Thai v. International Business Machines Corp. (2023) 93 Cal.App.5th 364

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Filed 7/11/23
                       CERTIFIED FOR PUBLICATION


        IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

                          FIRST APPELLATE DISTRICT

                                 DIVISION FIVE


 PAUL THAI et al.,
          Plaintiffs and Appellants,
                                             A165390
 v.
 INTERNATIONAL BUSINESS                      (San Francisco County
 MACHINES CORPORATION,                       Super. Ct. No. CGC-20-588422)
          Defendant and Respondent.


        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. (Governor’s Exec.
Order No. N-33-20 (Mar. 19, 2020)) (E.O. N-33-20).1 At that time, lead
plaintiff Paul Thai was employed by defendant and respondent International
Business Machines Corporation (IBM), which directed its employees to
continue working at home.
        Plaintiffs seek penalties against IBM under California’s Private
Attorneys General Act (PAGA; Labor Code § 2699 et seq.)2 for alleged
violations of section 2802, subdivision (a) (section 2802(a)), which requires an
employer to reimburse an employee “for all necessary expenditures . . .


        1 <https://www.gov.ca.gov/wp-content/uploads/2020/03/EO-N-33-20-

COVID-19-HEALTH-ORDER-03.19.2020-002.pdf>
        2 All further undesignated statutory references are to the Labor Code.




                                        1
incurred by the employee in direct consequence of the discharge of his or her
duties.”3 Plaintiffs contend IBM failed to reimburse Mr. Thai and other
employees for the expenses necessarily incurred to perform their work duties
from home. The trial court sustained IBM’s demurrer, concluding the
Governor’s order was an intervening cause of the work-from-home expenses
that absolved IBM of liability under section 2802. Because the court’s
conclusion is inconsistent with the statutory language, we reverse.
                               BACKGROUND4
      Mr. Thai was a direct employee of IBM.5 To accomplish his duties, he
required, among other things, internet access, telephone service, a telephone
headset, and a computer and accessories. It may be inferred from the
complaint that IBM provided those items to its employees in its offices.
      On March 19, 2020, Governor Newsom signed E.O. N-33-20.6 The
order instructed all California residents to heed a Department of Public


      3 As we later explain, the action was originally brought by another

plaintiff against Experis US, Inc. (Experis), a staffing agency, but Mr. Thai is
the current lead plaintiff and IBM is the only named defendant remaining in
the case.
      4 The present appeal involves an order sustaining a demurrer, and

“ ‘ “[w]e treat the demurrer as admitting all material facts properly pleaded,
but not contentions, deductions or conclusions of fact or law. [Citation.] We
also consider matters which may be judicially noticed.” [Citation.] Further,
we give the complaint a reasonable interpretation, reading it as a whole and
its parts in their context.’ ” (Rincon Band of Luiseño Mission Indians etc. v.
Flynt (2021) 70 Cal.App.5th 1059, 1085 (Rincon Band).) Our background
statement reflects that standard of review.
      5 While plaintiffs’ brief states that Mr. Thai “works” for IBM, IBM

characterizes him as a “former” employee. His present employment status is
not relevant on appeal.
      6 Plaintiffs mistakenly reference a previous order, Governor’s Executive

Order No. N-27-20 (Mar. 15, 2020), but that order issued directives to
California agencies regarding the prioritization of resources and did not

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Health order that directed, effective immediately, “all individuals living in
the State of California 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.)
      After the Governor’s order went into effect, 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.
      In December 2020, another employee, Umair Javed, filed the present
PAGA action on behalf of the California Labor & Workforce Development
Agency and other aggrieved employees. Mr. Javed originally sued his
employer Experis, but he added IBM as a defendant in a first amended
complaint, which alleged the defendants were joint employers.7 A second
amended complaint added Mr. Thai, a direct IBM employee, as an additional
PAGA representative. The second amended complaint alleged IBM failed to
reimburse employees for work-from-home expenses that were incurred once
“the COVID-19 shelter in place orders were put in place, in early March
2020.” The complaint sought penalties on behalf of all IBM employees “who
were subject to stay-at-home orders and/or whose offices where they were
assigned to work were closed due to the COVID-19 pandemic. . .”


contain the stay-at-home order. (<https://www.library.ca.gov/wp-
content/uploads/GovernmentPublications/executive-order-proclamation/40-N-
27-20.pdf>)
      7 The parties agree Mr. Javed subsequently dismissed his claims, so

Mr. Thai and IBM are the remaining named plaintiff and defendant.


