Fenwick Employment Brief Special Bulletin - July 7, 2011: California Employers Must Comply With State Overtime Rules With Non-Residents Directed To Work Within California

by Fenwick & West LLP

In a disappointing result for employers with potentially far-reaching consequences, the California Supreme Court ruled in Sullivan v. Oracle Corporation that California employers must apply state overtime rules to out-of-state employees who perform work within California. Oracle employed the plaintiffs, two residents of Colorado and one Arizona resident, as instructors who trained customers to use Oracle products. They worked mainly in their state of residence but also in California and several other states. Originally, Oracle trainers were classified as exempt from overtime. Oracle then reclassified the trainers as non-exempt after the filing of a federal class action lawsuit alleging that trainers were improperly classified under the Fair Labor Standards Act (“FLSA”). The three plaintiffs participated in the class settlement and were paid overtime for the three years allowed under federal law. However, not satisfied, the three asked the federal court to award additional overtime pay under California law. (Unlike the FLSA, California law requires daily overtime pay for hours worked in excess of eight hours in a day. The FLSA requires overtime pay only for hours in excess of 40 in a week. Also, California has a longer four-year statute of limitations for overtime claims under its unfair business practices law, Business and Professions Code § 17200 (“Section 17200”).)

The federal court asked the California Supreme Court to opine whether California’s overtime laws applied to non-resident employees of a California business for work performed within California, and for work performed outside the state. The supreme court ruled that California overtime law applied to such work performed within the state, but not work performed outside California. Regarding a nonresident’s work inside the state, the state legislature has expressed a strong public policy, based upon health and safety concerns, to regulate overtime hours for work performed within the state, whether such work was performed by residents or non-residents. Oracle had urged that applying California wage laws to visiting, nonresident employees imposed impractical burdens on employers, such as forcing employers to apply not only California overtime rules but also laws governing paystub content, meal and rest breaks, travel time, vacation pay, and the timing of pay checks to non-California employees. Rejecting the argument, the court explained that these additional issues were not before the court, and that California’s strong public interest in governing hours of work may or may not apply to these other wage laws. According to the court the decision only addressed plaintiffs’ claim for alleged unpaid overtime, and allowed them to pursue the claim for work performed inside California. The court also ruled that these plaintiffs could sue under Section 17200 for such unpaid overtime and take advantage of the law’s longer four-year statute of limitations.

Please see full brief below for more information.

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