Oracle: Non-Residents Performing Work in CA For CA Companies Are Covered by CA Overtime Provisions

Sullivan v. Oracle Corporation, et al.

June 30, 2011, in Sullivan v. Oracle Corporation, et al., the California Supreme Court decided three certified questions from the Ninth Circuit regarding work performed in the State of California by non-residents for California based employers.

Three plaintiffs worked as “Instructors” for Oracle Corporation from 2001 to 2004. As Instructors, Plaintiffs’ job was to train Oracle’s customers in the use of the company’s products. Two Plaintiffs resided in Colorado, one Plaintiff resided in Arizona. Plaintiffs worked mainly in their home states but also traveled to work in California and 19 other states. In the three-year period, one plaintiff worked approximately 74 days in California, one worked 110 days and one worked 20 days.

Plaintiffs sued Oracle under three theories. First, Plaintiffs claimed overtime compensation under the Labor Code for days longer than eight hours, and weeks longer than 40 hours, in which such work was performed entirely in California (See Lab. Code §§ 510 (a), 1194.) Second, Plaintiffs restated the same claim alleging violation of California’s overtime laws as one for restitution under the Unfair Competition Laws (“UCL”) (Bus. & Prof. Code § 17203.) Third, and again under the UCL, Plaintiffs claimed restitution in the amount of overtime compensation due under the federal Fair Labor Standards Act (“FLSA”) (29 U.S.C. § 207(a)) for weeks longer than 40 hours worked entirely in states other than in California.

The United States District Court for the Central District of California granted summary judgment in Oracle’s favor; holding Plaintiffs could not prevail on their claims under California’s overtime laws. The Ninth Circuit reversed, holding the Labor Code did apply to Plaintiffs’ claims for overtime days and weeks in which such time was worked entirely in California. It then withdrew its opinion and requested the California Supreme Court decide the following questions of California law as follows:

“First, does the California Labor Code apply to overtime work performed in California for a California-based employer by out-of-state plaintiffs in the circumstances of this case, such that overtime pay is required for work in excess of eight hours per day or in excess of forty hours per week? Second, does [Business and Professions Code section] 17200 apply to the overtime work described in question one? Third, does [section] 17200 apply to overtime work performed outside California for a California-based employer by out-of-state plaintiffs in the circumstances of this case if the employer failed to comply with the overtime provisions of the FLSA?”

A.   The Court Decides Overtime Provisions Apply.

The California Supreme Court held that the California Labor Code does apply to overtime work performed in California by the out-of-state Plaintiffs under circumstances where overtime pay is required for work in excess of eight hours per day or in excess of 40 hours per week. In reaching this conclusion, the Court relied on the express language of the California overtime statute which applies to all employment in the State without reference to the employee’s place of residence.

For example, Labor Code section 570 requires overtime for “any work” in excess of 8 hours in one day and section 1194 allows “any employee” receiving less than the legal overtime to recover the unpaid balance. It further noted that conflicts of law principles required the Court to apply California law because California had unambiguously asserted a strong interest in applying its overtime law to all workers within its boundaries, and neither Arizona nor Colorado, where the Plaintiffs resided, asserted an interest in requiring overtime work in other states.

B.   The Court Also Decided Section 17200 Applies To This Overtime Work.

In response to the second inquiry as to whether section 17200 could apply to the overtime work of a non-resident in California for the California based employer, the Court answered affirmatively. The Court answered this question “yes,” as it had long been established that the failure to pay legally required overtime compensation falls within the UCL’s definition of an unlawful business practice.

C.   The UCL Does Not Apply To An FLSA Claim In These Circumstances.

Finally, in response to the third question, the Court held that under the circumstances of the case, the UCL did not apply to Plaintiffs’ FLSA claims. Under the facts stipulated to by the parties, the only conduct which occurred in California was the decision to classify the Instructors as exempt. The Court noted that the mere decision of an erroneous classification of employees is not itself an illegal act. Rather, it held what is illegal is the failure to pay overtime when due. The Court found there was no justification for applying the UCL to the non-resident Plaintiffs’ FLSA claims for overtime.

Thus, employers who employ non-exempt, non-resident employees in California for full days or weeks will have to pay overtime on those days in accordance with California law. The Court was careful to note that it was not opining as to whether other provisions of the Labor Code apply to non-residents who work in California; and further commented that “California law might not apply to non-resident employees of out-of-state businesses who enter California temporarily during the course of a work day.”

In light of this decision, employers with non-resident workers performing daily or weekly work in California will need to ensure compliance with the overtime provisions as applicable.

Dorsey & Whitney

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