publications
Employment Law Update: Employers Must Comply With California's Overtime Laws When Nonresident Employees Work in California
By Teresa R. Tracy
In a unanimous ruling on June 30, 2011, the California Supreme Court dealt another blow to employers. In Sullivan v. Oracle Corporation, it concluded that California’s overtime provisions apply to nonresident employees who both work in California and in other states for a California-based employer. The court also held that the same overtime claims could serve as predicates for claims under California’s unfair competition law. In reaching these conclusions, the court rejected the argument that overtime claims under the FLSA for work performed in other states cannot serve as predicates for claims brought under California’s Unfair Competition Law (UCL).
The specific questions before the court were:
(1) Does the California overtime law apply to overtime work performed in California for a California-based employer by non-exempt employees primarily employed outside California, such that overtime pay is required for work in excess of eight hours per day or in excess of forty hours per week?
(2) Does the UCL apply to the overtime work described in question (1)?
(3) Does the UCL apply to overtime work performed outside California for a California-based employer by plaintiffs primarily employed outside of California if the employer failed to comply with the overtime provisions of the federal FLSA?
With respect to the first question, the court had little problem concluding, based on its statutory construction that the answer is yes. California’s overtime laws apply by their terms to all employment in the state, without reference to the employee’s place of residence, and the legislature knows how to carve out exceptions but has not done so. The court observed that the plaintiffs in this case only claimed overtime for entire days and weeks worked in California. Thus, it did not have to address an earlier decision in which it had suggested 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 (1996) 14 Cal.4th 557. The court also repeatedly noted that the employer in this case was based in California, leaving open the question as to whether the conclusion would be the same if the employer had been based outside of California. Although the issue was not before the court directly, it responded to one of the employer’s arguments regarding the burdens on business if all of California’s wage and hour laws were found to apply to employees in the plaintiff’s situation by observing, “…California’s interest in the content of an out-of-state business’s pay stubs, or the treatment of its employees’ vacation time . . . may or may not be sufficient to justify choosing California law over the conflicting laws of the employer’s home state.”
The court then turned its attention to the conflict of laws issues raised by the first question. It noted that California’s overtime law is unaffected by any contract issues. It went on to observe that, while California’s overtime requirements were more favorable to an employee than the laws of the plaintiff’s home states of Colorado and Arizona. Furthermore, while California has unambiguously asserted a strong interest in applying its overtime law to all nonexempt workers, and all work performed, within its borders, neither Colorado or Arizona has asserted an interest in regulating overtime work in other states, so there was “no genuine basis for concluding a true conflict [of law] exists.” Lastly, even if there were a genuine conflict, subordinating California’s interest to those of Colorado and Arizona would, in the court’s opinion, “unquestionably” bring about the greater impairment.
With respect to the UCL claim, the Court had already held that the failure to pay legally required overtime compensation was an unlawful business act or practice, and accordingly the court also responded in the affirmative to the second question before it.
However, the court drew the line at the third question. In a prior class action, the plaintiffs had settled their timely FLSA claims. In this action, they attempted to restate time-barred FLSA claims as UCL claims and thus get the benefit of the longer UCL statute of limitations. The court commented that the UCL “might conceivably apply” to the plaintiffs’ claims of their wages were paid (or underpaid) in California, but since there was no evidence before the court as to the location of payment, the court declined to speculate or comment further.
Thus, the court held on the third question that the UCL 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.
What Sullivan v. Oracle Means for Employers
Clearly, California-based employers must now pay nonexempt employees who live in Colorado or Arizona in compliance with California overtime provisions for any full day of work or full week of work that is performed in California.
However, due to the narrow scope of the questions posed to the court, and the court’s reasoning, the decision leaves many questions unanswered.
1. Application to employees who reside and work in states other than Colorado or Arizona – The court’s decision is necessarily limited to nonresident employees of Colorado and Arizona. Indeed, the court’s entire conflict of law analysis is based on a comparison of the laws of California and those two states. However, plaintiff’s attorneys will undoubtedly argue that the decision should apply to any nonresident, nonexempt employee who comes to California and works for a full day or a full week.
