Sullivan v. Oracle: Non-CA Residents Working in CA Are Subject to CA Overtime and the UCL; Those Working in Other States Are Not

The California Supreme Court yesterday issued its opinion in Sullivan v. Oracle Corp. (6/30/11) --- Cal.4th ---, 2011 WL 2569530. Sullivan raised three issues:

First, does the California Labor Code apply to overtime work performed in California for a California-based employer by out-of-state plaintiffs in the circumstances of this case, such that overtime pay is required for work in excess of eight hours per day or in excess of forty hours per week?

Second, does § 17200 apply to the overtime work described in question one?

Third, does § 17200 apply to overtime work performed outside California for a California-based employer by out-of-state plaintiffs in the circumstances of this case if the employer failed to comply with the overtime provisions of the FLSA?

In my original post on the case (here), I said issues one and two were "gimme's" for the plaintiffs, but issue number three was more complex and uncertain. Turns out I do a pretty good job predicting the Cal. Supremes.

Here are the underlying facts:

Plaintiffs Donald Sullivan, Deanna Evich and Richard Burkow formerly worked as “Instructors” for defendant Oracle Corporation, a large software company headquartered in California. As Instructors, plaintiffs' job was to train Oracle's customers in the use of the company's products. Plaintiffs Sullivan and Evich reside in Colorado, and plaintiff Burkow resides in Arizona. Required by Oracle to travel, plaintiffs worked mainly in their home states but also in California and several other states. During the time period relevant to this litigation (2001–2004), Sullivan worked 74 days in California, Evich worked 110 days, and Burkow worked 20 days.

Slip op. at 2. Oracle treated its Instructors as exempt employees. The plaintiffs filed a class action alleging three causes of action: (1) California Labor Code claim for overtime hours worked in California; (2) Unfair Competition Law (UCL) claim for overtime hours worked in California in violation of the Labor Code; and (3) UCL claim for overtime hours worked outside of California in violation of the federal Fair Labor Standards Act ("FLSA"). The plaintiffs filed their case in the Northern District of California, and the Court (Judge Stotler) granted summary judgment for Oracle. The Ninth Circuit affirmed in part and reversed in part, then decided to ask the Cal. Supremes to decide the issues. The Supremes issued a unanimous decision, authored by Justice Werdegar.

On the first issue, the Court held that California's overtime requirements do apply to work performed in California by non-residents. First, as a matter of statutory construction, "California's overtime laws apply by their terms to all employment in the state, without reference to the employee's place of residence." Slip op. at 5. The Court held that the Legislature's intent to encompass all work done in California does not create ambiguity or uncertainty and is neither improper nor capricious. Slip op. at 6. The Court reaffirmed language from its decision in Tidewater Marine Western, Inc. v. Bradshaw (1996) 14 Cal.4th 557.

We thus foresaw in Tidewater, as a possibility, only limited extraterritorial application of California's employment laws, precisely balanced by interstate comity: California law, we suggested, might follow California resident employees of California employers who leave the state “temporarily . . . during the course of the normal workday” (id., at p. 578), and California law might not apply to nonresident employees of out-of-state businesses who “enter California temporarily during the course of the workday” (ibid., italics added). In contrast, plaintiffs here claim overtime only for entire days and weeks worked in California, in accordance with the statutory definition of overtime. (See Lab. Code, § 510.) Nothing 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.

Slip op. at 9 (emphasis in original). This is an important point. Counsel representing employees should not assume that California's overtime laws apply to partial days worked in California.

Next, the Court conducted a conflict-of-laws analysis. The Court held that California overtime law differs from that of the plaintiffs' home states, Colorado and Arizona, but there is no "true conflict":

California has, and has unambiguously asserted, a strong interest in applying its overtime law to all nonexempt workers, and all work performed, within its borders. (See Lab. Code, § 1171.5, subd. (a) [“All protections, rights, and remedies available under state law . . . are available to all individuals . . . employed, in this state.”]; see also id., §§ 510, subd. (a) [“[a]ny work”], 1194, subd. (a) [“any employee”], 1199 [criminal sanctions]; see also discussion ante, at p. 6 et seq.) California's interests, as this court has identified them, are in protecting health and safety, expanding the labor market, and preventing the evils associated with overwork. (Gentry v. Superior Court, supra, 42 Cal.4th 443, 456.) Similar interests underlie the FLSA's overtime provisions (Barrentine v. Arkansas-Best Freight System (1981) 450 U.S. 728, 739) and, we may assume, Colorado law as well.