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      In August 2021, IBM demurred to the second amended complaint and
the trial court sustained the demurrer with leave to amend. The court’s
comments at the hearing on the motion indicated that it sought an allegation
that “IBM had a practice prior to COVID of allowing or encouraging or
directing work from home.”
      In December 2021, plaintiffs filed the third amended (and operative)
complaint. IBM again demurred, and, in March 2022, the trial court
sustained the demurrer without leave to amend. The court reasoned,
“Plaintiffs are unable to allege IBM’s instructions to employees to work from
home [were] the independent, direct cause of Plaintiffs and the Aggrieved
Employees incurring necessary business expenses. . .” Because “IBM was
acting in response to government orders,” there was an “intervening cause
precluding direct causation by IBM.”
      The court entered judgment in favor of IBM in April 2022. The present
appeal followed.
                                DISCUSSSION
      Plaintiffs contend the trial court’s ruling is contrary to the plain
language of section 2802(a). We agree.
      Our review of the trial court’s decision is de novo. (Rincon Band, supra,
70 Cal.App.5th at p. 1085.) “We independently examine the operative
complaint ‘to determine whether it alleges facts sufficient to state a cause of
action under any legal theory.’ ” (Ibid.) “When construing a statute, a court’s
goal is ‘to ascertain the intent of the enacting legislative body so that we may
adopt the construction that best effectuates the purpose of the law.’
[Citations.] Generally, the court first examines the statute’s words, giving
them their ordinary and usual meaning and viewing them in their statutory
context, because the statutory language is usually the most reliable indicator



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of legislative intent.” (Gattuso v. Harte-Hanks Shoppers, Inc. (2007)
42 Cal.4th 554, 567 (Gattuso).) “If the language is clear, courts must
generally follow its plain meaning unless a literal interpretation would result
in absurd consequences the Legislature did not intend. If the statutory
language permits more than one reasonable interpretation, courts may
consider other aids, such as the statute’s purpose, legislative history, and
public policy.” (Coalition of Concerned Communities, Inc. v. City of Los
Angeles (2004) 34 Cal.4th 733, 737.)
      Section 2802(a) provides in relevant part, “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 . . .” Subdivision (c) of
section 2802 defines “ ‘necessary expenditures or losses’ ” as including “all
reasonable costs, including, but not limited to, attorney’s fees incurred by the
employee enforcing the rights granted by this section.”8
      “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.



      8 The language in section 2802(a) derives from substantially similar

language in former section 1969 of the Civil Code, enacted in 1872. (Gattuso,
supra, 42 Cal.4th at p. 562.)

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(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, supra, 42 Cal.4th 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 elements of a [section 2802(a)] cause of action, as delineated by
the statutory language, are: (1) the employee made expenditures or incurred
losses; (2) the expenditures or losses were incurred in direct consequence of
the employee’s discharge of his or her duties, or obedience to the directions of
the employer; and (3) the expenditures or losses were necessary.” ’ ”
(Gallano, supra, 67 Cal.App.5th at p. 960.) Only the second element is at
issue in the present appeal.9 IBM argues, “It was only after March 2020 that
Plaintiff began to incur work-from-home expenses, not because his job duties
changed—he concedes they did not—but because the government required
him to stay at home. The government’s order was thus an intervening cause,
foreclosing any possible allegation that IBM was the direct cause.”


      9 Accordingly, we need not and do not consider what expenditures can

be considered “reasonable costs” of working from home (§ 2802, subd. (c)), or
to what extent an employer must reimburse an employee for expenses
incurred for both personal and work purposes.

                                        6
      Appellant points out that IBM’s argument was rejected in another, very
similar case. In Williams v. Amazon.com Services LLC (N.D.Cal. June 1,
2022, No. 22-cv-01892-VC) 2022 U.S. Dist. Lexis 97920, the plaintiff sought
reimbursement under section 2802 for “expenses he incurred while working
from home during the COVID-19 pandemic.” (Id. at p. *1.) The defendant,
like IBM, argued the expenses “were the result of government stay-at-home
orders, not any action by Amazon.” (Id. at pp. *1–2.) The federal district
court rejected that argument, reasoning, “even if true, that does not absolve
Amazon of liability. What matters is whether [the plaintiff] incurred those
expenses ‘in direct consequence of the discharge of his or her duties, or of his
or her obedience to the directions of the employer.’ [§ 2802(a).] According to
the complaint, Amazon expected [the plaintiff] to continue to work from home
after the stay-at-home orders were imposed. That is sufficient to plausibly
allege liability, even if Amazon itself was not the but-for cause of the shift to
remote work.” (Id. at p. *2.)
      We agree. As noted previously, 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. But 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].)10 Instead, the plain language of section 2802(a) flatly
requires the employer to reimburse an employee for all expenses that are a



      10 Elsewhere in its brief, IBM concedes, “the Legislature did not adopt

proximate causation standards into section 2802—the term appears nowhere
in the statute, even though it appears elsewhere in other California statutes.”


