(July 1, 2011) Yesterday, the California Supreme Court ruled that California overtime laws apply to work performed in California for California-based employers by their employees who don’t live in California. Sullivan v. Oracle (No. S170577 June 30, 2011).

Oracle is a California-based corporation. Three nonresidents of California employed by Oracle as training instructors filed a lawsuit against the company. None of the employees lived in California, but they performed work as instructors in California and in other states. During the time period at issue in the lawsuit, one employee worked 74 days in California, another employee worked 110 days and the third employee worked 20 days.  

The employees’ lawsuit claimed that the employees were not paid overtime for days that they worked in California. 

The case was filed in the Ninth Circuit. However, noting the strong state interest in deciding the application of state labor code laws, the Ninth Circuit sent the case to the California Supreme Court to answer the following three questions:

1. In this case, does the California Labor Code apply to overtime work performed in California for a California-based employer by out-of-state workers, such that overtime pay is required for work in excess of eight hours per day or in excess of 40 hours per week? 

The answer –Yes:  The court found that California has “unambiguously asserted a strong interest in applying its overtime law to all nonexempt workers and all work performed within its borders.” 

2.  Does California’s unfair competition law (UCL) found in Business and Professions Code Sec. apply to the overtime work described in question one? 

The answer- Yes: The court concluded that the alleged violations of California’s overtime laws could potentially trigger liability under the UCL. The court ruled in an earlier case that the failure to pay legally required overtime compensation falls within the UCL’s definition of an “unlawful … business act or practice.”

3. In this case, does California’s UCL apply to overtime work performed outside California for a California-based employer by non-resident workers if the employer failed to comply with the overtime provisions of the federal Fair Labor Standards Act (FLSA)? 

The answer- No: The court ruled that California’s UCL does not apply to acts based on alleged federal wage law violations that occur outside of the state. 

Limitations

The court limited its decision in the following crucial respects:

• The court indicated that California overtime laws would apply when the non-resident employee entered the state for “entire” or “full” days or weeks of work. The court distinguished this case from the circumstances of a non-resident worker who enters California “temporarily during the course of the workday.”
• The court indicated that its ruling is limited only to the question of whether these non-resident workers could receive overtime. It specifically declined to address whether other wage-and-hour laws, such as meal and rest periods, pay stubs or vacation time, would also apply to non-resident workers who perform work in California.

This case will now go back to the Ninth Circuit for determination the remaining issues and factual disputes, including whether the workers were improperly classified as exempt.