The California Supreme Court's much-anticipated opinion in Sullivan v. Oracle, 2011 WL 2569530 (2011) expands the scope of California's overtime laws to non-residents working temporarily in California, creating broad implications for employers. Indeed, employers now must pay careful attention to which employees work in California—even just for a day—and how they are compensated. 

The plaintiffs in Sullivan were employed by Oracle as instructors who trained customers in the use of Oracle products. Plaintiffs worked mainly in their home states (Arizona and Colorado) but also traveled to California and other states for work. The amount of time Plaintiffs worked in California during the relevant time period ranged from 20 days to 110 days. 

Plaintiffs sought (1) overtime wages under the California Labor Code for the days and weeks they spent working in California; (2) restitution under California's unfair competition law ("UCL") for failure to pay overtime due under the Labor Code; and (3) restitution under the UCL for failure to pay overtime due under the FLSA for time worked in non-California states. In 2006, the Central District of California granted Oracle's motion for summary judgment on all three claims. On appeal, the Ninth Circuit reversed the district court on the first two claims, holding that the Labor Code and the UCL did apply to Plaintiffs' claims for overtime wages for time worked in California. The Ninth Circuit affirmed the district court on the third claim, holding that the UCL did not apply to Plaintiffs' claims under the FLSA for overtime worked outside of California.

The Ninth Circuit subsequently withdrew its opinion, however, and certified three very specific questions to the California Supreme Court: 

  1. Does the California Labor Code apply to overtime work performed in California for a California-based employer by out-of-state plaintiffs, such that overtime pay is required for work in excess of eight hours per day or in excess of forty hours per week?
  2. Does the UCL apply to the overtime work described in question one?
  3. Does the UCL apply to overtime work performed outside California for a California-based employer by out-of-state plaintiffs if the employer failed to comply with the overtime provisions of the FLSA?

As to the first question, the California Supreme Court found that California's overtime laws are broadly worded and do not distinguish between residents and nonresidents. The Court then examined the overtime laws in Arizona and Colorado and found that those states had expressed no interest in regulating overtime performed by their residents working in other states, while California has an important public policy goal of preventing the evils of overwork performed in California. To exclude nonresidents, the Court explained, would sacrifice California's important public policy goals and would encourage employers to import into California unprotected workers from other states. 

With respect to the second and third questions, because California overtime laws apply to nonresidents working in California, the Court also held that the UCL applies to such work, thereby allowing unpaid overtime to serve as the basis for UCL claims. The Court rejected the application of the UCL to claims for unpaid overtime under the FLSA for work performed outside of California, finding that nothing in the UCL's language or legislative history suggested that it would apply to extraterritorial harms.

The Court was very careful to limit its holding to the specific facts of the case: residents of Colorado and Arizona employed by a California-based employer, working for a full day or week in California, are entitled the protection of California's overtime laws. However, a logical extension of the Court's reasoning suggests that any employee, regardless of state of residence, must be paid in compliance with California's overtime laws for work performed in California, whether their employer is based in California or elsewhere.

The Court also declined to address the applicability of California's numerous other wage-and-hour laws to nonresident employees, thus leaving open the question of whether unique requirements regarding, for example, meal and rest periods, wage statements, travel time, vacation time, and the timing of wage payments upon termination would apply to nonresidents. The Court stated that it was not clear it would reach the same conclusion as to such laws.

The Sullivan decision will likely spawn a new wave of litigation against employers fueled by California's employee-friendly wage laws. Because such lawsuits are inevitable, employers should carefully review their compensation practices for nonresident employees who travel to California.