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“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. 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.
Effectively, section 2802(a) allocates the risk of unexpected expenses to the
employer, which is consistent with the Legislature’s intent in adopting the
statute.
      In arguing for its causation approach, IBM points to a dictionary
definition of “direct” as “marked by absence of an intervening agency,
instrumentality, or influence.” (Merriam-Webster Dict. Online (2023)
<https://www.merriam-webster.com/dictionary/direct> [as of May 22, 2023].)
It then argues, “This dictionary definition makes clear that only expenses
directly caused by the employer—without any intervening cause—are covered
by section 2802.” But that analysis involves a sleight of hand: section 2802(a)
refers to expenses that are the “direct consequence of the discharge of [an
employee’s] duties,” not to expenses that are “directly caused by the
employer.” Thus, while the suggested definition of “direct” is appropriate, the
use of the term in the statute makes clear that the expenses at issue must
actually be a consequence of the work duties, rather than due to something
else.11


      11 For example, although we need not address the issue in the present

appeal, 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 under section 2802.
(See Gattuso, supra, 42 Cal.4th at p. 568 [determination of “actual

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      IBM also points to language in the decision In re Acknowledgment
Cases (2015) 239 Cal.App.4th 1498 (Acknowledgment Cases), at page 1506, to
the effect that “it is established that the broad purpose of []section 2802 is to
require an employer to bear all of the costs inherent in conducting its
business and to indemnify employees from costs incurred in the discharge of
their duties for the employer’s benefit.” (Ibid., citing Edwards, supra,
44 Cal.4th at p. 952.) IBM suggests the work-from-home expenses are
neither “inherent” to its business nor for its “benefit,” given the public health
purpose behind the Governor’s March 2020 order. We observe that neither
section 2802 nor the Edwards decision contains the “inherent” or “benefit”
language. But we need not decide whether that additional language in the
Acknowledgment Cases formulation is consistent with section 2802(a),
because, following the March 2020 order, the work-from-home expenses were
inherent to IBM’s business and there can be no question that the work
performed was for the benefit of IBM. Therefore, the Acknowledgment Cases’
formulation does not support IBM’s position in the present case.
      We also reject IBM’s suggestion that the holding in Acknowledgment
Cases, supra, 239 Cal.App.4th 1498, supports IBM’s position that “an
employer is not liable under section 2802 for expenses imposed by an
intervening government mandate.” In that case, the Los Angeles Police
Department “require[d] that all newly hired police officers attend and
graduate from the Los Angeles Police Academy.” (Id. at p. 1501.) However,
because “the city realized that many officers who graduated from the



expense[s]” for use of personal automobile for work requires apportionment of
automobile “expenses between business and personal use”]; Cochran v.
Schwan’s Home Serv., Inc. (2014) 228 Cal.App.4th 1137, 1144 (Cochran)
[employer must pay “some reasonable percentage of the employee’s cell phone
bill” even if employee did not incur an extra expense].)

                                        9
academy were leaving within a few years to join other law enforcement
agencies,” the city also required any officer hired by the police department “to
reimburse the city a prorated portion of the cost of training at the academy” if
the officer left and commenced work for another law enforcement agency
within certain timeframes. (Id. at pp. 1501–1502.) Officers challenged the
reimbursement requirement under section 2802, arguing “the cost of the
academy is a necessary expenditure incurred as a direct consequence of the
discharge of the officer’s duties.” (Id. at p. 1505.) The city argued the statute
did not apply “because the training recruits receive is mandated by law under
the peace officer standards and training (POST) legislation.” (Ibid.)
      The court of appeal concluded section 2802 was ambiguous as to an
employer’s responsibility for “training costs.” (Acknowledgment Cases, supra,
239 Cal.App.4th at p. 1505.) The court held it was consistent with the
purpose of the statute “to require that where an individual must, as a matter
of law, have a license to carry out the duties of his or her employment, the
employee must bear the cost of obtaining the license. It is also consistent
with this purpose to require an employer to bear the cost of training that is
not required to obtain the license but is intended solely to enable the
employee to discharge his or her duties.” (Id. at p. 1506.) In concluding that
“POST certification training” is “not an expense of discharging the duties of
employment,” the court emphasized that such training “is in effect licensure
to act as a peace officer” and that “any individual may obtain the required
training.” (Id. at p. 1507.) Acknowledgment Cases is inapposite; the present
case does not involve training but rather operating expenses incurred in the
discharge of duties for IBM. The police officer training and licensure involved
in Acknowledgment Cases was general and portable to different employers
and, thus, not incurred in direct consequence of the discharge of duties for the



