Sullivan v. Oracle Corp.

Filed 6/30/11

IN THE SUPREME COURT OF CALIFORNIA

DONALD SULLIVAN et al., )

)

Plaintiffs and Appellants, )

) S170577

v. )

) 9th Cir. No. 06-56649

ORACLE CORPORATION et al., )

) C.D. Cal. No.

Defendants and Respondents. ) CV-05-00392-AHS

____________________________________)

In this proceeding we address, at the request of the United States Court of

Appeals for the Ninth Circuit,1 questions about the applicability of California law

to nonresident employees who work both here and in other states for a California-

based employer. We conclude the Labor Code‟s overtime provisions (id., §§ 510,

1194) do apply to plaintiffs‟ claims for compensation for work performed in this

state, and that the same claims can serve as predicates for claims under

California‟s unfair competition law (UCL) (Bus. & Prof. Code, § 17200 et seq.).

We also conclude that plaintiffs‟ claims for overtime compensation under the

federal Fair Labor Standards Act of 1938 (FLSA) (29 U.S.C. § 201 et seq.; see id.,

§ 207(a)) for work performed in other states cannot serve as predicates for UCL

claims.

1 (See Sullivan v. Oracle Corporation (9th Cir. 2009) 557 F.3d 979, 983

(Sullivan III); Cal. Rules of Court, rule 8.548 (decision on request of a court of

another jurisdiction).)

1

I. BACKGROUND

Plaintiffs Donald Sullivan, Deanna Evich and Richard Burkow formerly

worked as “Instructors” for defendant Oracle Corporation, a large software

company headquartered in California. As Instructors, plaintiffs‟ job was to train

Oracle‟s customers in the use of the company‟s products. Plaintiffs Sullivan and

Evich reside in Colorado, and plaintiff Burkow resides in Arizona. Required by

Oracle to travel, plaintiffs worked mainly in their home states but also in

California and several other states.2 During the time period relevant to this

litigation (2001-2004), Sullivan worked 74 days in California, Evich worked 110

days, and Burkow worked 20 days.

For years, Oracle did not pay its Instructors overtime. Oracle‟s practice in

this regard followed the company‟s determination that its Instructors were exempt,

as teachers, from California and federal overtime laws. (See generally Industrial

Welf. Com., wage order No. 4-2001, § 1(A)(3)(a), codified as Cal. Code Regs.,

tit. 8, § 11040, subd. (1)(A)(3)(a); 29 C.F.R. § 541.303 (2010).) In 2003, Oracle‟s

Instructors sued the company in a federal class action alleging misclassification

and seeking unpaid overtime compensation. (Gabel and Sullivan v. Oracle Corp.

(C.D.Cal. Mar. 29, 2005, No. CV-03-00348-AHS); see Sullivan III, supra, 557

F.3d 979, 981-982.) Shortly thereafter, Oracle reclassified its Instructors and

began paying them overtime under the Labor Code (in 2003) and the FLSA (in

2004). In 2005, the federal action was settled and the claims of the plaintiff class

dismissed with prejudice, except for the present claims concerning nonresident

Instructors. (See Sullivan III, supra, 557 F.3d at p. 982.)

2 Including Alabama, Colorado, Florida, Georgia, Illinois, Indiana, Kansas,

Maryland, Massachusetts, Minnesota, New Mexico, New York, Ohio, Oklahoma,

Oregon, Texas, Utah, Virginia and Washington.

2

The present claims are three: First, plaintiffs claim overtime compensation

under the Labor Code for days longer than eight hours, and weeks longer than 40

hours, worked entirely in California. (See Lab. Code, §§ 510, subd. (a), 1194.)

Second, plaintiffs restate the same claim as one for restitution under the UCL.

(Bus. & Prof. Code, § 17203.) Plaintiffs contend, in other words, that Oracle‟s

failure to pay overtime for work performed in California was an “unlawful [or]

unfair . . . business act or practice” (id., § 17200) for purposes of the UCL. Third,

and again under the UCL, plaintiffs claim restitution in the amount of overtime

compensation due under the FLSA (29 U.S.C. § 207(a)) for weeks longer than 40

hours worked entirely in states other than California. Plaintiffs thus seek to use

Oracle‟s alleged violation of the FLSA in other states as the predicate unlawful act

for a UCL claim under California law.

