In Sullivan v. Oracle Corporation, (— P.3d —-,Cal., June 30, 2011), the Supreme Court of California considered whether California’s overtime law applies to nonresident employees who work both in California and other states for a California-based employer. The Supreme Court held that California’s overtime provisions apply to the claims of such nonresident employees for work performed in the state of California. The Court further held that although the nonresident employees’ claims for overtime compensation for work performed in California can serve as predicates for claims under California’s unfair competition law, those employees’ claims for overtime compensation under the federal Fair Labor Standards Act for work performed outside California cannot serve as the basis for claims under California’s unfair competition law.
Donald Sullivan and Deanna Evich, who reside in Colorado, and Richard Burkow, who resides in Arizona, were formerly employed by Oracle Corporation, which is headquartered in California. Sullivan, Evich and Burkow worked as instructors and their jobs required them to train customers in the use of Oracle’s products. All three employees worked mainly in their own state but Oracle also required them to work in California and several other states. During 2001-2004, Sullivan worked in California for 74 days, Evich worked in California for 110 days, and Burkow worked in California for 20 days.
Oracle’s previous policy was to decline to pay its instructors overtime on the ground they were exempt from California and federal overtime laws because they were teachers. The instructors sued Oracle in 2003 in a federal class action lawsuit alleging they were misclassified as exempt. The instructors sought unpaid overtime compensation. Oracle reclassified the instructors and began paying them overtime under California’s Labor Code and the federal Fair Labor Standards Act of 1938 (“FLSA”). The class action lawsuit was settled in 2005 and the plaintiffs’ claims were all settled with the exception of the claims of Sullivan, Evich, and Burkow.
Sullivan, Evich, and Burkow (collectively, “Employees”) claim they are entitled to “overtime compensation under the Labor Code for days longer than eight hours, and weeks longer than 40 hours, worked entirely in California.” Employees also restate their overtime claim “as one for restitution under the [unfair competition law or] UCL” and contend “that Oracle’s failure to pay overtime for work performed in California was an ‘unlawful [or] unfair . . . business act or practice’ . . . for purposes of the UCL.” Also, Employees claim that under the UCL, they are entitled to “restitution in the amount of overtime compensation due under the FLSA . . . for weeks longer than 40 hours worked entirely in states other than California.” In other words, Employees are seeking “to use Oracle’s alleged violation of the FLSA in other states as the predicate unlawful act for a UCL claim under California law.”
Employees brought their lawsuit in a federal district court in California and the district court granted judgment in favor of Oracle. On appeal, the United States Court of Appeals for the Ninth Circuit asked the California Supreme Court to address the applicability of California law to the Employees’ claims.
The Supreme Court held that California’s overtime provisions apply to work performed by nonresidents in California. First, the Court found that Labor Code section 510, subdivision (a), applies as a matter of statutory construction. Section 510, subdivision (a), provides “[a]ny work in excess of eight hours in one workday and . . . 40 hours in any one workweek . . . shall be compensated at the rate of no less than one and one-half times the regular rate of pay . . . .” (Emphasis added.) Labor Code section 1194, subdivision (a), provides “any employee receiving less than . . . the legal overtime compensation applicable to the employee is entitled to recover in a civil action the unpaid balance.” (Emphasis added.) Also, “a preambular section of the wage law . . . confirms that [California’s] employment laws apply to ‘all individuals’ employed in this state.” (Emphasis added.)
The overtime laws do not distinguish between residents and nonresidents. The Court noted that “[t]he Legislature knows how to create exceptions for nonresidents when that is its intent” but chose not “to authorize an exemption from the overtime law on the basis of an employee’s residence.” Overtime laws serve important purposes such as protecting workers’ health and safety, protecting employees in weak bargaining positions from being overworked, and expanding the job market. The Legislature considered these purposes and chose to make the right to overtime unwaivable and set out criminal penalties for failure to pay overtime. The Court stated, “To exclude nonresidents from the overtime laws’ protection would tend to defeat their purposes by encouraging employers to import unprotected workers from other states.”
The Court rejected Oracle’s argument that application of California’s overtime statutes to nonresident workers creates a constitutional problem under the commerce clause. California has a strong interest in regulating overtime compensation for work performed in California. Also, Oracle failed to show that application of California’s overtime compensation laws to employers who send employees to work temporarily in the state imposes a clearly excessive burden on such employers.
The Court also applied a conflict of laws analysis and concluded that California overtime law applies to regulate the work performed in the state. California law clearly differs from the laws of the Employees’ home states, Colorado and Arizona. California law mandates an employer to pay “overtime compensation at the rate of one and one-half times the regular rate of pay for work in excess of eight hours in one workday, 40 hours in one workweek, and the first eight hours on the seventh workday in one week.” An employer must pay twice an employee’s regulate rate if he or she works in excess of eight hours on the seventh workday. Colorado’s overtime compensation law requires an employer to “pay at one and one-half times the regular rate for work in excess of 40 hours in one workweek, 12 hours in one workday, and 12 consecutive hours without regard to when the workday starts and ends.” Arizona does not have an overtime law and the FLSA applies in Arizona by default. The FLSA requires “overtime compensation at one and one-half times the regular rate for hours worked in excess of 40 hours in one workweek.” Unlike California, neither the FLSA nor Colorado requires double pay for any overtime work.
As noted above, California has a strong interest in regulating overtime work performed in the state. However, neither Colorado nor Arizona has asserted an interest in regulating overtime performed by their residents in other states. Colorado’s overtime law specifically states that it applies only to work performed within its boundaries and Arizona has no overtime law. Therefore, the Court found no true conflict exists between the law of California and the laws of Colorado and Arizona. The Court further found that “neither Colorado nor Arizona has a legitimate interest in shielding Oracle from the requirements of California wage law as to work performed” in California. Finally, as to the conflict of laws analysis, the Court found that even if a conflict existed, “to subordinate California’s interests to those of Colorado and Arizona unquestionably would bring about greater impairment” to California.
The Court held that the “California Labor Code does apply to overtime work performed in California for a California-based employer by out-of-state plaintiffs in the circumstances of this case” and “that overtime pay is required for work in excess of eight hours per day or in excess of forty hours per week.” The Court further held that alleged violations of the overtime provisions can potentially trigger liability under the UCL. The UCL, at Business and Professions Code section 17200, provides that “unfair competition shall mean and include any unlawful, unfair or fraudulent business act or practice.” Failure to pay legally required overtime compensation falls within the definition of an “unlawful business act or practice” within the meaning of the UCL. The Court found that section 17200 applies to overtime work performed in California for a California-based employer by out-of-state employees.
The Court, however, rejected Employees’ claim that the UCL operates extraterritorially to reach the Employees’ FLSA claims for overtime worked in other states. The Employees attempted to restate FLSA claims that were time-barred as claims based on an unlawful act under the UCL. The Court held “section 17200 does not apply to overtime work performed outside California for a California-based employer by out-of-state plaintiffs in the circumstances of this case based solely on the employer’s failure to comply with the overtime provisions of the FLSA.”
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