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California Supreme Court Rules On Application Of Overtime Laws To Out-Of-State Residents

Published by on July 3, 2011

On June 30, 2011, the California Supreme Court issued a decision in Sullivan v. Oracle Corporation, No. S170577 (June 30, 2011), deciding the issue of whether California’s overtime provisions apply to non-resident employees of California companies.  More after the break. In a wage and hour class action against Oracle Corporation, a settlement eliminated the claims […]

On June 30, 2011, the California Supreme Court issued a decision in Sullivan v. Oracle Corporation, No. S170577 (June 30, 2011), deciding the issue of whether California’s overtime provisions apply to non-resident employees of California companies.  More after the break.

In a wage and hour class action against Oracle Corporation, a settlement eliminated the claims of all subclasses of employees, except for the misclassification claims of employees who held the position of “Instructor” and were not California residents.  Oracle is headquartered in California and employed Instructors in 20 states, including California.  Plaintiffs argued that non-California resident Instructors who worked in California for at least a full day or full week needed to be paid overtime for the days or weeks worked in California under California law.  The plaintiffs further argued that Instructors who worked entirely outside California could recover federal overtime wages pursuant to the California Unfair Competition Law “(UCL”), although the overtime claims were time-barred under the Fair Labor Standards Act (“FLSA”).  In support of this argument, plaintiffs relied on the stipulated fact that the decision to classify Instructors as exempt was made in California, and therefore, the act of “unfair competition” originated from California and employees residing and working in other states who were impacted by the unfair competition could sue under the UCL.

The district court granted Oracle’s motion for summary judgment.  On appeal, the Ninth Circuit Court of Appeals affirmed in part and reversed in part, holding that the California Labor Code and the UCL applied to non-resident plaintiffs’ claims for overtime for day and weeks worked entirely in California.  However, the Ninth Circuit concluded that plaintiffs could not rely on the UCL to sue on behalf of employees who worked outside of California.  The Ninth Circuit subsequently withdrew its opinion and certified questions for the California Supreme Court to resolve as a matter of state law.    

The California Supreme Court first held that the Labor Code applied to overtime work performed for a California-based employer in California by a non-resident employee.  The Court reasoned that the Labor Code was intended to apply to any employee who performs work in California.  However, the Court recognized that other states have competing interests with California that need to be weighed in applying California law to their residents.  Limiting the analysis to the issue of overtime pay, the Court concluded that the interests of the other states at issue were minimal and no evidence existed to demonstrate that the states had a strong preference to have their overtime laws applied to their citizens when working out of state.  The Court warned that it might not reach the same conclusion in a choice of law analysis for other wage and hours laws.  Because the Court concluded that failure to pay non-residents overtime pursuant to California’s laws for work performed in California constituted a violation of California’s Labor Code, the Court also found that these plaintiffs could rely on the UCL to recover unpaid overtime.

Next, the Court addressed whether the UCL applied to overtime work performed outside of California for a California-based employer by non-resident employees, if the employer failed to comply with the overtime provisions of the FLSA.  The Court concluded that plaintiffs’ claims for overtime compensation under the FLSA for work performed in other states cannot serve as predicates for UCL claims.  Although it was assumed that the decision to classify Instructors as exempt was made in California, the Court reasoned that a claim for failure to pay overtime differs from an erroneous classification system and it is only unlawful to fail to pay an employee overtime when overtime is due.  As the Court stated, “for an employer to adopt an erroneous classification policy is not unlawful in the abstract.”  Because the employees at issue worked out of state, and nothing indicated the employees were paid in California, there was simply no “unlawful practice” in California that could support a UCL claim.  The Court warned that the UCL “might conceivably apply to plaintiffs’ claims if their wages were paid (or underpaid) in California.”    

To read the full decision, click here.

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