United States: California Supreme Court Applies California’s Overtime Law to Nonresidents; Rejects Unfair Competition Law Claims Based on FLSA Violations Outside California

Last Updated: July 15 2011

Article by John Nadolenco , Bronwyn F. Pollock , Donald M. Falk , Marcia E. Goodman and Jerome M. Jauffret

Originally published July 12, 2011

Keywords: California Supreme Court, overtime law, nonrisdents, unfair competition law, UCL, FLSA violations, California Labor Code

On June 30, 2011, the California Supreme Court issued its decision in Sullivan v. Oracle Corporation, No. S170577 (June 30, 2011), deciding three questions of state law that had been certified from the Ninth Circuit.

The Supreme Court held that California's overtime laws apply to work performed in the state for California-based employers by nonresident employees and that alleged violations of the overtime provisions of California law (Labor Code § 510) may serve as predicates for claims under California's Unfair Competition Law (Bus. & Prof. Code § 12700, et seq.) (UCL). The court did set geographic limits, however, holding that the UCL cannot extend to claims based on violations of the federal Fair Labor Standards Act (29 U.S.C. § 207(a)) (FLSA) that took place in other states, at least under the circumstances of Sullivan. Although the decision did not address the merits of the plaintiffs' claims, or the certifiability of the proposed class, the choice-of-law holdings are of significant interest to all companies whose non-California employees may work in California, and to all California companies defending against efforts by class-action lawyers to apply the UCL nationwide.

The Decision

Oracle, which is headquartered in California, had employees working in the position of "Instructor" in 20 states, including California. In 2003, Oracle's Instructors brought a class action in the federal court for the Central District of California alleging that their position had been misclassified as exempt and seeking overtime compensation under California law and the FLSA. Although most of the plaintiffs' claims were resolved in 2005 through a settlement of the class action, that settlement did not cover certain class claims of employees who were not California residents.

Three of those employees subsequently filed a separate action in the same district court to assert their outstanding claims. The plaintiffs in that new action were residents of Arizona and Colorado who worked mainly in their home states but were required by Oracle to travel to work in California and other states.

First, under the California Labor Code, plaintiffs sought to recover daily and weekly overtime compensation for days longer than 8 hours and weeks longer than 40 hours for any full day or any full week worked entirely in California. Second, plaintiffs restated that same claim as one for restitution under the UCL, alleging that Oracle's purported failure to pay them overtime pursuant to California's overtime law was an "unlawful [or] unfair ... business act or practice" in violation of the UCL. Third, plaintiffs sought to recover as restitution under the UCL the amount of overtime compensation allegedly due them under the FLSA for weeks longer than 40 hours worked entirely outside California.

The district court granted Oracle summary judgment. The Ninth Circuit initially reversed in part, holding that the Labor Code and UCL applied to overtime claims for work days and work weeks performed entirely in California, and affirmed in part, holding that plaintiffs could not use Oracle's alleged violation of the FLSA outside California as the predicate unlawful act for a UCL claim under California law. The Ninth Circuit subsequently withdrew that opinion, however, and certified the controlling Labor Code and UCL questions to the California Supreme Court.

California Labor Code's Overtime Provisions Apply to Work Performed in California by Nonresident Employees of California-Based Employers

In addressing whether the Labor Code applies to nonresident employees working in the state, the California Supreme Court first held that the California legislature intended that the Labor Code's protections should apply to any employee who performs work in California. Observing that Labor Code § 1171.5 extends Labor Code protection to illegal immigrants working in California, the court deduced intent to provide similar protections to residents of other states.

The Supreme Court then undertook a choice-of-law analysis to determine the extent to which the Labor Code applied to nonresidents who work in California. The court noted that other states may have competing interests that must be weighed in deciding whether to apply California law to their residents. The court held that the interests of the employees' home states of Arizona and Colorado were minimal because those states had not expressed any preference that their overtime laws should apply to their citizens when working out of state. Indeed, Arizona does not have a state overtime law, while Colorado's overtime law explicitly applies only to "work performed within the boundaries of Colorado." On the other hand, the court concluded that failing to apply California's overtime law to nonresident employees 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," and "would also encourage employers to substitute lower paid employees from other states, thus threatening California's legitimate interest in expanding the job market."

