In a disappointing decision for California employers, the California Supreme Court ruled that California overtime laws protect non-resident employees when they perform work in California for California-based employers. Sullivan v. Oracle Corporation, (No. S170577 June 30, 2011).
Oracle is a California-based software company. Oracle employed the three plaintiffs in the case as software training instructors. None of the employees lived in California, but they performed work as training instructors in California and other states. Two of the employees lived in Colorado, and one lived in Arizona. During the three-year 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. Oracle chose to apply the wage-hour laws of Colorado and Arizona to the employees’ work.
Strong State Interest
The employees filed their lawsuit in a federal court. However, the federal court sent three key questions to the California Supreme Court, noting strong state interest in deciding how state labor code laws are applied. The California Supreme Court ruled on the following three questions:
Question No. 1: 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?
Answer: Yes. The court clearly said that California’s overtime provisions apply to any employee who works in California for a California based employer. The court found that California “unambiguously asserted a strong interest in applying its overtime law to all nonexempt workers and all work performed within its borders.”
The court noted the strong public policy interest in protecting the health and safety of workers and protecting against the "evils associated with overwork." The court’s opinion emphasized that the statutory language relating to overtime did not omit non-resident employees and that the Legislature’s decision to not exclude non-residents must have been deliberate given that other provisions of the Labor Code specifically excluded non-residents.
Since daily overtime is rare in other states, this decision has a tremendous impact on the probable thousands of workers who come from out-of-state to work on assignments for California employers.
Question No. 2: Does California’s Unfair Competition Law (UCL), found in Business and Professions Code section 17200, apply to the overtime work described above?
Answer: Yes. The court concluded that UCL applies to the overtime worked performed in California by out-of-state employees. The effect of this ruling is to allow plaintiffs to use the UCL’s longer four-year statute of limitations for bringing actions, instead of the three-year limitations period that would normally apply.
Question No. 3: 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)?
Answer: No. The plaintiffs argued that California’s UCL should also apply to FLSA violations that occurred when they worked in other states beside California. The court disagreed, ruling that nothing in the UCL’s language or legislative history indicated that it was meant to apply outside the state.
Because the court’s decision was limited specifically to the facts of this particular case, the ruling does not resolve many related questions, and those questions will likely be the subject of future litigation. The court limited the decision’s application in these crucial respects, and left these issues unresolved:
- Limited to full days or weeks of work: The facts of the case involved only full days or weeks of work, not partial days. 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."
It can be expected that employees in future cases will take the position that the reasoning of the decision should apply to both partial and full days of work in California.
- Limited to overtime claims: 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.
Again, it is likely that we will see future litigation arguing that these other wage-and-hour rules also apply to out-of-state employees working in California. Where other wage-and-hour rules also involve issues of worker health and safety, we may see a similar result from the court.
- Limited to California-based employers: The court limited its ruling only to California-based employers because those were the facts before the court.
In all probability, out-of state employees who come to work in California for non-California employers will also argue that our state overtime laws should apply. Although it did not decide the issue, the court signaled it was inclined to agree with that position: "a company that conducts business in numerous states ordinarily is required to make itself aware of and comply with the laws of the state in which it chooses to do business."
This case will now go back to the federal court for a ruling on the remaining issues and factual disputes, including whether the workers were improperly classified as exempt.
California employers should exercise caution to avoid costly wage-and-hour litigation.
- Closely track hours worked for all employees
- Abide by state overtime laws for nonresidents working in the state
- Seek legal advice on how this decision could impact the employer’s other pay practices, if at all