After you install Microsoft Exchange Server 2016 Cumulative Update 8 (CU8), free/busy queries from Microsoft Office 365 users to on-premises mailboxes in hybrid environments fail if the cloud mailboxes are not archive-enabled.
This problem occurs because of a known issue that affects OAuth connectivity in Exchange Sever 2016 CU8.
To work around this issue, create personal archive mailboxes for each cloud mailbox.
To verify that you are experiencing this issue, use the Test-OAuthConnectivity cmdlet.
If your scenario is a match, this cmdlet will generate the following response:
Exchange Response Details:
HTTP response message:
System.Net.WebException: The remote server returned an error: (500) Internal Server Error.
at Microsoft.Exchange.Monitoring.TestOAuthConnectivityHelper.SendExchangeOAuthRequest(ADUser user, String orgDomain, Uri targetUri, String& diagnosticMessage, Boolean appOnly, Boolean useCachedToken, Boolean reloadConfig)