Slip op. at 15. Finally, the Court held that California's interests would be more impaired by the failure to apply California law than would the interests of the other states involved:

To permit nonresidents to work in California without the protection of our overtime law would completely sacrifice, as to those employees, the state‟s important public policy goals of protecting health and safety and preventing the evils associated with overwork. Not to apply California law would also 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.

Slip op. at 17-18.

Having held that California's overtime law protects these employees, the Court easily resolved the second issue by reaffirming that "the failure to pay legally required overtime compensation falls within the UCL‟s definition of an 'unlawful . . . business act or practice'." Slip op. at 18-19.

On the third point, the Court held that the UCL does not apply to claims under the FLSA for overtime work performed by nonresidents in other states. The section on this point is relatively short, and I find it interesting, so I will quote it in full, omitting citations:

This claim, despite its reference to the FLSA, arises under California and not federal law. In the prior class action, plaintiffs settled their timely claims under the FLSA, which were subject to a limitation period of two or three years, depending on the circumstances. Now, in this action, plaintiffs attempt to restate time-barred FLSA claims, which were excluded from the prior settlement, as UCL claims based on the predicate “unlawful . . . act” of violating the FLSA. The question before us is whether the UCL reaches plaintiffs' FLSA claims under the circumstances of this case. We conclude it does not.

Plaintiffs' claim implicates the so-called presumption against extraterritorial application. However far the Legislature's power may theoretically extend, we presume the Legislature did not intend a statute to be “operative, with respect to occurrences outside the state, . . . unless such intention is clearly expressed or reasonably to be inferred from the language of the act or from its purpose, subject matter or history.” Neither the language of the UCL nor its legislative history provides any basis for concluding the Legislature intended the UCL to operate extraterritorially. Accordingly, the presumption against extraterritoriality applies to the UCL in full force. We thus proceed to consider whether plaintiffs' proposed application of the UCL would cause it to operate, impermissibly, with respect to occurrences outside the state.

The Ninth Circuit has asked us to decide whether the UCL applies to plaintiffs' FLSA claims “in the circumstances of this case”, which we understand to mean in accordance with the same stipulated facts on which the federal courts have based their decisions. Those stipulated facts identify only a single instance of relevant conduct occurring in California: “The decision-making process to classify Instructors as exempt from the requirement to be paid overtime wages under the FLSA occurred primarily from within the headquarters offices of Oracle Corporation located in Redwood Shores, California.” Certainly the UCL reaches any unlawful business act or practice committed in California. But for an employer to adopt an erroneous classification policy is not unlawful in the abstract. What is unlawful, and what creates liability under the FLSA, is the failure to pay overtime when due. Accordingly, that Oracle's decision to classify its Instructors as exempt was made in California does not, standing alone, justify applying the UCL to the nonresident plaintiffs' FLSA claims for overtime worked in other states. Nor does any other basis for applying the UCL to those claims appear in the stipulated facts.

In contrast to the abstract classification decision, the failure to pay legally required overtime compensation certainly is an unlawful business act or practice for purposes of the UCL. Thus, the UCL might conceivably apply to plaintiffs' claims if their wages were paid (or underpaid) in California, but the stipulated facts do not speak to the location of payment. The parties invite us to speculate about the place of payment as a basis for holding the UCL does, or does not, apply. We decline to do so. Whether the parties are entitled to rely on facts or assertions beyond the stipulated facts to support or defeat the motion for summary judgment is a question of federal procedure for the federal courts. Given the limitations of the certified question procedure, which does not confer on us plenary jurisdiction over cases pending in the courts of other sovereign entities, our answer must be confined to the circumstances of this case as established by the stipulated facts.

Accordingly, we answer the third certified question as follows: Business and Professions Code section 17200 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.

Slip op. at 19-23.

The decision (available here) thus leaves open the question of whether the UCL would apply to out-of-state work if the alleged underpayment happened in California. It's unfortunate that the Court could not resolve this question. Doing so would have saved people time and money down the road that they now will spend litigating the issue, not only in Sullivan, but undoubtedly in other cases as well.