Out Of State Workers Must Be Paid California Overtime Pay For Work Performed In California

     The California Supreme Court has expanded the reach of our state's overtime pay laws, which are among the toughest and costliest in the nation. In a case involving software maker Oracle Corporation, the court ruled that these protections extend to any out-of-state resident who works in California even for just one full day.

     The Supreme Court's ruling in the Oracle case is particularly important to any business that brings out-of-state employees into California from time to time. The court's decision is very similar to one that the Ninth Circuit issued in the same case in December 2008.

     Oracle is based in California. It has hundreds of employees throughout the United States who train Oracle customers to use its software. Many of these instructors travel around the country to perform work in multiple states, including California.

     Until 2003, Oracle considered all of its instructors exempt from overtime pay laws. The company changed this practice once it faced a class-action lawsuit for overtime pay violations under state and federal law. Oracle ended up settling many of these claims.

     However, Oracle continued to face overtime claims from three instructors who live in Colorado and Arizona. These plaintiffs claim to represent a class of instructors who live outside California but perform some of their work in this state.

     Each plaintiff worked anywhere from 20 to 110 days in California over a three-year period. They claim they are entitled to overtime pay for every work day longer than eight hours, and every work week longer than 40 hours, in which they worked entirely in California.

     A federal judge in Orange County ruled in favor of Oracle and dismissed the lawsuit. The plaintiffs appealed. The Ninth Circuit U.S. Court of Appeals initially sided with the plaintiffs, but it later withdrew that ruling and asked the California Supreme Court to decide whether out-of-state workers are entitled to overtime pay for entire days and weeks in which they work in California.

     The Supreme Court wound up coming to the same conclusion that the Ninth Circuit initially reached: California's overtime pay laws apply to any worker, even an out-of-state resident, who performs work in California for an entire day or an entire week.

     Oracle argued that this interpretation of California law conflicts with the laws of states such as Colorado and Arizona. The Supreme Court, however, said it was "doubtful" that there was any conflict in these laws. The court added that neither Colorado nor Arizona had any strong interests that outweighed California's "important public policy goals of protecting health and safety and preventing the evils associated with overwork."

     The Supreme Court ruled in Oracle's favor on one other issue: Nonresident employees cannot use California's unfair competition law to sue for overtime work performed outside California. The court followed the general rule that our state's laws usually do not apply to events occurring in other states.

     The plaintiffs argued that our unfair competition law should apply even to out-of-state work because Oracle's decision to classify the instructors as exempt from overtime pay was made in California. But the court noted that it "is not unlawful in the abstract" for an employer to misclassify its workers as exempt from overtime pay. Instead, it is only unlawful to fail to pay overtime when it is owed. The court ruled that California law simply does not apply to overtime work performed out of state.

     The Supreme Court's decision allows the plaintiffs to go back to federal court and pursue their overtime pay claims on behalf of nonresidents who perform work in California. The federal district court still must decide whether the case may proceed as a class action.

     The Oracle decision is yet another reminder that California's overtime pay laws are much more employee-friendly than those of other states and even the federal government. Businesses will have to weigh the costs of complying with California wage and hour law against the benefits of bringing out-of-state employees to California to perform work.

     In light of the Oracle decision, businesses should thoroughly review their wage and hour policies, and make sure their employees are correctly classified for overtime pay purposes and receive all of the overtime pay they are owed. We would be pleased to assist your company in performing a comprehensive overtime pay compliance audit. 

     For more information, call us today at (818) 508-3700, or visit us on the web, at www.brgslaw.com.

Sincerely,

Richard S. Rosenberg

Partner

BRG&S, LLP

     If you have any questions about the scope of this decision and how it applies to your workplace, please call your firm contact. 

     Wal-Mart is the largest private employer in the United States. It operates approximately 3,400 stores and currently has more than one million employees nationwide.

     The class action against Wal-Mart was led by three women who are current or former employees at Wal-Mart stores in California. Although Wal-Mart had an anti-discrimination policy, the plaintiffs claimed that Wal-Mart's "corporate culture" tainted managers' decisionmaking throughout the company.

