California employers have recently experienced a significant increase in lawsuits from employees seeking reimbursement for expenses incurred while working from home. These lawsuits seek a wide range of expense reimbursements for increased energy costs and for the cost of missing out on the opportunity to rent out their home office. Employees typically file these claims under Section 2802 of the Labor Code. Sometimes employees also bring in derivative PAGA actions for “inaccuracies” in the pay statement.
Labor Code Section 2802 requires employers to reimburse employees for “all necessary expenses or losses” incurred by the employee in the performance of their duties or under “obedience to the employer’s directions”. Importantly, Section 2802 of the Labor Code clarifies that “necessary expenses or losses” include all “reasonable expenses, including but not limited to attorneys’ fees incurred by the employee enforcing the rights granted by this section.”
Many California companies still have employees who work from home or are now using a hybrid structure. These employers must be aware of their compensation requirements under California law and review their policies and telecommuting agreements to ensure that employees are properly compensated. CDF covered the cost of remote work and employer benefits requirements in 2020, which readers can view here.
What defenses are available to employers being sued for work-from-home charges?
This question was very recently heard by the federal court for the Northern District of California on June 1, 2022. In Williams v. Amazon.com Services LLCthe Court rejected Amazon’s request for dismissal after Amazon advanced two (unsuccessful) arguments:
- Amazon’s compliance with government-issued stay-at-homes absolves them of liability, and
- Williams didn’t file refund requests with Amazon, so they couldn’t know that Williams had incurred work-related expenses that needed to be reimbursed. The Court held that despite these arguments, the claimant had sufficiently argued in favor of his claim under Article 2802 and dismissed the request for dismissal.
The Court also ruled that Amazon’s expectation that Williams would work from home after the stay-at-home orders were imposed was sufficient to establish Amazon’s liability. Thus, California employers who adhered to the state and/or county mandate to shelter on-site and/or work remotely are unlikely to be protected from liability for employee work-related expenses incurred during the mandate term, including though employers were not the “cause” of the shift to remote working. That argument didn’t work in the Northern District and probably won’t work elsewhere.
The Court’s analysis of Amazon’s second argument provides some guidance on determining an employer’s “reasonable” expectations. The Court considered both Amazon’s status as a technology company and Williams’ position as a senior software development engineer (which entailed duties such as writing design documents for software systems and being available for production systems) to determine that Williams’ duties are “probably the use of physical space, internet and electricity.” Therefore, “Amazon, a major tech company, knew for sure or at least had reason to know” that its software engineers incurred “basic costs” in connection with their work while working from home and that actual cost disclosure was not required.
Determine base costs
In some cases, the most common employee “basic costs” include reliable access to the Internet, a telephone, and a computer. Importantly, prior to the pandemic, courts ruled that employers are only required to reimburse a “reasonable percentage” of an employee’s use of a personal phone or the Internet.
Furthermore, the “physical space” requirement, referred to in Williams v. Amazon, is more difficult to define. Some of the newly filed lawsuits are now demanding payment for the potential income employees could have collected had they rented out their home office instead of using it for work. In these cases, employees claim that they are missing out on potential income from renting out the rooms they used as offices, even if there is no actual lease or even a potential tenant. There is no published authority to support the attribution of such expenses in California, and we believe it is unlikely that a court would rule that such theoretical expenses would be recoverable.
In other cases, employees claimed they had to buy office furniture and equipment in order to work remotely. In these lawsuits, the employee is likely to be successful if the employee can demonstrate that the furniture/equipment was necessary as a direct result of the employee’s work. The date of purchase of the furniture/equipment may be relevant because if the employee purchased the furniture before being approved to work from home, the employer has a strong argument that the purchase of the furniture/equipment is not a “necessary expense or loss incurred by the employee as a direct result of the performance of his or her duties.” Labor Code Section 2802.
Prior to the pandemic, some employers, especially technology-based startups, offered on-site benefits such as free meals and dry cleaning. Some disgruntled employees have since complained about the cost of preparing or buying their own meals while working remotely and are now demanding reimbursement for these costs as well. By their very nature, perks are not necessary for employees to perform their duties, so we think it may be difficult for employees to successfully recover these costs, but in California, you never know what the courts will do.
Based on current trends, California employers can expect to meet at least the “basic costs” of Internet use, personal use of cell phones and laptops, and some employee utilities that the employer needs or encourages to work remotely. hook will hit. However, the plaintiffs’ lawyers are now testing the bar by asking for reimbursement for furniture, the value of potential rent and other less traditional expenses. It remains to be seen how broadly the California courts will interpret the law in this area.
To protect against liability (and attorney fees), California employers must explicitly define each employee’s duties and use those definitions to establish “reasonable” expectations of the cost of remote work. In addition, California employers must always meet with all employees they allow/require to work from home before starting the work from home scheme. In particular, expectations should be outlined and costs should be examined and approved. A remote work contract setting out expectations (including expenses) would be ideal and can serve as a shield in these types of lawsuits and claims.
CDF will continue to monitor the trend of compensation lawsuits and provide readers with updates.