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Paul Thai was a direct employee of International Business Machines (IBM). To accomplish his duties, he required, among other things, internet access, telephone service, a telephone headset, and a computer and accessories that IBM provided to its employees in its offices.

On March 19, 2020, Governor Newsom signed an Executive Order that instructed all California residents to 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. (E.O. N-33-20.)

As a result, IBM directed Mr. Thai and several thousand of his coworkers to continue performing their regular job duties from home. Mr. Thai and his coworkers personally paid for the services and equipment necessary to do their jobs while working from home. IBM never reimbursed its employees for these expenses, despite knowing that its employees incurred them.

IBM was joined as a defendant in a PAGA action complaint which alleged IBM failed to reimburse employees for work-from-home expenses that were incurred. IBM demurred to the second amended complaint and the trial court sustained the demurrer.

The plaintiffs appealed contending that the trial court’s ruling is contrary to the plain language of Labor Code section 2802(a) which requires that “An employer shall indemnify his or her employee for all necessary expenditures or losses incurred by the employee in direct consequence of the discharge of his or her duties, or of his or her obedience to the directions of the employer, …”

The Court of Appeal agreed with the plaintiffs, and reversed and remanded in the published case of Thai v International Business Machines -A165390 (July 2023).

Section 2802 is designed to protect workers from bearing the costs of business expenses that are incurred by workers doing their jobs in service of an employer.” (Gallano v. Burlington Coat Factory of California, LLC (2021) 67 Cal.App.5th 953, 963 (Gallano); see also Edwards v. Arthur Andersen LLP (2008) 44 Cal.4th 937, 952 (Edwards) [section 2802 codifies ” ‘strong public policy that favors’ ” reimbursement of employees]; Janken v. GM Hughes Electronics (1996) 46 Cal.App.4th 55, 74, fn. 24 [section 2802 “shows a legislative intent that duty-related losses ultimately fall on the business enterprise, not on the individual employee”]; Grissom v. Vons Companies, Inc. (1991) 1 Cal.App.4th 52, 59-60 [the purpose of section 2802 is “to protect employees from suffering expenses in direct consequence of doing their jobs”].)

In Gattuso v. Harte-Hanks Shoppers, Inc. (2007) 42 Cal.4th 554 at page 562, the California Supreme Court observed, “At the time of the 2000 amendment of section 2802, legislative committee analyses identified the purpose of that provision: ‘The author [of the amending legislation] states that Section 2802 is designed to prevent employers from passing their operating expenses on to their employees.’ “

“In light of the remedial purpose of statutes that regulate ‘wages, hours and working conditions for the protection and benefit of employees, the statutory provisions are to be liberally construed with an eye to promoting such protection . . .’ ” (Gallano, supra, 67 Cal.App.5th at p. 963 [applying liberal construction rule to section 2802].)

The trial court concluded the March 2020 order was an “intervening cause precluding direct causation by IBM.” The court and IBM read the statute as if it requires reimbursement only for expenses directly caused by the employer.

The Court of Appeal disagreed with IBM and the trial court since “that inserts into the analysis a tort-like causation inquiry that is not rooted in the statutory language. (See Akins v. County of Sonoma (1967) 67 Cal.2d 185, 199 [discussing the ‘intervening cause’ concept in the context of determining proximate cause in a negligence action].) Instead, the plain language of section 2802(a) flatly requires the employer to reimburse an employee for all expenses that are a ‘direct consequence of the discharge of [the employee’s] duties.’ “

Under the statutory language, the obligation does not turn on whether the employer’s order was the proximate cause of the expenses; it turns on whether the expenses were actually due to performance of the employee’s duties.