Businesses must comply with California labor laws when their employees perform work in California even if the employees live or mostly work out of state.

On November 10, 2008, the Ninth Circuit Court of Appeals held that the California Labor Code applies to work performed in California by non-residents. Sullivan et al. v. Oracle Corporation (case no. 06-56649). In that case, the plaintiffs, who worked as instructors training Oracle customers to use the company's software, performed the majority of their work in their home states of Colorado and Arizona, but also, at times, worked in California.

The Plaintiffs alleged, on behalf of a class, that Oracle failed to pay them overtime wages for work performed in California, as required under the California Labor Code. Oracle had originally classified the purported class members as "teachers", a classification which exempted them from the overtime pay requirements of the California Labor Code. In 2003, Oracle reclassified its California-based instructors and began paying them overtime wages. In 2004, Oracle reclassified all U.S. workers and began paying them overtime pursuant to the Federal Fair Labor Standards Act. Oracle did not, however, retroactively apply either the federal or state overtime pay requirements. Consequently, the plaintiffs brought their action seeking overtime pay for the years 2001 through 2004, arguing that the California Labor Code applies to them for work performed in California, regardless of their status as out-of-state residents.

The court found that California has an interest in applying its own law to protect the interests of its residents. If the California Labor Code were not applied in this situation, the court pointed out, a California employer could avoid the overtime pay requirements by hiring nonresidents and this would substantially disadvantage California residents.

Impact on employers:

  • If an employee performs work in California, the overtime provisions of the California Labor Code apply to that employee, regardless of the employee's state of domicile.
  • In light of this holding, it is likely that a non-resident employee who works in California is also subject to the California Labor Code regarding meal periods, rest periods, leave, termination, vacation pay and all other employment matters.