Nonresident Workers in California Are Subject to California Overtime

By | July 11, 2011

California’s overtime requirements apply to work performed in California by non-residents, the state Supreme Court has decided, effectively expanding the use of the state’s Wage and Hour law.

The Sullivan v. Oracle case arose from an appeal of a 2008 Federal Appellate Circuit decision in which the Ninth Circuit judges held that California wage and hour law applied to Arizona residents, in this case instructors who train customers to use Oracle software.

Plaintiffs Donald Sullivan, Deanna Evich and Richard Burkow formerly worked as instructors for Oracle Corp., a large software company headquartered in California. As instructors, their job was to train Oracle’s customers in the use of the company’s products. Sullivan and Evich resided in Colorado, and Burkow resided in Arizona. They were required by Oracle to travel, mainly in their home states but also in California and several other states. The Arizona employees had worked complete days in California, but were not residents of California.

For years, Oracle did not pay its instructors overtime. Oracle believed that its instructors were exempt, as teachers, from California and federal overtime laws. Thus, in 2003, Oracle’s Instructors sued the company in a federal class action alleging misclassification and seeking unpaid overtime compensation.

The Ninth Circuit ruled that the plaintiffs could not sue under California’s Unfair Competition Law for Fair Labor Standards Act (FLSA) violations that occurred outside of California. However, the court vacated its own opinion and punted the case to the California Supreme Court, certifying three questions for decision:

  1. Do California Labor Code overtime provisions apply to work performed in California and for a California-based employer by plaintiffs primarily employed outside California, such that overtime pay is required for work in excess of eight hours per day, or in excess of 40 hours per week?
  2. Does California Business and Professions Code section 17200 et seq., California’s unfair competition law, apply to overtime work described in question one?
  3. Does UCL apply to overtime work performed outside of California for a California-based employer by plaintiffs primarily employed outside California if the employer failed to comply with the overtime provisions of the federal Fair Labor Standards?

The state high court said, “That the overtime laws speak broadly, without distinguishing between residents and nonresidents, does not create ambiguity or uncertainty. The Legislature knows how to create exceptions for nonresidents when that is its intent. … That California would choose to regulate all nonexempt overtime work within its borders without regard to the employee‟s residence is neither improper nor capricious. … To exclude nonresidents from the overtime laws’ protection would tend to defeat their purpose by encouraging employers to import unprotected workers from other states.”

“This decision will have significant implications for all California-based employers with employees who are residents of other states, but who perform work in California,” said Laura Maechtlen, Labor & Employment partner at Seyfarth Shaw. “While the decision is limited to California-based employers, because the overtime provisions of the labor code could have been found to apply to nonresident employees, employers subject to the decision could face a slew of additional claims by nonresident employees claiming that they were improperly classified as exempt and/or owed overtime for work performed in California.

Maechtlen said plaintiffs will “undoubtedly push the envelope of this ruling in the class action context,” based on the Court’s reading of Labor Code Section 510.

“Although the holding is limited to California-based employers, out-0f-state employers could face claims by employees performing work in California in an attempt to expand the holding of Sullivan,” she said. “The Supreme Court decision does not address whether the overtime provisions of the Labor Code are applicable to out-of-state employers, noting ‘we are not prepared, without more thorough briefing of the issues, to hold that IWC wage orders apply to all employment in California …'”

Fortunately for employers, the high court sided with Oracle on the third question. The state Supreme Court said the state Business and Professions Code does not apply to overtime work performed outside California for a California-based employer by out-of-state employees based solely on the employer’s failure to comply with the overtime provisions of the FLSA.

“If the court had found that the UCL applied to overtime work performed outside of California for a California-based employer, a class action could have been filed on behalf of a nationwide class under the California Unfair Competition Law by borrowing the FLSA as a predicate act,” Maechtlen said.

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