     The plaintiffs claimed that local managers used their discretion over pay and promotion decisions in a manner that had an unfavorable disparate impact against all of Wal-Mart's female employees. The plaintiffs also accused Wal-Mart of intentional discrimination against women. The plaintiffs sought backpay, punitive damages and an injunction against Wal-Mart.

     The plaintiffs sought to certify the case as a class action so the case could proceed utilizing the favorable class action court procedures. The class was defined as all women employed at any Wal-Mart retail store in the United States "at any time since December 26, 1998, who have been or may be subjected to Wal-Mart's challenged pay and management track promotions policies and practices."

     The trial judge certified the case as a class action and the appellate court agreed. A unanimous U.S. Supreme Court decided in favor of Wal-Mart and ruled that the plaintiffs' case could not proceed as a class action.

     Although all nine High Court justices agreed that the lower court rulings were incorrect, the justices were divided on their own reasoning. A narrow 5-4 majority found that the class members' claims did not have enough in "common" with one another for the case to proceed as a class action.

     In this case, the plaintiffs "wish to sue about literally millions of employment decisions at once." The Court determined there must be "some glue holding the alleged reasons for all those decisions together" in order for the case to proceed as a class action.

     The Court offered two ways in which class members' job bias claims might be "glued" together. One would be if the employer used the same biased testing procedure for all class members. However, the plaintiffs made no such claim in this case.

     The other way would be "significant proof" that Wal-Mart had "a general policy of discrimination." However, the Court found that the plaintiffs did not meet this standard either, and noted that Wal-Mart's written policy actually prohibited gender discrimination.

     In fact, the plaintiffs' only evidence of a discriminatory policy was an expert witness who testified that Wal-Mart's "strong corporate culture" makes it "vulnerable" to "gender bias." However, this expert admitted he was unable to calculate "whether 0.5 percent or 95 percent" of Wal-Mart's decisions resulted from "stereotyped thinking." For this reason, the Supreme Court "disregard[ed]" the expert's opinions.

     The Court also rejected plaintiffs' statistical evidence that Wal-Mart's managers made discretionary decisions in a manner that disfavored women. The Court noted that these numbers fail to account for possible gender-neutral, performance-based reasons for the decisions, "whose nature and effects will differ from store to store."

     Lastly, the plaintiffs offered "anecdotal" testimony from 120 women who reported various incidents of alleged discrimination by Wal-Mart. However, the Court said that that this was only a tiny percentage of all 1.5 million class members and related to fewer than 10 percent of Wal-Mart's stores. Even if all this testimony was true, the Court ruled it was not enough to support a class action.

     The Supreme Court's Wal-Mart decision will make it extremely difficult - if not impossible - for plaintiffs to pursue nationwide job bias class action lawsuits in federal court. The decision also might make it more difficult for plaintiffs to prove so-called "disparate impact" discrimination, even in cases which are not class actions.

     However, employers should not overestimate the impact of the Wal-Mart decision - especially California employers. Plaintiffs' lawyers might instead look for smaller class actions where it might be easier to find truly "common" claims among class members.

     More importantly, the Wal-Mart decision is not binding on California state courts, because it only involved federal rules of procedure and federal job bias law. Although some California courts might choose to follow the Wal-Mart decision, they also are free to ignore it.

     Our Firm continues to see plenty of class action employment lawsuits filed in California state court, mostly in the wage and hour area. We do not expect the Wal-Mart decision to stop this trend.

     However, the Wal-Mart decision does illustrate the need for all employers to adopt and enforce a written policy against job bias and harassment. Wal-Mart's own anti-discrimination policy, and the lack of evidence of an informal policy of sex bias, helped the company avoid one of the largest class action lawsuits in American history.

     Employers who already have anti-discrimination policies should use the Wal-Mart decision as an occasion to review their policies. For more information, call us today at (818) 508-3700, or visit us on the web, at www.brgslaw.com.

Sincerely,