In a decision with disturbing implications for employers that send employees on temporary assignments to California, the California Supreme Court held in Sullivan v. Oracle Corp. that California's overtime law applies to the employees of a California-based employer when they work full days or weeks in California, even though the employees reside and regularly work in other states.

The California Supreme Court's Decision in Sullivan v. Oracle Corp.

The Sullivan case involved three employees who worked as instructors for a software company headquartered in California. Two of the employees lived in Colorado, and the third lived in Arizona. Although these employees worked mainly in their home states, their jobs required them to travel to other states to instruct customers on the use of the employer's software products. Over the three-year period at issue in this case, these employees worked between twenty and 110 days in California. The employer classified them as exempt and did not pay them overtime compensation during that period. The employees became part of a class-action lawsuit in federal court alleging that they had been misclassified as exempt and were entitled to unpaid overtime compensation under the federal Fair Labor Standards Act ("FLSA") and California's overtime law, which, unlike the FLSA, provides for overtime compensation for more than eight hours of work in a workday and for all hours worked on the seventh consecutive day of work in a workweek. The FLSA claims were settled, leaving the California state-law claims to be resolved. Because existing authority did not clearly address the application of California's overtime law to a California employer's nonresident employees when they worked temporarily in California, the federal court asked the California Supreme Court to resolve the issue.

The California Supreme Court first noted that the California overtime statute applies on its face to all employment in California, without reference to the residency of the workers, and that the California legislature had expressed a strong interest in regulating overtime worked in the state. Although the California overtime statute differs significantly from the overtime laws applicable in the employees' home states of Colorado and Arizona, the court found no genuine conflict between the state laws because Colorado and Arizona had expressed no interest in regulating overtime work performed in other states. Indeed, the Colorado overtime law expressly applies only to work performed in the state of Colorado, and Arizona does not have a state overtime statute. Even if a conflict had existed, however, the court observed that California's interest in regulating overtime worked within its borders would outweigh the interests of Colorado and Arizona in this instance. The court pointed out that not applying the stringent California overtime rules to nonresidents working temporarily in California for a California-based employer would undermine the state's important public policy goals aimed at protecting employee safety and health and preventing "the evils associated with overwork" and would allow California employers to replace resident employees with cheaper workers brought in temporarily from other states. Based on these considerations, the California Supreme Court held that California's overtime statute applies to overtime work performed in California for a California-based employer by employees who are not residents of California.

Practical Implications

The Sullivan decision raises substantial administrative concerns and liability issues for California-based employers that occasionally bring nonexempt employees from other states into California on temporary assignments lasting at least one full workday. If such employees work more than eight hours on any workday in California, they are entitled to overtime compensation under California law, even though the law of their home state would require overtime compensation only when an employee works more than forty hours in a workweek. Employers should also be aware that California's requirements for exempt status under its overtime law are far more stringent than those applicable under the FLSA and most state laws. Therefore, a non-California employee who is properly classified as exempt in his or her home state may be a nonexempt employee entitled to overtime compensation while working on a temporary assignment in California. For these reasons, the Sullivan decision will likely create administrative headaches for California employers when they bring out-of-state employees into California for temporary assignments.

The California Supreme Court emphasized that its ruling in Sullivan was limited to the particular situation before the court – that is, the application of California's overtime law to the nonresident employees of a California-headquartered employer while they worked full workdays or workweeks in California. The decision therefore did not decide whether other California employment laws, such as those requiring meal and rest breaks, would apply to nonresident employees working in California under the same circumstances. The court also did not indicate whether California's overtime law would apply to nonresident employees who are working temporarily in California for an employer that is not headquartered in that state. It is likely that these issues will be litigated in future lawsuits in an effort to expand the scope of the Sullivan ruling. Employers sending out-of-state employees into California on temporary assignments should therefore be aware of the potential liability stemming from such assignments, seek legal advice on the applicability of California law, and consider less risky alternatives (such as videoconferencing) when appropriate.