In Sullivan v. Oracle, No. S170577 (Cal. June 30, 2011) (pdf), the California Supreme Court today resolved three important questions posed by the federal Court of Appeals for the Ninth Circuit regarding California law:

  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 California’s unfair competition law (UCL), Business and Professions Code section 17200, apply to the overtime work described in question one?
  3. Does section 17200 apply to overtime work performed outside California for a California-based employer by out-of-state plaintiffs in the circumstances of this case if the employer failed to comply with the overtime provisions of the federal Fair Labor Standards Act (FLSA)?

The Court answered the first question in the affirmative, holding that California’s overtime provisions apply to out-of-state residents while they're working in California for a California employer. The Court utilized statutory construction and conflict of law analysis in reaching its conclusion. Specifically, the Court noted that because the Legislature has exempted out-of-state employers who send employees into California from the ambit of the state’s workers’ compensation laws, its decision to omit any such exemption in drafting overtime laws must have been deliberate.

Further, the Court observed that a contrary holding would undermine the overtime laws’ public policy of protecting the health and safety of workers, protecting against the "evils associated with overwork," and expanding the job market by incentivizing employers to spread employment throughout the workforce, holding, "[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." The Court employed the same rationale to conclude that, pursuant to conflict of laws principles, California’s interest would be significantly impaired if other states were allowed to apply their overtime laws to work done in California.

As to the second question, the Court concluded that such overtime claims may serve as the basis for a claim under the UCL, enabling plaintiffs to take advantage of the provision's four-year statute of limitations for bringing such actions. The third question was answered in the negative, as the Court found that FLSA claims for work performed in other states cannot serve as a predicate for a UCL claim because of the presumption that California legislation does not apply to work done outside the state.

While employers are unlikely to welcome today's decision, it is important to note that the decision appears to be expressly limited to California-based employers and overtime payment obligations to employees who work full days or weeks in California. Nevertheless, California employers would be well-served to view Sullivan as a cautionary tale and abide by state overtime laws even for nonresidents working within the state or risk the possibility of expensive litigation and damaging liability from out-of-state employees.