California Supreme Court Pays Non-California Residents Time-And-A-Half 

By: Matthew N. Mong

Every day, thousands of out-of-staters enter California to work.  However, until recently, it was undecided whether California’s overtime laws applied to these individuals.  In Sullivan v. Oracle Corporation, No. (2011) S170577, the California Supreme Court finally determined that California’s overtime laws do apply to employees who do not live in California, but who work in California.  The Court also affirmed that these individuals can obtain restitution under California’s Unfair Competition Law for their employers’ failure to comply with California’s overtime laws.  However, the Court’s opinion left the issue of whether an employee can bring an unfair competition claim for violations of federal wage and hour laws unresolved.

FACTS AND PROCEDURAL HISTORY

Defendant Oracle Corporation is a software company headquartered in California.  Plaintiffs Donald Sullivan, Deanna Evich and Richard Burkow, worked for Oracle as “instructors.”  Instructors teach customers how to use Oracle software.  Sullivan and Evich both lived in Colorado, while Burkow lived in Arizona.  Despite not residing in California, all three Plaintiffs worked in California for a period ranging between 20 and 110 days, from 2001 to 2004.  Oracle refused to pay overtime wages to Plaintiffs because they were nonresidents.

Plaintiffs brought suit against Oracle, in the U.S. District Court, for failure to pay overtime compensation for the days they worked in California for longer than 8 hours a day, and for the weeks they worked in California for longer than 40 hours, pursuant to California Labor Code section 510, subdivision (a).  Plaintiffs also contended that Oracle’s failure to comply with the Labor Code amounted to an unlawful or unfair business practice under California’s Unfair Competition Law (the “UCL”), California Business & Professions Code section 17200.  Finally, Plaintiffs sought restitution under the UCL based on Oracle’s alleged violation of the Fair Labor Standard Acts (the “FLSA”) for failure to pay overtime wages for work performed outside of California.

The District Court granted Oracle’s motion for summary judgment.  On appeal, the Court of Appeals for the Ninth Circuit reversed the District Court’s ruling on Plaintiff’s first two claims, holding that the Labor Code and the UCL applied to Plaintiffs’ overtime claims for work performed in California.  The Ninth Circuit affirmed the District Court’s ruling on the third claim, holding that the UCL did not apply to Plaintiffs overtime claims under the FLSA, for work outside of California.  However, the Ninth Circuit subsequently withdrew its opinion and requested that the California Supreme Court decide the California law questions because it found “no controlling precedent.”

CALIFORNIA’S OVERTIME LAWS APPLY TO WORK PERFORMED IN CALIFORNIA BY NONRESIDENTS

The first issue the California Supreme Court considered was whether the Labor Code overtime provisions applied to work performed entirely in California by nonresidents.  The Court answered in the affirmative.

The Court first found that the Labor Code applied to a nonresident’s work within California “as a matter of statutory construction.”  In coming to this conclusion, the Court noted that “California’s overtime laws apply by their terms to all employment in the state, without reference to the employee’s place of residence.”  Specifically, the Court found that California’s overtime laws broadly referenced “any work,” by “any employee,” as well as “all individuals” employed in California.

Moreover, the Court found that California had a right to regulate all “nonexempt overtime work within its borders without regard to the employee’s residence,” because, “as a matter of constitutional law, ‘[s]tates possess broad authority under their police powers to regulate the employment relationship to protect workers within the State . . . .’”

The Supreme Court finally held that California’s overtime laws applied to work performed within the State by nonresidents, under a conflict-of-laws analysis.  The conflict-of-laws analysis required the court to determine: (1) whether there was a conflict between California’s overtime laws and Arizona or Colorado law (the Plaintiffs’ home states); (2) each state’s interests in having its laws applied to the dispute; and (3) which state’s interests would be more impaired if its laws were not applied.  (See Kearny v. Salomon Smith Barney, Inc. (2006) 39 Cal.4th 95, 107-108.)

As an initial matter, the Court determined that California’s overtime laws clearly differed from Colorado and Arizona overtime laws.  However, the Court determined that there was not a true conflict between the laws of these three states.  The Court found that California has “a strong interest in applying its overtime law to all nonexempt workers, and all work performed, within its borders.”  For example, the Court noted that “[t]o exclude nonresidents from the overtime laws’ protection would tend to defeat their purpose by encouraging employers to import unprotected workers from other states.”  By contrast, the Court found that neither Arizona nor Colorado explicitly “asserted an interest in regulating overtime work performed in other states.”  Finally, the Court reasoned that not applying California’s overtime laws to nonresidents would be extremely detrimental to California’s interest in “expanding the job market,” for the reasons stated above, whereas not applying Colorado or Arizona’s laws would impact them “negligibly, or not at all.”  For these reasons, the Supreme Court held that the “California Labor Code does apply to overtime work performed in California for a California-based employer by out-of-state” employees.

THE UCL APPLIES TO VIOLATIONS OF CALIFORNIA OVERTIME LAWS

The next issue the Ninth Circuit requested the Court to address was whether the UCL applied to violations of California overtime laws.  The Court swiftly affirmed that the “the failure to pay legally required overtime compensation falls within the UCL’s definition of an “unlawful . . . business act or practice,” because it already decided the issue in Cortez v. Purolator Air Filtration Products Co. (2000) 23 Cal.4th 163.

THE UCL DOES NOT APPLY TO VIOLATIONS OF THE FLSA, UNDER THE FACTS OF THE CASE

The final issue the Court addressed was whether the UCL applied to violations of the FLSA.  As a preliminary matter, the Court found that “the presumption against extraterritoriality applies to the UCL in full force.”  Plaintiffs argued that the UCL applied to Oracle’s alleged violations of the FLSA because Oracle initially classified its instructors as exempt, and this decision was made at its headquarters in California.  However, the Court rejected this argument because liability under the FLSA arises only when the employer fails to pay overtime when it is due.  As such, the Court held that, under the circumstances of the case, the UCL did not apply to Oracle’s alleged violations of the FLSA.  However, the Court did note that “the UCL might conceivably apply to plaintiffs’ claims if their wages were paid (or underpaid) in California, but the stipulated facts do not speak to the location of payment.”

CONCLUSION

The California Supreme Court’s decision in Sullivan is a resounding victory for the thousands of nonresidents who work in this State.  However, the Court’s decision does not conclusively determine whether the UCL applies to violations of the FLSA.  Future case law will have to resolve whether the UCL applies to FLSA violations if the employee’s wages were paid in California, by a California-based employer.

Matthew N. Mong is a Senior Associate in the law firm of Kelley Clarke PC.  He practices in the area of civil litigation, including employment, personal injury and business litigation.