California-Based Employers: Do you employ employees in other states? If so, do they occasionally come to California on business? Non-California-Based Employers: Do your employees ever come to California on business?
If so, according to a recent ruling by the California Supreme Court,1 you may need to watch out. In that June 30 ruling, the Supreme Court unanimously gave nonresident employees the right to sue their California-based employer for overtime pay based on work they did in California, even if that work lasted for only a single day. The Court also suggested (but did not hold) that non-California employers may be subject to the same requirement.
The Case
Sullivan v. Oracle Corporation was brought by residents of Colorado and Arizona who worked as “Instructors” for California-based Oracle. Their job was to train Oracle's customers in the use of the company's software products. Plaintiffs worked primarily in their home states, but occasionally worked in California and other states. One plaintiff worked in California on average 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.
Following a reclassification of their jobs, the nonresident plaintiffs sued Oracle in California for overtime pay for the limited work they had done in California. The law of California provided for such pay, but the law of the plaintiffs’ states of residence did not. They also sought to use a provision of California law to increase their damage claims by one year. Finally, they sought to use California law to recover overtime pay for the work they did in states other than California.
The federal district court threw out all three claims. Plaintiffs appealed, and the Ninth Circuit reversed and held that plaintiffs could use California law to sue for overtime and extend their damage claims, but denied plaintiffs the right to use California law to sue for work they performed in other states. See Sullivan v. Oracle Corp., 547 F.3d 1177 (9th Cir. 2008). After the parties requested a rehearing, the Ninth Circuit, acknowledging that these were all questions of state law, asked the California Supreme Court to provide guidance as to how these issues should be decided.
The Holding
The Supreme Court, reciting that California’s overtime laws by their terms apply to “all employment in the state” and “all individuals” employed in the state, “without reference to the employee’s place of residence,” easily found that these non-California employees could use California overtime laws to sue Oracle for work performed in California, despite its limited duration. Distinguishing a prior case in which the Court had stated that “California law might not apply to nonresident employees of out-of-state businesses who ‘enter California temporarily during the course of the workday,’” Tidewater Marine Western, Inc. v. Bradshaw, 14 Cal.4th 557 (1996), the Court held that “[n]othing in Tidewater suggests a nonresident employee, especially a nonresident employee of a California employer such as Oracle, can enter the state for entire days or weeks without the protection of California law.” The Court therefore drew a distinction between brief, partial-day business trips to California, to which the state’s overtime laws do not apply, versus full-day or full-week trips, to which the state’s overtime laws do apply.
Oracle argued that application of California overtime law to nonresidents who perform limited work in California would impose practical burdens on employers, such as having to retool payroll and benefits systems and having to learn and comply with many other idiosyncratic aspects of California wage laws, such as its detailed requirements governing the contents of pay stubs, its meal and rest period provisions (the subject of extensive litigation during the past five years), unique requirements regarding the compensability of travel time, vacation accrual and anti-forfeiture rules, timing of termination pay, and the like, many of which conflict with the laws of the states where these nonresident employees reside. For that matter, given the significant differences between California’s peculiar exemption laws and the laws of most other states, if an employee exempt under her home state’s law comes to California early Wednesday and leaves at noon on Friday, she could be non-exempt for payroll and benefit purposes on Wednesday and Thursday, but exempt on Monday, Tuesday and Friday. One of Oracle’s points was that this type of patchwork scheme, and the burdens it imposes on employers, impermissibly burdens interstate commerce and should be rejected.
The Court rejected these arguments. First, it said, only the obligation to pay overtime, not the other unique features of California wage law, was at issue in the case (although the Court did not hold that these other obligations might not also apply). Second, since Oracle is a California-based employer, arguments about the impacts on non-California employers were not relevant (although the Court suggested the rule might be the same as to them). Third, while the Court summarily concluded that the benefits of applying California’s overtime laws to these nonresident workers outweighed the burdens on employers, it did not address Oracle’s point about the administrative burdens imposed on employers by having to switch nonresident employees from exempt to non-exempt status for a one or more day visit to California for business. The Court also found that no conflicts existed between California law and the law of plaintiffs’ states of residence, since, as the Court characterized it, neither Colorado nor Arizona had “expressed [any] interest in disabling their residents from receiving the full protection of California overtime law when working here, or in requiring their residents to work side-by-side with California residents in California for lower pay.”
