Friday, July 1, 2011

California Supreme Court Holds California Overtime Provisions Apply to Colorado / Arizona Residents Working in California, But that the UCL Does Not Permit Enforcement of FLSA Overtime Claims For Work Performed By Nonresidents In Other States: Sullivan v. Oracle Corp.

On June 30, 2011, the California Supreme Court issued an opinion in Sullivan v. Oracle Corp., __ Cal. 4th __ (2011) resolving the set of questions pertaining to the scope of California’s Overtime and UCL provisions certified by the Ninth Circuit in Sullivan v. Oracle Corp., 557 F.3d 979 (9th Cir. Cal. 2009). These questions, and the Court’s response thereto, is as follows:

First, the Court was asked to determine whether the California Labor Code's overtime provisions apply to work performed in California by nonresidents. In ruling on this question, the Court acknowledged that it could not provide a sweeping response applicable to the residents of all 50 States, as a response to this question was not simply dependent on whether the applicable provisions of the California Labor Code covered non-residents working in California, but also turned on “whether conflict-of-laws principles direct us to apply California law in the event another state also purports to regulate work performed here.” See Sullivan, 2011 Cal. LEXIS 6537, at 7-8.

With regard to the first component, the Court concluded that California overtime provisions expressly applied to “any work” and “any employee” [see id., at 8 (citing Labor Code §510(a) and 1194(a))], and that the “preambular section of the wage law [] confirms that our employment laws apply to ‘all individuals’ employed in this state[.]” See id. (citing (Lab. Code § 1171(a)). Moreover, the Court reasoned that a construction of these provisions as governing work performed by non-residents not only fell squarely within the State’s police powers to regulate activity with California’s borders, but was actually necessary to ensure that the objectives of California’s overtime provisions were given full effect:
That California would choose to regulate all nonexempt overtime work within its borders without regard to the employee's residence is neither improper nor capricious. As a matter of federal constitutional law, "[s]tates possess broad authority under their police powers to regulate the employment relationship to protect workers within the State. Child labor laws, minimum and other wage laws, laws affecting occupational health and safety, and workmen's compensation laws are only a few examples." (De Canas v. Bica (1976) 424 U.S. 351, 356.) Furthermore, the overtime laws serve important public policy goals, such as protecting the health and safety of workers and the general public, protecting employees in a relatively weak bargaining position from the evils associated with overwork, and expanding the job market by giving employers an economic incentive to spread employment throughout the workforce. (Gentry v. Superior Court (2007) 42 Cal.4th 443, 456.) The Legislature has considered these purposes sufficiently important to make the right to overtime compensation unwaivable (Lab. Code, § 1194) and the failure to pay overtime a crime (id., § 1199; see Gentry, at p. 456). To exclude nonresidents from the overtime laws' protection would tend to defeat their purpose by encouraging employers to import unprotected workers from other states. Nothing in the language or history of the relevant statutes suggests the Legislature ever contemplated such a result. A contrary conclusion would be difficult, if not impossible, to reconcile with the Legislature's express declaration that "[a]ll protections, rights, and remedies available under state law . . . are available to all individuals . . . who are or who have been employed, in this state." (Lab. Code, § 1171.5, subd. (a).)
See Sullivan, 2011 Cal. LEXIS 6537, at 10-12.

With regard to the second component, the Court made clear that whether California overtime provisions applied to the residents of any given State turned (in part) on whether such application would create a conflict with the resident's home state law. The Court’s analysis here – which was limited to the laws of Colorado and Arizona – determined that no arguable conflict could exist because Arizona has no overtime laws and Colorado's overtime law only governs work performed within the boundaries of Colorado:
Whether a true conflict exists under the circumstances of this case is doubtful, at best. 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. Neither Arizona nor Colorado, however, has asserted an interest in regulating overtime work performed in other states. Arizona, as mentioned, has no overtime law at all, and Colorado's overtime law purports to govern only "work performed within the boundaries of the state of Colorado . . ." (7 Colo. Code Regs. § 1103-1(1) (2011)). These circumstances reveal no genuine basis for concluding a true conflict exists.
See Sullivan, 2011 Cal. LEXIS 6537, at 24-25.

Based on these two findings, the Court concluded that “[t]he California Labor Code does apply to overtime work performed in California for a California-based employer by out-of-state plaintiffs in the circumstances of this case….” See id., at 30.

Second, the Court was asked to determine whether the violation of the overtime provisions in Question 1 also constituted a violation under the UCL. The Court answered this in the affirmative:
We have already decided that the failure to pay legally required overtime compensation falls within the UCL's definition of an "unlawful . . . business act or practice" (Bus. & Prof. Code, § 17200; see Cortez v. Purolator Air Filtration Products Co. (2000) 23 Cal.4th 163, 177 [UCL authorizes, as restitution, order for payment of unlawfully withheld wages]), and the parties offer no argument on the point.
Sullivan, 2011 Cal. LEXIS 6537, 32 (Cal. June 30, 2011)

Third, the Court was asked to determine whether the UCL applies to a FLSA overtime claim for work performed by nonresidents in other States, which here, was predicated on the fact the decision to classify such workers as exempt was made at the company’s corporate headquarters in California. The Court held it did not. The Court’s reasoning was based on the fact that an erroneous classification determination is not what is prohibited under the FLSA; rather, the prohibited activity is the failure to pay overtime compensation:
The Ninth Circuit has asked us to decide whether the UCL applies to plaintiffs' FLSA claims "in the circumstances of this case" (Sullivan III, supra, 557 F.3d 979, 983), 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. (See Bus. & Prof. Code, § 17200 ["As used in this chapter, unfair competition shall mean and include any unlawful, unfair or fraudulent business act or practice . . . ."].) But for an employer to adopt an erroneous classification policy is not unlawful in the abstract. (Cf. Walsh v. IKON Office Solutions, Inc. (2007) 148 Cal.App.4th 1440, 1462 [addressing California wage law].) What is unlawful, and what creates liability under the FLSA, is the failure to pay overtime when due. (See 29 U.S.C. § 207(a)(1) ["no employer shall employ any of his employees . . . for a workweek longer than forty hours unless such employee receives [overtime] compensa tion"].) 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. n10 Nor does any other basis for applying the UCL to those claims appear in the stipulated facts.
See Sullivan, 2011 Cal. LEXIS 6537, at 34-35.

Importantly, the court reasoned that “the UCL might conceivably apply to plaintiffs' claims if their wages were paid (or underpaid) in California,” but explained that this issue was not before the Court as “the stipulated facts do not speak to the location of payment.” See Sullivan, 2011 Cal. LEXIS 6537, at 36.

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