California's Long Arm of the Law: Ninth Circuit Follows California Supreme Court to Decide Oracle Case Against Employers Headquartered in California
California-based employers who send workers from other states into California must pay the employees pursuant to California law, not the law of the state where the employees reside, according to the Ninth Circuit Court of Appeals in Sullivan v. Oracle Corp. 06-56649 (9th Cir. Dec. 13, 2011).
In Sullivan, Oracle hired “Instructors” to train customers to use Oracle software. Oracle classified its Instructors as “teachers,” exempt from the overtime provisions of California’s Labor Code. Plaintiff instructors filed a class action against Oracle alleging: (1) Oracle failed to pay overtime to nonresidents for work performed in CA; (2) violations of the Unfair Competition Law (“UCL”) based on alleged violations in the first claim; and, (3) a UCL claim based on violations of federal law under the FLSA. The Court overturned a district court decision granting summary judgment to Oracle on plaintiffs’ putative class action.
The Ninth Circuit sought guidance from the California Supreme Court on several state law issues, including whether the California Labor Code applies to overtime work performed in-state for a California-based employer by out-of-state plaintiffs. The California Supreme Court concluded that California’s overtime law applies to work performed in-state by these nonresident employees since their company was headquartered in California. The Ninth Circuit adopted the California Supreme Court’s answers to hold that California’s overtime provisions applied to work performed in-state by nonresident plaintiffs. The Court rejected Defendant’s argument that the application of the California Labor Code to the nonresident plaintiffs’ work violated the Due Process Clause of the Fourteenth Amendment and the Dormant Commerce Clause of the U.S. Constitution.
Employers must understand that if you are headquartered in California and have employees residing in other states, those employees must be paid pursuant to California law if they enter California for a full day or more. This decision will affect perhaps thousands of workers sent from out of state to work on assignments in California for days or weeks. The greatest impact will be on non-exempt workers who will be entitled to daily overtime, a rarity in most other states. All employers who send non-exempt, out of state employees to work in California should seek legal advice regarding the impact, if any, of this decision on the employer's procedures. The decision also may be an ominous sign for employers with respect to how the Court may rule in the meal and rest break cases pending before the Court.