California Supreme Court Applies Overtime Laws to Non-Resident Employees Temporarily Working in California

Last week the California Supreme Court issued an opinion holding that California’s overtime laws apply to employees of California-based employers who are based in Arizona and Colorado, but who perform work in California on a temporary basis. Sullivan, et al. v. Oracle Corporation, et al., No. S170577 (June 30, 2011). The court also held that those same employees may seek restitution for unpaid overtime under California’s Unfair Competition Law (UCL) for work performed in California. But the court declined to allow the employees to seek restitution for work performed outside of California.

Oracle Corporation is a large software company headquartered in California. The three plaintiffs were employed by Oracle in Arizona and Colorado to train Oracle’s customers in the use of the company’s products. The employees primarily worked in their home states, but regularly traveled to other states, including California, to train Oracle’s customers.

The plaintiffs sued Oracle in federal district court in California, seeking unpaid overtime under the California Labor Code for work performed in California exceeding eight hours in one day. The plaintiffs also sought restitution under the UCL for that same work. Finally, the plaintiffs sought restitution under the UCL for unpaid overtime under the federal Fair Labor Standards Act (FLSA) for work performed in states other than California.

The district court granted Oracle’s motion for summary judgment, and the plaintiffs appealed. The Ninth Circuit Court of Appeals asked the California Supreme Court to decide the underlying issues of California law, which led to last week’s opinion.

In holding that Arizona and Colorado employees of California-based companies can sue for unpaid overtime under California law, the court treated the issue as one of statutory construction, and determined that the plain language of California’s Labor Code and regulations indicate that they apply to work performed in California, regardless of where the employees live. Building on past decisions holding that the UCL applies to overtime claims, the court also held that since non-residents can sue for unpaid overtime under California law, those same non-residents can also bring UCL claims for restitution seeking the unpaid overtime. But the court declined to extend the UCL to cover claims for FLSA violations occurring outside of California, on the grounds that nothing in the UCL indicates an intent on the part of California’s legislature to apply the UCL to occurrences outside of California.

The court’s opinion leaves at least two important questions unanswered. First, while holding that California law allows non-resident employees who perform work in California for California-based employers to sue for unpaid overtime, the court specifically declined to decide whether non-resident employees who perform work in California for employers based outside California can be sued under those same laws. Second, the court declined to extend its ruling to California wage and hour laws covering issues other than overtime (for example, laws regulating pay stubs, vacation time, etc.).

The Sullivan decision requires California-based employers to comply with California’s overtime rules when their employees perform work in California. Although the decision involved employees based in Arizona and Colorado, California-based employers who send employees based in other states to work in California will be subject to the same analysis that the court applied in Sullivan. Therefore, all California-based companies should immediately review their pay practices to determine whether nonexempt employees based in other states who perform work in California must be paid overtime according to California law. In general, this requires daily overtime for hours worked in excess of eight per day, that the base rate of pay be calculated on the basis of a 40 hour workweek, and that the basic overtime rate equal 1.5 times the employee’s base rate.

Unfortunately, the court decided not to answer some important questions of interest to in-state and out-of-state employers that send employees to work in California. First, the court declined to opine on what California requirements other than overtime apply to out-of-state workers who are entitled to overtime based on its decision. For example, the court left unanswered the question of whether California’s meal break and rest period rules apply. However, given the court’s reasoning in Sullivan, it would be prudent for employers to consider whether to follow these rules for out-of-state employees who are entitled to overtime while working in California.

Second, although the court anticipated that arguments would be raised that its decision could apply to non-California-based employers, it specifically declined to express an opinion on whether employers based outside of California with employees who travel to California to perform work must comply with California overtime laws with respect to work performed in California by those employees. The plaintiffs’ employment bar will most certainly seek to apply Sullivan to out-of-state employers, and much of the reasoning behind the court’s decision to apply California overtime laws to out-of-state employees of California-based employers could be applied to out-of-state employers as well. Therefore, out-of-state employers who regularly send nonexempt workers to California should carefully consider whether to proactively change pay practices to apply California’s overtime rules to work performed by employees in California.

Aaron Buckley and Fred Plevin – Paul, Plevin, Sullivan & Connaughton LLP – San Diego, CA

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