NINTH CIRCUIT SAYS CALIFORNIA WAGE AND HOUR LAW APPLIES TO NONRESIDENT EMPLOYEES

If an employee resides outside California but occasionally performs work in California, is the employee subject to California's overtime laws when working in California or to the overtime laws of his home state? According to the 9th Circuit, California law applies.

The case involved employees of a California company who live out of state but perform some work in California.

The 9th Circuit's recent decision in Sullivan v. Oracle, No. 06-56649, 2008 U.S. App. LEXIS 23394, (9th Cir., November 6, 2008), involved overtime claims brought by a group of Oracle employees who are responsible for training customers in the use of Oracle's software. Oracle previously classified these employees as "teachers," and treated them as exempt from the overtime provisions of the California Labor Code and the federal Fair Labor Standards Act (FLSA). However, a 2003 class action lawsuit in California challenged Oracle's classification of the instructors, and sought damages on their behalf under California law and the FLSA. The 2003 class action was settled and the instructors were reclassified, but the settlement specifically excluded claims under California law for periods of time when instructors may have worked in California but were not residents of California.

After the settlement of the first lawsuit, a group of Oracle instructors who were not California residents filed a second class action, also in California. Each of the instructors who were named plaintiffs in the second case had performed some work in their home state, some work in California, and some work in other states.

The 9th Circuit held that California overtime laws apply when the employees perform work in California.

The trial court granted summary judgment to Oracle on the nonresident employees' claims, holding that California law did not apply to any of the work they performed. However, the 9th Circuit reversed the summary judgment and held that California's overtime laws applied when the employees performed work in California.

The 9th Circuit concluded that the California Labor Code is "clearly intended to apply to work performed in California by nonresidents." The court also concluded that California has an interest in regulating the pay of nonresidents for work they perform in California because of the effect it can have on California residents. By contrast, said the court, the plaintiffs' home states have no interest in applying their own law to work performed in California. Finally, the court also concluded that there was no merit to Oracle's argument that it would violate the United States Constitution to apply California law to the claims of nonresidents for work they performed in California.

Sullivan leaves a number of issues unresolved.

In the Sullivan decision, the 9th Circuit noted the California Supreme Court's decision in Tidewater Marine Western, Inc. v. Bradshaw, 14 Cal.4th 557 (1996). In Tidewater, the California Supreme Court held that California residents working outside California were covered by the Labor Code.

The Tidewater decision says that the California legislature "may not have intended" the Labor Code to apply to "out-of-state businesses employing nonresidents, though the nonresident employees enter California temporarily during the course of the workday." The 9th Circuit interpreted this passage to mean that "an out-of-state employer's employees coming into California temporarily during the course of a workday" was "the marginal case for Labor Code coverage." Thus, by implication, said the 9th Circuit, when an "in-state employer's employees come into California for entire workdays and workweeks, that is not a marginal case," and the Labor Code clearly applies.

The 9th Circuit's decision leaves open the question of the extent to which its rationale will apply to employees of out-of-state companies. On the one hand, the Sullivan decision makes no distinction between California companies and non-California companies when the court states in no uncertain terms its conclusion that "the California Labor Code is clearly intended to apply to work done in California by nonresidents." However, the court also clearly ties its holding to the fact that Oracle is a California company and the fact that the nonresident employees at issue worked entire workdays and entire workweeks in California.

The 9th Circuit's decision also leaves open the question of whether other provisions of the Labor Code (e.g. meal and rest period requirements, itemized wage statement requirements, etc.) would likewise apply to nonresidents when they perform work in California.