2. Retroactivity – The court did not indicate whether its decision should be applied retroactively. However, it is foreseeable that it will result in many new lawsuits filed by nonresident employees seeking retroactive pay. Plaintiffs’ attorneys will argue that the decision simply interprets existing law and should therefore be retroactive. Given the court’s holding that UCL claims are viable, this also means that such claims are subject to a four-year statute of limitations.
3. Partial workdays and workweeks in California – The plaintiffs in this case limited their claims to full workdays and full workweeks in California. The court did not decide whether partial days or partial weeks of work in California were covered by California overtime requirements. Again, plaintiffs’ attorneys will argue that there should not be any distinction.
4. Non-California-based employers – The court rather narrowly focused its answers, although not necessarily its reasoning, on a California-based employer. Thus, it is unclear whether the court would reach the same conclusion if the employer were based outside of California.
5. Employers who pay compensation from California – The court sidestepped the issue of whether the location from which compensation was paid, or compensation decisions were made, is an important factor in cases that have different facts than the facts of this case. Thus, it is conceivable that plaintiffs with almost no contact with California will claim that an employer must comply with California wage and hour laws if payment decisions are made in California or payroll is actually paid from California.
6. Compliance with other California wage and hour requirements – Because of the court’s narrow focus on the narrow questions before it, technically its decision only applies to overtime claims. However, it is likely that plaintiffs will now claim that all of the California wage and hour laws, including but not limited to, minimum wage, vacation policies, meal and rest breaks, and paycheck stub information should also be applied to nonresident employees who perform some work in California. Some of these laws, such as vacation accrual and payout, apply to exempt employees as well, further creating uncertainty.
7. Exempt status – California has one of the strictest tests in the country for determining exempt status. It is foreseeable that plaintiffs and their counsel will now argue that even if they are properly classified as exempt in their residence state, they need to meet the exempt status requirements of California while performing work in California if the employer doesn’t want to pay overtime.
8. In perhaps an unintentional instance of support for employers who face class actions, the court did say that it is not unlawful in the abstract for an employer to adopt an erroneous classification policy. This creates an opportunity for employers to argue against class certifications premised on a “uniform classification decision” as the alleged unfair practice or unlawful act.
In short, this decision creates an environment of significantly increased litigation risk and costly claims in California brought by nonresident employees who are sent to California to perform any work. The court’s rather cavalier disregard of the resulting burden to employers is disappointing. While the court noted that the legislature could act, it is unlikely that the highly partisan, heavily pro-employee state legislature will actually do so in a manner favorable to employers. Furthermore, the case should provide support to the argument that a uniform misclassification is not a finding of liability, and thus using a statistical sample to determine average overtime is tantamount to using sampling to decide both liability and damages – something that the decision, particularly in light of the Wal-Mart v. Dukes decision does not condone.
Thus, employers may well think more than twice about sending employees to California to do work, including attending training or business or sales conventions. The resulting ripple effect on an economy that derives significant income from such activities could be devastating.
4 Actions Employers Should Take Now
There are four actions that employers who send employees to California to perform work should take now:
1. Evaluate company and employee contacts with California, and make a reasoned determination about compliance with the implications of the Sullivan decision.
2. Consider the laws of the different states where employees reside and normally work. While this comparison played an important in the Sullivan decision, it is probably of little comfort to employers, since California’s wage and hour laws are among the strictest and most pro-employee in the country.
3. Analyze exempt status under California law as well as the law where the employee resides and usually works.
4. Where the law now clearly requires compliance with California law, implement systems to communicate to payroll departments the existence, timing, and amount of work performed in California by nonexempt employees, so that the appropriate wage calculation can be done.
Disclaimer: This Alert is published as a service to our clients and friends. It is intended for informational purposes only and is not intended to constitute advertising, solicitation or legal advice.
©2011 Gladstone Michel Weisberg Willner & Sloane, ALC. All Rights Reserved.