Court Finds Labor Code Applies Even To Short Assignments

A unanimous California Supreme Court recently held that California-based employers must pay out-of-state resident employees pursuant to the more restrictive provisions of the California Labor Code even if these employees only visit the state on a limited, temporary basis. The unanimous decision held that the state's overtime laws were intended by the California legislature to apply broadly to "protect" workers visiting California (even temporarily); therefore, California's laws trump the laws of states in which employees actually reside and primarily work. Sullivan v. Oracle Corp., No. S170577, California Supreme Court (June 30, 2011).

Factual Background

Donald Sullivan, Deanna Evich and Richard Burkow worked for Oracle Corporation as instructors, with the responsibility to train Oracle's customers in the use of the company's products. Sullivan and Evich resided in Colorado and Burkow lived in Arizona. Although the three worked mainly in their home states, they periodically traveled to California and other states to provide training.

Oracle treated its instructors as teachers exempt from state and federal overtime laws. In 2003, Oracle's instructors sued the company in a federal class action alleging misclassification and sought unpaid overtime compensation. Oracle then reclassified its instructors and began paying them overtime. In 2005, the federal action was settled and the class claims were dismissed, except for claims brought by the non-California resident instructors.

These plaintiffs asserted three additional claims. First, the non-California resident instuctors alleged that Oracle was required to pay them overtime in compliance with the more restrictive requirements of the California Labor Code for periods when they were in California temporarily. In California, overtime must be paid for hours worked in excess of eight per day or 40 per week. By contrast, the federal Fair Labor Standards Act (FLSA) requires overtime pay only for work in excess of 40 hours in a week, and many states, including Colorado, have differing requirements (such as the payment of daily overtime only after 12 hours in a workday).

Second, the plaintiffs asserted that the failure to pay these out-of-state employees in compliance with the California Labor Code constituted an unfair business practice in violation of California's Unfair Competition Law (UCL), Business & Professions Code Section 17200. Third, the plaintiffs claimed that pursuant to the UCL, they are entitled to overtime pay due under the FLSA for workweeks exceeding 40 hours worked entirely outside California. The Ninth Circuit Court of Appeals (which has jurisdiction in California) certified these questions to the California Supreme Court to obtain its guidance on these state law issues.

Legal Analysis

On the first question, the California Supreme Court ruled that the Labor Code's overtime provisions do not distinguish between residents and non-residents; thus, its provisions should apply to any worker who enters Cali-fornia for at least a full day while working for a California-based employer. "The Legislature knows how to create exceptions for nonresidents when that is its intent," Justice Kathryn Mickle Werdegar wrote for the court. "To exclude nonresidents from the overtime laws' protection," she continued, "would tend to defeat their purpose by encouraging employers to import unprotected workers from other states."

On the second question, the California Supreme Court held that the UCL did apply to temporary work performed by nonresident employees, thereby extending the applicable statute of limitations of these claims from three years to four years. On the third question, the court held that the UCL did not apply to overtime work outside California by out-of-state employees based solely on the failure to comply with the overtime provisions of the FLSA.

Practical Impact

According to Thomas M. McInerney, a shareholder in Ogletree Deakins' San Francisco office: "The Sullivan decision raises several troubling concerns for employers attempting to do business in the state of California. While the California Supreme Court stated that its ruling only ap-plied to overtime claims, it undoubtedly will be read broadly by plaintiffs and possibly some courts as also requiring that other provisions of the California Labor Code or the state's Wage Orders apply to employees in California on a temporary basis, including state law requirements regarding meal and rest breaks, pay stubs, vacation accrual or forfeiture, etc. There is little doubt that we will now face a decade of litigation over whether the decision applies to all business travelers."

This decision also imposes added administrative burdens on employers operating in California as they now must organize their workforce in such a manner as to either avoid having workers in California on a limited basis or, if they do, organize their pay systems to ensure that they are paid in compliance with California's often onerous pay requirements. Moreover, while the decision ostensibly rejected the application of the UCL to overtime work outside California, it did so based on the facts in this case, and left open the possibility that under differ-ent circumstances the UCL might be applied beyond California's borders depending on where the wages were paid.