The Supreme Court made it clear that its holding applies only to the narrow overtime compensation question posed by the Ninth Circuit, and that "one cannot necessarily assume that the same result would obtain for any other aspect of wage law." The court noted that, for example, California's interest in the contents of an employee's paystub or the treatment of an employee's vacation "may or may not be sufficient to justify choosing California law over the conflicting law of the employer's home state." Moreover, the court stated that its decision did not address the application of California's overtime laws to employees of out-of-state employers when they work in California.

This decision is troublesome for California-based employers in that it may result in a number of new claims from their nonresident employees who perform work in California. Depending on the decision's scope, it also may discourage business travel to California by nonexempt employees. Moreover, the plaintiffs' bar likely will seek to extend the scope of this decision— both to employers based outside California whose nonresident employees perform work in California, and to other substantive provisions of the Labor Code.

In response to this decision, California-based employers should promptly review their payroll policies and practices with respect to their nonresident employees to ensure that they comply with the decision.

UCL Applies to Violations of the Overtime Provisions of the California Labor Code that Occurred in California

The Supreme Court reaffirmed its decision in Cortez v. Purolator Air Filtration Products, Inc., 23 Cal. 4th 163 (2000), holding that the failure to pay legally required overtime compensation falls within the UCL's definition of an "unlawful ... business act or practice," and that the UCL authorizes, as restitution, an order for payment of unlawfully withheld wages.

UCL Does Not Apply to Claims Under the FLSA for Overtime Performed Outside California for a California-Based Employer by Nonresidents of California

The Sullivan plaintiffs contended that Oracle's decision to categorize Instructors as exempt had been made at Oracle's California headquarters, and that the UCL should provide a remedy for alleged violations of the FLSA in connection with work performed outside California by nonresidents of California. In the circumstances of this case, applying the UCL (and its four-year statute of limitations) effectively would have revived time-barred FLSA claims because the UCL's four-year statute of limitations is longer than the FLSA's.

The Supreme Court refused to go so far. The court noted that what is unlawful is the failure to pay overtime that is due. "[F]or an employer to adopt an erroneous classification policy is not unlawful in the abstract," so "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." Because employees working outside California had not been paid (allegedly underpaid) in California, there was no "unlawful practice" occurring in California that could form the basis for a UCL claim predicated on a failure to pay overtime compensation in violation of the FLSA.

This aspect of the Supreme Court's decision, and particularly its statement that an employer's adoption of an erroneous classification policy "is not unlawful in the abstract," may be helpful in defending against class certification motions contending that a purportedly uniform classification decision satisfies the requirement of commonality. Employers should now find it easier to argue that such a classification is not per se unlawful, and by itself does not provide sufficient commonality to support class certification in the face of other individualized issues.

The Supreme Court did note that its conclusion was based on the lack of evidence about where employees were paid for out-of-state work. Of potentially broader application is the court's strong language recognizing a presumption against extraterritorial application of the UCL. The court stated its presumption that the legislature did not intend a statute to operate extraterritorially "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.'" The court concluded that "[n]either the language of the UCL nor its legislative history provides any basis for concluding that the Legislature intended the UCL to operate extraterritorially," and that "[a]ccordingly, the presumption against extraterritoriality applies to the UCL in full force." That language may be useful for California-based companies defending against class actions—including beyond the employment context— when plaintiffs seek to apply the UCL nationwide.

Learn more about our Employment practice.

Visit us at mayerbrown.com

Mayer Brown is a global legal services organization comprising legal practices that are separate entities (the Mayer Brown Practices). The Mayer Brown Practices are: Mayer Brown LLP, a limited liability partnership established in the United States; Mayer Brown International LLP, a limited liability partnership incorporated in England and Wales; Mayer Brown JSM, a Hong Kong partnership, and its associated entities in Asia; and Tauil & Chequer Advogados, a Brazilian law partnership with which Mayer Brown is associated. "Mayer Brown" and the Mayer Brown logo are the trademarks of the Mayer Brown Practices in their respective jurisdictions.

© Copyright 2011. The Mayer Brown Practices. All rights reserved.

This Mayer Brown article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions