Krug v. Endeavor Operating Co., LLC v. HDI Global Ins. Co.

Filed 8/29/23; REVIEW GRANTED. See Cal. Rules of Court, rules 8.1105 and 8.1115
(and corresponding Comment, par. 2, concerning rule 8.1115(e)(3)).
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION ONE
PATRICK KRUG,
Plaintiff and Appellant,
v.
BOARD OF TRUSTEES OF THE
CALIFORNIA STATE UNIVERSITY,
Defendant and Respondent.
B320588
(Los Angeles County
Super. Ct. No. 21STCV14538)
APPEAL from a judgment of the Superior Court of Los
Angeles County, Carolyn B. Kuhl, Judge. Affirmed.
Stiller Law Firm, Ari. J. Stiller; Hennig Kramer Ruiz &
Singh, Jennifer Kramer, Shoshee Jau Hui; Gunn Coble, Beth
Gunn, Catherine J. Coble for Plaintiff and Appellant.
Call & Jensen, Julie R. Trotter, Jacqueline Beaumont,
Melinda Evans for Defendant and Respondent.
___________________________________

-- 1 of 15 --

2
When the Covid pandemic struck, the California State
University (CSU) directed that instruction be provided remotely.
To provide such instruction, Patrick Krug, a biology professor at
CSU-Los Angeles, incurred expenses which CSU refused to
reimburse for a computer and other equipment. Krug sued CSU’s
board of trustees on behalf of himself and similarly situated
faculty, alleging Labor Code section 2802 obligated CSU to
reimburse employees for necessary work-related expenses. CSU
demurred, arguing that as a department of the state it enjoys
broad exemption from Labor Code provisions that infringe on its
sovereign powers. Krug appeals from a judgment of dismissal
entered after the trial court sustained CSU’s demurrer without
leave to amend.
We affirm. Absent express words or positive indicia to the
contrary, a governmental agency is not within the general words
of a statute. Although this exemption is limited to cases where
application of the statute would impair the entity’s sovereignty,
subjecting CSU to Labor Code section 2802 in this case would do
so because it would infringe on the broad discretion CSU enjoys
under the Education Code to set its own equipment
reimbursement policies.
BACKGROUND
As this case comes to us after dismissal upon demurrer, we
take the alleged facts to be true, all of which are undisputed in
any event.
In March 2020, CSU ordered its teachers to begin teaching
classes remotely. Krug did so but was denied access to his
workplace office to retrieve his CSU-provided computer and
printer. He absorbed the cost for replacing these items himself,
then asked for reimbursement, which the school denied. CSU

-- 2 of 15 --

3
took the position that Labor Code section 2802, subdivision (a),
which obligates an employer to “indemnify [an] employee for all
necessary expenditures . . . incurred . . . in direct consequence of
the discharge of his or her duties,” did not apply to the school
because such application would infringe on its sovereign powers
as a department of the state.1
Krug asked the Department of Industrial Relations (DLSE)
whether the school’s non-reimbursement policy was lawful. The
DLSE responded that it disagreed with CSU’s interpretation of
section 2802.
Krug filed this class action complaint, alleging a single
claim for reimbursement of home-office expenses for himself and
other CSU faculty employees under section 2802. He later
amended to add a claim under the Private Attorneys General Act
(PAGA) stemming from the same reimbursement violation. He
alleged he incurred necessary business expenses for electricity,
postage, internet service charges, use of personal phones for
work-related purposes, office supplies, chairs, computers,
printers, ink and toner, and computer monitors required to
perform his work.
CSU demurred to the Labor Code claim on the ground that
as a department of the state it was not subject to section 2802,
and to the PAGA claim on the ground that an employee may seek
PAGA penalties against a public entity only if the underlying
statute provides for civil penalties, which section 2802 did not.
The trial court reasoned that a governmental agency is
generally exempt from Labor Code statutes that do not expressly
1 Undesignated statutory references will be to the Labor
Code.