Plaintiffs pled the claims just described in a complaint filed in the United

States District Court for the Central District of California. That court granted

Oracle‟s motion for summary judgment based on stipulated facts. (Sullivan v.

Oracle Corp. (C.D.Cal. Oct. 18, 2006, No. CV-05-00392 AHS) (Sullivan I).) On

appeal, the Ninth Circuit affirmed in part and reversed in part. (Sullivan v. Oracle

Corp. (9th Cir. 2008) 547 F.3d 1177, 1187 (Sullivan II).) Reversing on the first

and second claims, the court held the Labor Code and the UCL did apply to

plaintiffs‟ claims for overtime days and weeks worked entirely in California.

Affirming on the third claim, the court held the UCL did not apply to plaintiffs‟

claims under the FLSA for overtime worked in other states. Subsequently,

however, the Ninth Circuit withdrew its opinion and asked us to decide the

underlying questions of California law, on which it had found no directly

controlling precedent. (Sullivan III, supra, 557 F.3d 979, 983.) The court noted

the answers to its questions would have both “considerable practical importance”

because “[a] large but undetermined number of California-based employers

3

employ out-of-state residents to perform work in California,” and possibly also

“an appreciable economic impact on the overall labor market in California, given

the competitive cost advantage out-of-state employees may have over California-

resident employees if overtime pay under California law is not required for work

they perform in California.” (Ibid.)

We granted the Ninth Circuit‟s request. Accordingly, the following certified

questions are now before us:

“First, does the California Labor Code apply to overtime work performed in

California for a California-based employer by out-of-state plaintiffs in the

circumstances of this case, such that overtime pay is required for work in excess of

eight hours per day or in excess of forty hours per week? Second, does [Business

and Professions Code section] 17200 apply to the overtime work described in

question one? Third, does [section] 17200 apply to overtime work performed

outside California for a California-based employer by out-of-state plaintiffs in the

circumstances of this case if the employer failed to comply with the overtime

provisions of the FLSA?” (Sullivan III, supra, 557 F.3d 979, 983.)

We note that, while plaintiffs‟ complaint contains class action allegations, the

federal district court has not yet certified a class, and no question concerning class

certification is before us. Also not before us is the question whether Oracle

properly classified plaintiffs as exempt from the overtime laws during the relevant

time period.

II. DISCUSSION

A. Do the Labor Code’s Overtime Provisions Apply to Work

Performed in California by Nonresidents?

The question whether California‟s overtime law applies to work performed

here by nonresidents entails two distinct inquiries: first, whether the relevant

provisions of the Labor Code apply as a matter of statutory construction, and

4

second, whether conflict-of-laws principles direct us to apply California law in the

event another state also purports to regulate work performed here. These inquiries

lead to the conclusion that California law does apply.

1. Statutory Construction.

California‟s overtime laws apply by their terms to all employment in the

state, without reference to the employee‟s place of residence. The overtime statute

declares simply that “[a]ny work in excess of eight hours in one workday and . . .

40 hours in any one workweek . . . shall be compensated at the rate of no less than

one and one-half times the regular rate of pay . . . .” (Lab. Code, § 510, subd. (a),

italics added.) The civil enforcement provision provides that “any employee

receiving less than . . . the legal overtime compensation applicable to the employee

is entitled to recover in a civil action the unpaid balance . . . .” (Id., § 1194,

subd. (a), italics added.) Moreover, a preambular section of the wage law (Lab.

Code, div. 2, pt. 4, ch. 1, §1171 et seq.) confirms that our employment laws apply

to “all individuals” employed in this state (id., § 1171.5, subd. (a), italics added).3

3 “The Legislature finds and declares the following: [¶] (a) All protections,

rights, and remedies available under state law, except any reinstatement remedy

prohibited by federal law, are available to all individuals regardless of immigration

status who have applied for employment, or who are or who have been employed,

in this state.” (Lab. Code, § 1171.5, subd. (a), added by Stats. 2002, ch. 1071,

§ 4.)

