Calif. Supreme Court Extends Overtime to Out-of-State Residents

In wake of Sullivan v. Oracle Corp., employers could face claims by employees performing work in California

By Stephen Miller, CEBS Jul 1, 2011

The California Supreme Court issued a major wage and hour decision on June 30, 2011, against Oracle Corp., ruling that California companies must follow the state's law on overtime pay, with time-and-a-half for all hours above eight in a workday, for out-of-state residents working in California.

The unanimous decision, Sullivan v. Oracle Corp.,“will have significant implications for all California-based employers with employees who are residents of other states, but who perform work in California," said Laura Maechtlen, a labor and employment partner with law firm Seyfarth Shaw. "While the decision is limited to California-based employers, because it found that the overtime provisions of the labor code apply to non-resident employees, employers subject to the decision could face a slew of additional claims by nonresident employees alleging that they were improperly classified as exempt and/or owed overtime for work performed in California,” she noted.

Out-of-State Employers Could Be Targeted

Future plaintiffs are likely to push the envelope when alleging wage and hour law violations under California state laws, she warned, based on the court's reading of California Labor Code Section 510. Out-of-state employers could face claims by employees performing work in California, in an attempt to expand the holding of Sullivan.

"The Supreme Court decision does not address whether the overtime provisions of the Labor Code are applicable to out-of-state employers, noting 'we are not prepared, without more thorough briefing of the issues, to hold that IWC [Industrial Welfare Commission] wage orders apply to all employment in California...,' " Maechtlen said.

Case History

The case arose from an appeal of a 2008 federal Ninth Circuit Court ruling that California's wage and hour law applied to Arizona residents, in this case instructors who trained customers to use Oracle software. These Arizona employees had worked complete days in California, but were employed primarily in Arizona and were not residents of California. The Ninth Circuit also ruled that the plaintiffs could not sue under California's Unfair Competition Law for federal Fair Labor Standards Act (FLSA) violations that occurred outside of California.

Three Questions

However, the Ninth Circuit vacated its own opinion and punted the case to the California Supreme Court, certifying three questions for decision.

  • Do California Labor Code overtime provisions apply to work performed in California and for a California-based employer by plaintiffs 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?
  • Does California Business and Professions Code section 17200 et seq., California’s unfair competition law, apply to the overtime work described in question one?
  • Does the California Unfair Competition Law (UCL) apply to overtime work performed outside of California for a California-based employer by plaintiffs primarily employed outside California if the employer failed to comply with the overtime provisions of the federal Fair Labor Standards Act?

Work Performed in California Only

Maechtlen noted that perhaps the most interesting portion of the case was the third issue certified by the court. "Luckily, the California Supreme Court sided with Oracle on this issue," she said. “If the court had found that the UCL applied to overtime work performed outside of California for a California-based employer, a class action could have been filed on behalf of a nationwide class under the California Unfair Competition Law by borrowing the FLSA as a predicate act."

Stephen Miller, CEBS, is an online editor/manager for SHRM.​


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