unless their roles required them to perform critical operations onsite. The IBM employees pointed to the California Labor Code, Section 2802, which states that employers are required to reimburse employees for business expenses “incurred by the employee in direct consequence of the discharge of his or her duties.”

The initial trial court dismissed the case right away. It noted that Governor Newsom’s directive was an intervening cause of the incurred expenses. These costs were not the result of the employees’ jobs changing, but instead, they were necessary because the governor instructed them to work from home. Based on that argument, the court determined that IBM was not liable. However, the plaintiff appealed.

The appellate court's decision

At the appeals court trial, the plaintiff argued that the trial court’s decision was not in keeping with the direct language of Section 2802. In the IBM case, the workers personally paid for equipment and services they needed to perform their jobs remotely. If the workers had been in the office, IBM would have covered those expenses. IBM knew its employees had incurred these necessary expenses, but the company opted not to reimburse them.

After listening to that argument, the appeals court sided with the plaintiff. It stated that IBM and the trial court had misinterpreted the rule. They thought it meant that reimbursement was required only when an employer directly caused expenses. However, as the appeals court explained, the statutory language does not include a causation inquiry.

The court stated that according to Section 2802, companies must reimburse workers for costs they cover as part of performing their jobs. Whether or not the employer causes the need for the expenses has no bearing on that obligation. Instead, the responsibility is related only to the workers’ requirements in performing their duties.

The appellate court recognized that the governor’s directive led to the requirement for employees to work remotely, but IBM was still responsible for funding the employees’ business expenses. Therefore, the employees did not carry the risk of unexpected costs, but the employer did. The appellate court reversed the trial court’s ruling, determining that the employees were entitled to work-from-home expense reimbursements.

Does this apply to every employer?

Although this case is thought-provoking, it is important to remember that employment laws vary from state to state. Not all companies must comply with laws such as the California Labor Code. Nevertheless, all employers should make an effort to know their state laws and understand their obligations when their employees work remotely.

If you employ remote workers and are not covering their expenses, you might have questions about your legal responsibilities. In that case, do not hesitate to seek legal counsel. An experienced employment attorney can consider your unique situation, review your state and local laws, and help you ensure compliance.

The information contained in this article is for general educational information only. This information does not constitute legal advice, is not intended to constitute legal advice, nor should it be relied upon as legal advice for your specific factual pattern or situation.

About Trent Cotney

Trent Cotney is a partner and Construction Practice Group Leader at the law firm of Adams and Reese LLP and NRCA General Counsel. To contact the author, you can email him at trent.cotney@arlaw.com or go to www.cotneycl.com for more information.