The Supreme Court expressed concern that not applying California overtime law would “encourage employers to substitute lower paid temporary employees from other states for California employees, thus threatening California’s legitimate interest in expanding the job market.” This protectionist goal, however, seems inapt as applied to Oracle’s nonresident trainers, who were hired principally to perform services in their home states, possessed specialized knowledge concerning Oracle’s products which was useful across states’ borders in assisting Oracle’s customers, and whose limited work in California would not have constituted full time or even reasonable part-time employment for a California employee in any event.
With respect to the nonresident plaintiffs’ attempt to use California’s unfair competition law to extend the period of their damages claims from three years to four, the Supreme Court sided with plaintiffs. Finally, with regard to plaintiffs’ effort to use California’s unfair competition law with respect to their work outside of California, the Supreme Court agreed with the district court and Ninth Circuit that “extraterritorial” application of California’s unfair competition law was not permissible, but did so with a twist. It would not be giving the law extraterritorial application if the wrongful conduct occurred in California. Plaintiffs’ argued that the corporate act of adopting their erroneous job classification occurred at Oracle’s headquarters in California. The Court rejected that argument (adopting an allegedly improper classification is “not unlawful in the abstract”), but went on to observe that what is unlawful, and what creates liability, is the failure to pay overtime when due. “[T]he UCL might conceivably apply to plaintiffs’ claims if their wages were paid (or underpaid) in California.” It will therefore be necessary for the lower courts to determine whether Oracle “paid” these Colorado and Arizona employees in California or elsewhere, for their work in states other than California. If so, the UCL will presumably apply and will entitle plaintiffs to add an additional year of allegedly unpaid wages to their damages claims.
Significance for Employers
1. Does the Court’s ruling apply to all employers, whether California-based or not? The Supreme Court’s holding allowing nonresidents to use California law to sue for overtime for work of a day or more in California applies by its terms only to “California-based” employers. That said, it remains to be seen how far this ruling will extend. The Court’s analysis by no means rules out the application of California’s overtime laws to nonresident employees of out-of-state employers as well. Indeed, the opinion includes some unsettling language indicating that its rule might extend further: “Nothing in Tidewater suggests that a nonresident employee, especially a nonresident employee of a California based employer such as Oracle, can enter the state for entire days or weeks without the protection of California law.”
2. Must employers, whether California-based or not, comply with the myriad other idiosyncrasies of California’s wage and hour laws, not just overtime, with respect to work performed by nonresident employees in California? While the Court suggested that California’s interest in applying those other laws might be of less weight than its interests in applying its overtime laws, the Court’s analysis in this opinion did not rule that out. Thus, the potential applicability of all of these other California wage laws remains undecided and provides uncertainty for both in-state and out-of-state employers who occasionally use nonresident employees to perform work in California.
Finally, for California-based employers who occasionally employ nonresidents in states other than California, it remains an open question — at least until the federal court decides the issue — whether such nonresidents are “paid” in California and hence can use California’s unfair competition law as the basis for extending the statute of limitations to four years for alleged violations arising out of work performed in states other than California.
For now, in order to minimize the significant economic impact this decision may have on their businesses, California-based employers should re-examine with counsel their decisions on employee classification for compliance with federal and California law, particularly for those non-resident employees who are required to work in California for a day or more.
For more information on this alert, please contact any of the lawyers listed below:
Boston
John Adkins, john.adkins@bingham.com, 617.951.8551
Jenny Cooper, jenny.cooper@bingham.com, 617.951.8473
Louis Rodriques, Co-chair, Labor and Employment Group, louis.rodriques@bingham.com, 617.951.8340
Los Angeles/Orange County
Jacqueline Cookerly Aguilera, jackie.aguilera@bingham.com, 213.229.8439
Debra Fischer, debra.fischer@bingham.com, 213.680.6418
San Francisco
James Severson, james.severson@bingham.com, 415.393.2242
New York
Douglas Schwarz, douglas.schwarz@bingham.com, 212.705.7437
Tokyo
Mie Fujimoto, mie.fujimoto@bingham.com, 81.3.6721.3138
This article was originally published by Bingham McCutchen LLP.