-- 3 of 15 --

4
state they apply to public employers. The court therefore
sustained CSU’s demurrer without leave to amend and entered
judgment accordingly.
Krug appeals from the judgment of dismissal.
DISCUSSION
Krug contends that section 2802 applies to CSU. We
disagree.
A. Applicable Legal Principles
1. Standard of Review
We review an order sustaining a demurrer de novo, and a
denial of leave to amend for abuse of discretion. (SI 59 LLC v.
Variel Warner Ventures, LLC (2018) 29 Cal.App.5th 146, 152.)
“When construing the Labor Code and wage orders, [courts]
adopt the construction that best gives effect to the purpose of the
Legislature and the [Industrial Welfare Commission].” (Troester
v. Starbucks Corp. (2018) 5 Cal.5th 829, 839.) That purpose is
“the protection of employees—particularly given the extent of
legislative concern about working conditions, wages, and hours
when the Legislature enacted key portions of the Labor Code.”
(Ibid.)
2. Section 2802
Subdivision (a) of section 2802 provides: “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, even though
unlawful, unless the employee, at the time of obeying the
directions, believed them to be unlawful.”

-- 4 of 15 --

5
3. Statutory Construction: Sovereign Powers
Doctrine
“ ‘We apply the usual rules of statutory interpretation to
the Labor Code, beginning with and focusing on the text as the
best indicator of legislative purpose. [Citation.] “[I]n light of the
remedial nature of the legislative enactments authorizing the
regulation of 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.” ’ ” (McLean v. State of California (2016) 1 Cal.5th
615, 622.)
“A traditional rule of statutory construction is that, absent
express words to the contrary, governmental agencies are not
included within the general words of a statute.” (Wells v.
One2One Learning Foundation (2006) 39 Cal.4th 1164, 1192
(Wells).)
Thus, the Labor Code applies only to private sector
employees unless a Labor Code provision is “specifically made
applicable to public employees.” (Campbell v. Regents of Univ. of
California (2005) 35 Cal.4th 311, 330; California Correctional
Peace Officers’ Association v. State of California (2010) 188
Cal.App.4th 646, 652-653; Nutter v. City of Santa Monica (1946)
74 Cal.App.2d 292, 301.)
Specifically in the context of reimbursement for work
expenses (uniform costs), section 2802 does not apply to counties,
cities, or the state. (In re Work Uniform Cases (2005) 133
Cal.App.4th 328, 332, 339, 345.)
But this maxim of construction “ ‘excludes governmental
agencies from the operation of general statutory provisions only if
their inclusion would result in an infringement upon sovereign

-- 5 of 15 --

6
governmental powers. “Where . . . no impairment of sovereign
powers would result, the reason underlying this rule of
construction ceases to exist and the Legislature may properly be
held to have intended that the statute apply to governmental
bodies even though it used general statutory language only.”
[Citation.]’ ” (Regents of University of Cal. v. Superior Court of
Alameda County (1976) 17 Cal.3d 533, 536 (Regents); cf. Nutter v.
City of Santa Monica, supra, 74 Cal.App.2d at p. 300 [“It is well
established that general terms of a statute will not be construed
as including government if the statute would operate to trench
upon sovereign rights”].) For example, a state university’s
sovereign powers based on its educational functions does not
extend to the university’s investment activities so as to exclude it
from anti-usury laws. (Regents, at p. 537.)
Furthermore, although the “sovereign powers” principle
can help resolve an unclear legislative intent, it cannot override
positive indicia of a contrary legislative intent. (Wells, supra, 39
Cal.4th at p. 1193.) For example, the legislative history of the
California False Claims Act deleted any reference to public
entities as covered “persons.” (Id. at pp. 1189-1192.) That the
Legislature thus deliberately excluded public entities from the
definition of “persons” evidenced its intent not to apply the terms
of a statute to a public entity without specific reference. (Id. at p.
1193.)
We thus apply a three-part test to whether the sovereign
powers canon overcomes a generally applicable Labor Code
provision. First, we look for “express words” referring to
governmental agencies. (Wells, supra, 39 Cal.4th at p. 1192.) If
there are none, we look for “positive indicia” of a legislative intent
to exempt such agencies from the statute. (Id. at p. 1193.) If no

