Expert Counsel. Exceptional Solutions.

+1 (916) 822-8700

News & Analysis
Latest legal news and recent law changes.

Duty to Indemnify Employees: Consequence not Cause

California has required employers to “indemnify” employees for “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” in substantially the same terms since 1937 under Labor Code § 2802. Recently, the COVID-19 pandemic renewed interest in this obligation. In the spring of 2020, International Business Machines Corporation (IBM) ordered thousands of employees to work from home, requiring them to procure the necessary equipment themselves. Mr. Paul Thai sued IBM for reimbursement in Thai v. IBM through the Private Attorneys General Act, alleging that he was owed reimbursement under section 2802.

The trial court sided with IBM’s defense that Governor Newsom’s stay-at-home executive order was “the independent, direct cause” for the employees’ expenses, rather than any actions on the part of IBM. However, the appellate court overturned the trial courts decision, liberally interpreting the remedial statute in the employee’s favor, the appellate court rejected the “tort-like causation inquiry that is not rooted in the statutory language.” Section 2802 uses the less exclusive term, “direct consequence,” rather than “direct cause.” Therefore, the appellate court stated, “It may be true that the Governor’s March 2020 order was the ‘but-for’ cause of certain work-from-home expenses, but nothing in the statutory language can be read to exempt such expenses from the reimbursement obligation” which “allocates the risk of unexpected expenses to the employer, which is consistent with the Legislature’s intent in adopting the statute.” For Labor Code § 2802 cases the appellate court found that “expenses at issue must actually be a consequence of the work duties, rather than due to something else.”

Thai v. IBM expressly declined to opine on the “extent an employer must reimburse an employee for expenses incurred for both personal and work purposes” or “what expenditures can be considered ‘reasonable costs’ of working from home.” However, the appellate court noted that “it may be that the ‘direct consequence’ language is relevant in determining whether and to what extent expenses that an employee was already incurring for personal reasons are reimbursable.”

If you have questions or concerns about how these news reports may affect you or your business, please contact The Burton Law Firm at: 916-822-8700 or email for a consultation.