• Sullivan v. Oracle Update: Non-Residents Entitled to Overtime Pay Under California Law
  • December 19, 2011 | Author: James Severson
  • Law Firm: Bingham McCutchen LLP - San Francisco Office
  • In July, we reported on the California Supreme Court’s ruling — in response to an inquiry from the Ninth Circuit Court of Appeals — that employees who do not live in California, but who occasionally perform work in the state can claim overtime pay under California’s liberal wage-and-hour laws even if the laws of the states where they live and perform the majority of their work would not provide for overtime pay under the circumstances (See Bingham Alert, July 23, 2011).1

    After the California Supreme Court answered this question, the case went back to the Ninth Circuit to decide whether the plaintiffs in the case — non-California residents claiming overtime pay under California law for limited periods of work in California and elsewhere — could continue to pursue their claims for damages to trial.

    On Dec. 13, 2011, the Ninth Circuit ruled that they can. So absent further consideration by either the Ninth Circuit or the U.S. Supreme Court — which we think is extremely unlikely — employers, or at least employers like Oracle that are based in California, that employ employees who are residents of other states, but who occasionally perform work in California, will henceforth be bound to pay those employees under California’s labor laws for periods of work of a day or more performed in California.

    Background

    As we noted in our previous report, Oracle hired Arizona and Colorado residents as “Instructors” who trained Oracle’s customers in the use of the company’s software products. The plaintiffs primarily worked in their home states, but occasionally worked in California and other states. One plaintiff worked in California an average of less than 20 days per year; another averaged just over 25 days per year; and the third less than 10. All worked the vast majority of their time in their home states.

    Even though the laws of their home states did not provide for overtime pay under the circumstances, the non-resident plaintiffs brought suit against Oracle under California law for overtime pay for the limited work they had done in California. They also asked to use California’s Unfair Competition Law to extend the period of their overtime pay damages period to four years from three. And reaching even further, they sought to use California law to recover overtime pay for work they did in states other than California.

    The district court threw out all three claims; the Ninth Circuit reversed on the first two and affirmed on the third; the parties petitioned for rehearing; and the Ninth Circuit, realizing that the issues raised were all of California state law, vacated its earlier ruling and asked the California Supreme Court for guidance. The California Supreme Court provided that guidance in July. It ruled that the non-resident plaintiffs could use California law, including its Unfair Competition Law, to collect overtime for work performed in California and to extend the damages period, but that they could likely not use California law to collect overtime pay for work performed in states other than California. We say “likely” because the Supreme Court left open whether the violation — the failure to pay overtime — might have “occurred” in California, which, if it had, might warrant the application of California law even to the non-California work. If there is any good news for employers in this latest ruling by the Ninth Circuit — and there isn’t much — it is that the Ninth Circuit seemingly rejected this invitation to give California law extraterritorial effect as applied to non-California work depending on the “location” of payment. (We say “seemingly” since the Ninth Circuit did not address the issue at all.) In all other respects, the Ninth Circuit simply adopted the guidance provided by the California Supreme Court.2

    Significance for Employers

    Based on this ruling, employers, at least those based in California, must now apply California overtime laws to work performed by non-resident employees in California when the period of work is a day or longer. Whether this is also true for non-California employers remains an open question, as the Ninth Circuit did not need to address nor did it address that issue other than specifically noting, in support of its Due Process analysis, that Oracle is California-based. The Ninth Circuit referred to that fact in holding that the necessary contacts existed to support the application of California law to these non-residents, thereby obviating any Due Process concerns.

    Another open question is to what extent California-based employers — and possibly non-California employers — that occasionally ask non-resident employees to perform work in California, must apply to such work not only the state’s liberal overtime rules, but also other peculiarities of state labor laws, including regulations governing the contents of pay stubs; its meal-and-rest period provisions; its unique requirements regarding the compensability of travel time, vacation accrual and anti-forfeiture rules; timing of termination pay; and the like, many of which may conflict with the laws of the states where non-resident employees reside. Both the California Supreme Court in its July ruling and the Ninth Circuit were able to duck that issue since the case involved only a claim for overtime pay under California law.

    Finally, as we noted in our July report, the California Supreme Court’s guidance, now adopted by the Ninth Circuit, can be expected to have significant economic impact on employers that occasionally use out-of-state employees to perform work in California. As we also noted, one of those impacts involves potential employee misclassification since, given the vagaries of California’s exempt classification laws, an employee properly classified as “exempt” under the laws of her/his state of residence may well not be “exempt” under California law. For all of these reasons, and especially now that the Ninth Circuit has ruled on this issue, California-based employers are well-advised to re-examine with their counsel all decisions regarding employee classification for compliance with federal and California law as well as methods for implementing compliant pay programs for non-resident employees who occasionally perform work in California.

    ENDNOTES

    1 Bingham alert - http://www.bingham.com/Media.aspx?MediaID=12604 (July 13, 2011)

    2 The Ninth Circuit summarily disposed of arguments that applying California law to work performed by non-California residents violated the Due Process and Commerce Clauses. According to the court, the Due Process Clause permits a state to apply its laws whenever it has sufficient contacts with the parties and the dispute such that “choice of its law is neither arbitrary nor fundamentally unfair.” Since Oracle is headquartered in California, its “decision to classify Plaintiffs as teachers and to deny them overtime pay was made in California.” Also, since the work in question was performed in California, its contacts, according to the court, were “clearly sufficient.” And, the court held the Commerce Clause presented no impediment because California “applies its Labor Code equally to work performed in California, whether . . . by California residents or by out-of-state residents.”