-- 6 of 15 --

7
such indicia appear, we ask whether applying the statute “would
result in an infringement upon sovereign governmental powers.”
(Id. at p. 1192.)
4. CSU’s Sovereign Powers
CSU is a state agency with the sovereign power to produce
public university-level education. (Sargent v. Bd. of Trustees of
California State Univ. (2021) 61 Cal.App.5th 658, 672; Ed. Code,
§§ 66600 [creating CSU’s board of trustees]; 89000 et seq.
[governing CSU].) To fulfill its mandate, the Legislature vests
CSU with broad authority over the purchase of supplies and
equipment, and over employee expense reimbursements.
Education Code section 89036 authorizes CSU to enter
agreements and prescribe policies and procedures for acquiring
supplies and equipment. It provides: “Notwithstanding any
other provision of law, the trustees shall prescribe policies and
procedures for the acquisition of services, facilities, materials,
goods, supplies, or equipment.” (Ed. Code, § 89036, subd. (a)(2).)
Education Code section 89500 authorizes CSU to address
matters of employee allowances and expense reimbursement. It
provides: “Notwithstanding any other provision of law, the
trustees shall provide by rule for the government of their
appointees and employees, pursuant to this chapter and other
applicable provisions of law, including, but not limited to:
appointment; classification; terms; duties; pay and overtime pay;
uniform and equipment allowances; travel expenses and
allowances; rates for housing and lodging; moving expenses; leave
of absence; tenure; vacation; holidays; layoff; dismissal; demotion;
suspension; sick leave; reinstatement; and employer’s
contribution to employees’, annuitants’, and survivors’ health
benefits plans.” (Ed. Code, § 89500 subd. (a)(1), italics added.)

-- 7 of 15 --

8
“[T]here can be no doubt that public education is among the
state’s most basic sovereign powers.” (Wells, supra, 39 Cal.4th at
p. 1195.)
The expenses Krug alleges—for computers, monitors,
chairs, printers, electricity, internet, and other alleged business
expenses—fall directly within CSU’s authority to set rules for
employee equipment allowances and the purchase of materials,
supplies, and equipment.
B. Application
1. Section 2802
a. Express Language and Positive Indicia of
Legislative Intent
Here, section 2802 contains no express words referring
to governmental agencies nor positive indicia of a legislative
intent to exempt such agencies from the statute.
Krug argues that an indication that the Legislature
intended section 2802 to pertain to public employers does exist,
because section 2802 applies to “employers” generally, which
some courts have held, in the absence of an express exception, to
include public employers. (E.g., Flowers v. Los Angeles County
Metropolitan Transportation Authority (2015) 243 Cal.App.4th
66, 79 (Flowers) [absent a specific exemption, a wage order
covering “[e]very employer” was broad enough to subject public
employers to a minimum wage requirement]; Sheppard v. North
Orange County Regional Occupational Program (2010) 191
Cal.App.4th 289 [a wage order’s general terms applied to a public
employer in the absence of an exemption]; Marquez v. City of
Long Beach (2019) 32 Cal.App.5th 552 [same].)
In other words, Krug argues, general terms like “employer”
include public employers unless defined to exclude them.

-- 8 of 15 --

9
We are not persuaded. We remind Krug of the interpretive
presumption at issue: “[A]bsent express words to the contrary,
governmental agencies are not included within the general words
of a statute.” (Wells, supra, 39 Cal.4th at p. 1192.) Pursuant to
this presumption, governmental agencies are not included within
a general word such as “employer.”
That positive indicia of Legislative intent may nevertheless
bring governmental agencies within the ambit of an otherwise
silent statute is an exception to this rule. Krug’s formulation
would supplant the rule with the exception, which we decline to
do. Absence of a limitation on employer is merely legislative
silence, not a positive indicium of Legislative intent.
b. Sovereign Powers
The question thus becomes whether applying section
2802 to CSU would infringe upon its sovereign governmental
powers, i.e., would affect the functions and responsibilities
given to the public employer by the Legislature. We conclude
it would.
CSU is a state agency to which the Education Code
grants extensive powers to govern affairs relating to
education. As pertinent here, Education Code sections 89036
and 89500 grants CSU the discretion to set rules for
procuring equipment and establishing equipment allowances
“notwithstanding any other provision of law.” To subject CSU
to the Labor Code’s requirement regarding equipment
expense reimbursement, i.e., to hold CSU to some standard
other than that which it may in its discretion set for itself,
would contravene the proviso stating that this discretion
exists notwithstanding any other provision of law, and would
necessarily curtail CSU’s discretion and thus trench upon its
sovereignty. Such sovereignty specifically in the example of