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Los Angeles Police Department itself.12 (See USS-Posco Indus. v. Case (2016)
244 Cal.App.4th 197, 207 [distinguishing between training for a “readily
transferable occupation” and “employer-specific training”].)
      IBM also argues its position finds support in the federal district court’s
decision in Hess v. United Parcel Service, Inc. (N.D.Cal., April 29, 2021,
No. 3:21-cv-00093-WHA) 2021 U.S. Dist. Lexis 82515 (Hess), another COVID-
era case. In Hess, the court held section 2802 did not obligate the defendant
employer to reimburse its employees for the costs of personal protective
equipment (such as masks and hand sanitizer). (Id. at p. *12.) The court
reasoned those items “were not reimbursable as business expenditures
because they were generally usable in all circumstances” and the county
“required masks to be worn indoors in public generally.” (Id. at p. *11.) Hess
is distinguishable: the plaintiff’s need for masks and similar protective
equipment was not a direct consequence of her work duties because those
items were “generally usable” personal items for which employers need not
reimburse employees. (Townley v. BJ’s Restaurants, Inc. (2019)
37 Cal.App.5th 179, 185 [applying rule that “generally usable” items of
clothing need not be reimbursed under section 2802]; but see Sprewell v. Fed.
Express Corp. (C.D.Cal., Sept. 30, 2021, No. 2:20-cv-11612-SVW-AGR) 2021
U.S. Dist. Lexis 246673, pp. *10-11 & fn. 7 [COVID-era case upholding
section 2802 claim for expenses for masks and sanitizing wipes and
expressing doubt about scope of “generally usable” exception]; Gattuso, supra,
42 Cal.4th at p. 568 [requiring reimbursement for use of personal automobile
for work]; Cochran, supra, 228 Cal.App.4th at p. 1144 [requiring


      12 We observe that, although the trial court ultimately sided with IBM

under a misplaced causation analysis, the court declined to rely on
Acknowledgment Cases, because the decision was about “training costs”
rather than “operating costs.”

                                       11
reimbursement for use of personal cell phone for work].) By contrast, at issue
in the present case are operating costs incurred by employees in performance
of their actual work duties for IBM at home.13
      Additionally, as plaintiffs point out, in Acknowledgment Cases and Hess
the employers categorically disputed their reimbursement obligations for the
expenses at issue (certification for officers who left employment and personal
protective items, respectively). But, in the present case, IBM does not
dispute that the expenses at issue are the types of expenses IBM paid for at
its offices. IBM states that, before the pandemic, “IBM provided its
employees with office space and all the other tools that form the basis of
[plaintiffs’] claims.” That is a fundamental distinction between the present
case and Acknowledgment Cases and Hess. In those cases, the issue was
whether employers could be held liable for the types of expenses at issue,
while in the present case there is no dispute that the types of expenses at
issue are ones for which IBM is liable. Instead, the only question is whether
the circumstance that the expenses were being incurred at employees’ homes
following the March 2020 order changes IBM’s reimbursement obligation.
For the reasons already given, the answer is no.




      13 The Hess court also observed, “the mask requirement was not an

expense UPS required its employees to incur for its benefit, but instead an
obligation imposed on it by law. The same is true of the other items plaintiff
seeks reimbursement for.” (Hess, supra, U.S. Dist. Lexis 82515, at p. *12.)
Although we need not decide whether it is appropriate to separately consider
whether actual expenses incurred in performance of work duties were for the
employer’s “benefit,” there can be no question the expenses at issue in the
present case were for IBM’s benefit, given that the expenses relate to the
tools required to actually accomplish the plaintiffs’ work duties.

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                               DISPOSITION
      The trial court’s judgment is reversed and the matter is remanded for
further proceedings consistent with this decision. Costs on appeal are
awarded to plaintiffs.




                                                  SIMONS, J.




We concur.




JACKSON, P. J.




BURNS, J.




(A165390)




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Paul Thai et al. v. International Business Machines Corp. (A165390)


Trial Judge:     Hon. Anne-Christine Massullo


Trial Court:     San Francisco County Superior Court


Attorneys:
            Ackermann & Tilajef, P.C., Craig J. Ackermann and Avi
      Kreitenberg; Gerstein Harrow LLP, Jason Harrow, Charles Gerstein,
      and Emily Gerrick for Plaintiffs and Appellants.

           Jones Day, Kelsey A. Israel-Trummel, Renee Pauline T. Perez,
      Matthew W. Lampe, and Wendy C. Butler for Defendant and
      Respondent.




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