On Thursday, June 30, 2011, the California Supreme Court ruled that the state's generous overtime laws – including payment of wages at time-and-a-half for hours worked over eight in a day and double-time for hours worked over 12 in a day – apply to all hourly employees who perform work in California, regardless of the employee's state of residence. Because this is an interpretation of existing law, employers who have been paying out-of-state residents based on federal law or the laws of the employee's home state are now liable for unpaid daily overtime and double-time. The Court also held that California's Unfair Competition Law and its four-year statute of limitations governs these claims for work performed in California.

The case was brought against Oracle Corp., a California software company, by employees who live in Arizona and Colorado and wanted to benefit from California's overtime laws during business trips to the state. In the unanimous ruling, Justice Kathryn Werdegar wrote:

To exclude nonresidents from the overtime laws' protection would tend to defeat their purpose by encouraging employers to import unprotected workers from other states. Nothing in the language or history of the relevant statutes suggests the Legislature ever contemplated such a result. A contrary conclusion would be difficult, if not impossible, to reconcile with the Legislature's express declaration that "[a]ll protections, rights, and remedies available under state law . . . are available to all individuals . . . who are or who have been employed, in this state." (Lab. Code, § 1171.5, subd. (a).)

The Court further explained that the ruling would protect Californians from being replaced by temporary workers from out of state. "Not to apply California law would also encourage employers to substitute lower-paid temporary employees from other states for California employees, thus threatening California's legitimate interest in expanding the job market."

Although the ruling only specifically applies to California-based employers, it may lead to yet another wave of class action cases aimed at both California-based and out-of-state employers who use out-of-state residents to perform hourly work in the state. The holding, although limited to overtime claims, will likely be applied to other California wage and hour laws, such as meal and rest periods, travel time, minimum wage, and reporting time pay. Even salaried employees who are exempt from overtime under federal law could be owed unpaid overtime if they fail to meet California's definition of an exempt employee. Only employers with no California contacts who do not direct their employees to perform work in the state could avoid liability.

Additionally, the Court clarified – to the benefit of California employers – that the state's Unfair Competition Law does not apply to wage claims brought under the federal Fair Labor Standards Act based upon work performed out-of-state.

The case is Sullivan et al. v. Oracle Corp et al., California Supreme Court, No. S170577.