-- 9 of 15 --

10
equipment procurement allows CSU to standardize
equipment, negotiate for any price advantages attending bulk
purchasing, and regulate technological diversity and the
accompanying training needs for support personnel.
Moreover, liability to section 2802 would subject CSU to
attorney fees awards in addition to reimbursement expenses.
(§ 2802, subd. (c) [“the term ‘necessary expenditures or losses’
shall include all reasonable costs, including, but not limited
to, attorney’s fees incurred by the employee enforcing the
rights granted by this section,” as well as expenses].) “Laws
that divert limited educational funds from this core function
are an obvious interference with the effective exercise” of
sovereign power to provide public education. (Wells, supra, 39
Cal.4th at p. 1195.) “The Legislature is aware of the
stringent revenue, budget, and appropriations limitations
affecting all agencies of government—and public school
districts in particular,” so courts “cannot lightly presume an
intent to force such entities” to pay not only legal judgments
“but also to pay huge additional amounts, often into the
pockets of outside parties,” because “[s]uch a diversion of
limited taxpayer funds would interfere significantly with
government agencies’ fiscal ability to carry out their public
missions.” (Id. at pp. 1195-1196.)
Applying section 2802 to CSU in this case would thus
infringe upon its sovereign governmental powers in two ways.
It would limit the discretion vested in CSU to establish
policies for employee reimbursement for necessary expenses,
and would potentially divert limited educational funds from
CSU’s core function to pay not only legal judgments but
potentially huge additional amounts to outside parties.

-- 10 of 15 --

11
Because section 2802 is silent about whether the term
“employer” includes public employers, and there being no
positive indicia to the contrary, its potential to infringe on
CSU’s sovereignty under the circumstances of this case
compels us to conclude it does apply to Krug’s claim for
reimbursement for equipment expenses. CSU’s demurrer to
this claim was therefore properly sustained without leave to
amend.
We do not hold that section 2802 can never apply to
CSU, only that it does not apply in this case because Krug’s
claim falls squarely within the ambit of CSU’s vested
authority to set the terms for employee expense
reimbursement.
Krug argues that reimbursing employees for equipment
expenses would not infringe on CSU’s ability to acquire
materials and equipment as provided by Education Code
section 89036, because reimbursement is not the same as
acquisition. We would not, for example, suggest that CSU
may refuse to pay for the goods or services it acquires. (See
Ed. Code, § 89036, subd. (a)(1)–(4); Pub. Contract Code, §§
10851, 10853 [requiring CSU to pay contractors with timely
progress payments].) And in any event, he concludes, he did
not acquire his supplies pursuant to CSU’s authority under
section 89036, but pursuant to CSU’s policy requiring that he
work from home. We agree with these sentiments. But we
cite Education Code section 89036 not to suggest that Krug’s
computer was purchased pursuant to that section, nor to
suggest CSU may fail to pay its contractors, but only to
illustrate that CSU was granted broad powers to obtain the
equipment it needs to function.

-- 11 of 15 --

12
The real workhorse is Education Code section 89500, which
specifically applies to employee equipment allowances, i.e.,
reimbursement to employees for equipment expenses, which is
what Krug seeks here. Krug observes that this section obligates
CSU to make rules for employee pay and expense allowances
“pursuant to . . . other applicable provisions of law” (Ed. Code, §
89500, subd. (a)(1)), and argues that CSU must therefore comply
with applicable provisions of the Labor Code, such as section
2802. (See Slivkoff v. Board of Trustees (1977) 69 Cal.App.3d
394, 403 [Education Code section 89500 does not exempt CSU
from otherwise applicable law].)
But to act “pursuant to” a statute requires nothing if that
statute requires nothing. Section 2802 is silent as to its
application to a public employer. On the other hand, Education
Code section 89500 grants CSU the discretion to make its own
rules for reimbursement for equipment expenses
“[n]otwithstanding any other provision of law.” There is thus no
conflict between Education Code section 89500 and our
interpretation of section 2802, and CSU’s exercise of discretion
not to reimburse employees for equipment expenses contravenes
no “other applicable provisions of law.”
Krug argues that reading section 2802 to allow CSU broad
discretion to deny reimbursement would be inconsistent with the
Legislature’s intent, expressed elsewhere, to require
reimbursement. For example, he argues, although Government
Code section 19820 limits reimbursement owed to certain state
employees, and Government Code section 19850.1 limits a state
employer’s obligation to pay for employee uniforms, the
Legislature has expressly excluded CSU from both benefits.
(Gov. Code, §§ 19850, 19850.1.) This suggests, Krug argues, the
Legislature did not want CSU to avoid reimbursements
altogether.

