Working from home has grown exponentially due to the COVID-19 pandemic, and many companies have allowed their employees to continue working remotely. It is important to understand an employee’s right to reimbursement for business expenses under the increasing prevalence of remote working arrangements.
Federal Labor Standards Act – Federal Law
Under the federal Fair Labor Standards Act (FLSA), employers are only required to reimburse for work-related expenses if the expenses reduce the employee’s earnings below the required federal minimum wage or overtime compensation due in any workweek.1 Aside from that mandate, the FLSA is rarely implicated in reimbursements for work-related expenses.
California Labor Code Section 2802 – State Law
State laws, however, often require reimbursement for necessary job expenses. California Labor Code § 2802 mandates employer reimbursements for work-related expenses that are incurred by their employees. Section 2802(a) requires reimbursement of “all necessary expenditures or losses incurred by the employee in direct consequence of the discharge of his or her duties.”2 Therefore, the expense must be both reasonable and necessary for the employee to do his or her job, and the employee must incur the costs as a direct consequence of his or her job duties. Employers that fail to comply are subject to a wage and hour lawsuit.
Summary of Thai v. IBM – PAGA Claim for Unreimbursed Expenses
On June 11, 2023, the First Appellate District Court of Appeal issued an opinion in Thai v. International Business Machines Corporation, in which it held that an employer is liable for all necessary expenses incurred by its employees in complying with the employer’s work-from-home directive, even if the employer would not have issued that directive but for the California Governor’s COVID-19 stay-at-home order. Specifically, the point at issue in this case was whether IBM’s reimbursement obligation should be diminished due to the fact that the expenses were being incurred at employees’ homes, rather than in traditional places of business, following the March 2020 stay-at-home order. The Court answered that the state order did not change IBM’s reimbursement obligations.
On March 19, 2020, in response to the COVID-19 pandemic, California Governor Gavin Newsom issued an order requiring residents to stay at home, except as needed to maintain operations in critical sectors. In response, IBM instructed its employees to work from home. Plaintiffs sought penalties against IBM under California’s Private Attorneys General Act (PAGA) for IBM’s alleged violations of Labor Code § 2802(a). The Trial Court sustained IBM’s demurrer, concluding that the Governor’s order was an intervening cause of the work-from-home expenses that absolved IBM of liability. The Court of Appeal reversed, holding that the Trial Court’s conclusion was inconsistent with the statutory language. The plain language of the statute requires an employer to reimburse its employees for “the expenditures or losses [that] were incurred in direct consequence of the employee’s discharge of his or her duties.” Although it may be true that the Governor’s March 2020 order was the cause of certain work-from-home expenses, the statutory language does not exempt such expenses from the reimbursement obligation. Therefore, even if the expenses at issue were the result of the Governor’s stay-at-home order, that does not absolve IBM of liability.
Best Practice
A written policy outlining employee expense reimbursement for telecommuting arrangements is recommended. Employers should refer to the state law in the location where the employee is working to determine the specific obligations for expense reimbursement.
Need More Information?
The experienced Labor and Employment attorneys at Palmer Kazanjian Wohl Hodson are available to review and revise existing policies. We are glad to offer guidance to clients who want to improve their workplace and ensure compliance.
See Thai v. International Business Machines Corp., (2023).
See 29 U.S.C. §§ 201 to 219.
See. Cal. Lab. Code § 2802