• Wages Earned in California are Subject to the California Labor Code
  • December 18, 2008 | Author: Colette M. Koby
  • Law Firm: Miller & Martin PLLC - Nashville Office
  • California Court of Appeals Holds Overtime Wages Earned in California Must Be Paid to Employees Regardless of Residency Status 

    The California Court of Appeals recently held that an employer must pay overtime wages to employees who qualify based on California's Labor Code regardless of whether they are residents of California or not.  Similarly, an employer may not designate employee overtime wage payments by asserting the laws of other less stringent applications of overtime wage law to avoid payment of overtime wages earned by employees working in the state of California.  The underlying premise behind the decision lies in the inherent protections California provides to resident workers in the state.  The Court emphasized California state law was not designed to solely protect its residents, but to provide equal protection for all wage earners who extend their work hours to benefit an employer.

    Non-Resident Instructors Working Across State Lines

    In Sullivan v. Oracle Corporation, 2008 WL 4811911 (Cal,) Opinion No. 06-56649 (Nov. 6, 2008), three non-residents of California, worked as "instructors" for the Oracle Corporation.  Two Plaintiffs were residents of Colorado and the third Plaintiff was a resident of Arizona.  These employees trained customers on how to use Oracle software.  Employees were required to travel and provide training outside their respective home states, throughout the United States and Canada, including California, on behalf of Oracle.  Despite clear evidence of overtime hours worked by all three Plaintiffs on behalf of Oracle in California, the Oracle Corporation refused to pay overtime wages.  The employer rationalized that since all three employees received their letters of employment in their respective home states, the applicable overtime wage laws of each employee's home state should govern the payment of their overtime wages regardless of whether their wages were physically earned in California.

    The three specific claims asserted by the Plaintiffs against the Oracle Corporation included: 1) violations of the California Labor Code, where employees claimed Oracle failed to pay overtime wages for work performed in California to instructors domiciled in other states who worked complete days in California; 2) violations of California's Unfair Competition law commonly referred to as §17200; and 3) violations of §17200 corresponding to the Fair Labor Standards Act, alleging Oracle's failure to pay overtime for work performed throughout the United States.  The Court of Appeals had to answer two questions relating to the Plaintiffs' Labor Code claim.  First, whether the overtime provisions of California's Labor Code applied to work performed in California by residents of Colorado and Arizona.  Secondly, if the Labor Code applies, whether its application violated the United States Constitution. 

    California Law Applies to Wages Earned in California

    To determine whether California law would apply to wages earned in California, federal courts apply the choice of law rules of the state evaluating the matter.  California's choice of law rules follow a three-step analysis.  The Court first determined that California law and Colorado and Arizona law are "materially different."  Secondly the Court evaluated the underlying economic interest of each respective state.  Here, the Court rationalized the state of California holds three primary interests for its wage earners.  First, laws are derived to ensure California's residents have gainful employment.  Secondly, that these workers are fairly compensated for their labor.  Lastly, the law was developed to safeguard California residents' wage earnings with respect to the effect of non-resident workers impact on the economic landscape in the state.  The Court's analysis revealed that Colorado overtime wage laws only apply to work performed in Colorado, and Arizona did not have overtime wage laws.  

    The Court of Appeals rationalized that "both Colorado and Arizona had a significant interest in the application of California, rather than Colorado and Arizona law, because California's Labor Code is by any measure the most advantageous to the employee."  The Court determined no state would want their residents to be paid less wages while working in California than California residents who perform the same tasks.  The Court also concluded that paying non-residents of California cheaper wages would negatively impact the earnings and job retention of California residents.  Here, employers could easily hire out-of-state workers at lower wages and minimize the number of employed California residents, which inevitably depletes the state's wage earning capacity. 

    California Law Holds No Weight When Wages Earned in Other States 

    In conclusion, the Court determined that states outside California have no rationale or desire to govern wage earnings in California.  Therefore, the California Labor Code and the corresponding §17200 Unfair Competition laws apply to all wage earners in the state of California, including non-residents.   The Court, however, utilized this same rationale to limit the scope of California wage law to California by upholding the District Court's ruling that California law does not govern wages earned outside the state of California.

    Where Wages Are Earned is the Key

    Employers must compensate employees working in California based on a neutral assignment of California labor laws.  Whether an employee is a resident of California or another state is immaterial.  Employers must pay wages earned by employees in accordance with the laws drafted by the state governing all wage earners in the state of California.  This same rational applies to the payment of overtime wages.  The California Labor Code provides that overtime must be paid for work in excess of eight hours in any one day, and for work in excess of forty hours in one week.  Employers who apply California law uniformly for all wage earners in the state, regardless of residency, uphold the law and in effect enhance their overall profitability and productivity from all employees.