-- 12 of 15 --

13
This undercuts rather than supports Krug’s reimbursement
claim by demonstrating that when the Legislature wanted CSU
to reimburse its employees it expressly said so. (See § 2802.1
[expressly deeming section 2802 as applicable to employees of
state hospitals].)
c. Legislative History
Relying on pre-enactment decisional law, Krug argues that
when Civil Code section 1969, section 2802’s predecessor, was
enacted in 1872, the commonly understood meaning of
“employer” for indemnification purposes would have included
public entities in 1872.
We do not disagree. But “[o]ur fundamental task is to
determine the Legislature’s intent to effectuate the law’s purpose,
giving the statutory language its plain and commonsense
meaning. We examine that language, not in isolation, but in the
context of the statutory framework as a whole to discern its scope
and purpose and to harmonize the various parts of the
enactment. [Citation.] ‘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.’ ” (Busker v. Wabtec Corp. (2021) 11 Cal.5th 1147, 1157-
1158.) Only “‘[i]f the statutory language permits more than one
reasonable interpretation [may courts] consider other aids, such
as the statute’s purpose, legislative history, and public policy.’
[Citation.] The wider historical circumstances of a law’s
enactment may assist in ascertaining legislative intent,
supplying context for otherwise ambiguous language.” (Id. at p.
1158.)
Here, the interpretive presumption that governmental
entities are excluded from general language absent positive
indicia to the contrary suffices to explain section 2802 without
resort to its legislative history. That does not mean legislative

-- 13 of 15 --

14
history is always irrelevant. In Wells, the Court held that the
Legislature’s deliberate deletion of any reference to public
entities as covered “persons” in the California False Claims Act
constituted a positive indication that it intended not to apply the
term to a public entity without specific reference. (Wells, supra,
39 Cal.4th at pp. 1189-1192.) But we have no similar positive
indication here.
In any event, that a general term may be understood
generally is an unremarkable and irrelevant tautology because
here we must presume that general terms do not include
government agencies.
Krug observes that memoranda drafted in September 2000
for Governor Davis pertaining to the fiscal impact of an
amendment to section 2802 stated there would be a state fiscal
impact because section 2802 covers “an employer, including state
agencies.” (Enrolled Bill Memorandum on Sen. Bill No. 1305
prepared for Governor Davis (1999-2000 Reg. Sess.) Sept. 2000, p.
1; Department of Finance Enrolled Bill Report on Sen. Bill No.
1305 prepared for Governor Davis (1999-2000 Reg. Sess.) Aug.
2000, p. 1.)
We acknowledge this history. (See Elsner v. Uveges (2004)
34 Cal.4th 915, 939, fn. 19 [California considers “enrolled bill
reports, prepared by a responsible agency contemporaneous with
passage and before signing, instructive on matters of legislative
intent”].) But these fiscal analyses do not contradict our
interpretation of section 2802 today. We do not hold that section
2802 never applies to public employers, only that it does not
apply in this case because the Legislature vested CSU with
sovereign authority with which section 2802 would interfere.
Krug cites several cases involving public entities in which no
interference would result from application of section 2802. We
have no quarrel with these cases, but they are not our case.

-- 14 of 15 --

15
d. Public Policy
Krug argues that “in light of the remedial nature of the
legislative enactments authorizing the regulation of 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.” (Flowers, supra, 243
Cal.App.4th at p. 82.) We agree. But no amount of liberality in
construction will circumvent section 2802’s silence concerning
public employers, nor the inference we must draw from that
silence.
2. PAGA
An “aggrieved employee” may seek civil penalties under
PAGA. (§ 2699, subd. (c).) An aggrieved employee is “any person
who was employed by the alleged violator and against whom one
or more of the alleged violations was committed.” (Ibid.; see
Adolph v. Uber Technologies, Inc. (2023) 14 Cal.5th 1104, 1114.)
Because CSU did not violate section 2802, Krug is not an
aggrieved employee for purposes of PAGA. His PAGA claim
therefore fails with his section 2802 claim.
DISPOSITION
The judgment is affirmed. Each side is to bear its own
costs on appeal.
CERTIFIED FOR PUBLICATION
CHANEY, J.
We concur:
BENDIX, Acting P. J.
WEINGART, J.

-- 15 of 15 --