The immediate impetus for Labor Code section 1171.5‟s enactment was the

Legislature‟s desire to protect undocumented workers from sharp practices in the

wake of Hoffman Plastic Compounds, Inc. v. NLRB (2002) 535 U.S. 137, in which

the high court held the National Labor Relations Board could not award backpay

to a foreign national not legally entitled to work in the United States. (See, e.g.,

Sen. Rules Com., Off. of Sen. Floor Analyses, 3rd reading analysis of Sen. Bill

No. 1818 (2001-2002 Reg. Sess.) as amended Aug. 22, 2002, pp. 2-6; Assem.

Com. on Lab. & Employment, Analysis of Sen. Bill No. 1818 (2001-2002 Reg.

Sess.) June 22, 2002, pp. 2-3.) Section 1171.5, however, cannot reasonably be

read as speaking only to undocumented workers, given that it was drafted and

(footnote continued on next page)

5

That the overtime laws speak broadly, without distinguishing between

residents and nonresidents, does not create ambiguity or uncertainty. The

Legislature knows how to create exceptions for nonresidents when that is its

intent. The Legislature has, for example, exempted certain out-of-state employers

who temporarily send employees into California from the obligation to comply

with the workers‟ compensation law (Lab. Code, § 3200 et seq.), on the conditions

of compliance with the home state‟s compensation laws and interstate reciprocity

(see id., § 3600.5, subd. (b)). In contrast, the Legislature has not chosen to

authorize an exemption from the overtime law on the basis of an employee‟s

residence, even though it has authorized exemptions on a variety of other bases.

(See id., §§ 510, subd. (a)(1) -(3), 511, 514, 515.)

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

(footnote continued from previous page)

codified as a general preamble to the wage law and broadly refers to “all

individuals” employed in the state. (Id., subd. (a).) More importantly, no reason

exists to believe the Legislature intended to afford stronger protection under the

employment laws to persons working illegally than to legal, nonresident workers.

6

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).)

Oracle, arguing that California‟s overtime law does exclude nonresidents,

relies not on the language or history of the relevant statutes but on a misreading of

our decision in Tidewater Marine Western, Inc. v. Bradshaw (1996) 14 Cal.4th

557 (Tidewater). Oracle reads Tidewater as holding that California overtime law

follows California residents wherever they go throughout the United States; based

on that premise, Oracle contends that other states‟ overtime laws must be allowed

to follow their own residents into California to avoid an offense to interstate

comity. The argument fails because the premise is incorrect: Tidewater says no

such thing.

At issue in Tidewater, supra, 14 Cal.4th 557, was whether wage orders

promulgated by the Industrial Welfare Commission (IWC) applied to California

residents who worked for California employers on boats that transported workers

and supplies from the California coast to oil-drilling platforms stationed offshore

within California‟s state law boundaries, between the Santa Barbara coast and the

7

Channel Islands.4 When the boats‟ crew members sued their employers for

overtime, the employers sued for an injunction to prohibit the wage orders‟

enforcement. We held the wage orders did apply. Federal law, we explained, did

not preclude California‟s assertion of jurisdiction, and “California employment

laws implicitly extend to employment occurring within California‟s state law

boundaries, including all of the Santa Barbara Channel.” (Id., at p. 565; see Gov.

Code, § 110 [“The sovereignty and jurisdiction of this State extends to all places

within its boundaries as established by the Constitution.”].)

Our opinion in Tidewater, supra, 14 Cal.4th 557, includes language intended

to caution against overly broad conclusions about the extraterritorial application of

employment laws. Ironically, this is the language Oracle reads as holding that a

state‟s employment laws follow its residents wherever they go. In fact, our

remarks were more limited. We wrote: “In some circumstances, state

employment law explicitly governs employment outside the state‟s territorial

boundaries. (Lab. Code, §§ 3600.5, 5305 [California workers‟ compensation law

applies to workers hired in California but injured out of state].) The Legislature

may have similarly intended extraterritorial enforcement of IWC wage orders in

limited circumstances, such as when California residents working for a California

employer travel temporarily outside the state during the course of the normal

workday but return to California at the end of the day. On the other hand, the

Legislature may not have intended IWC wage orders to govern out-of-state

businesses employing nonresidents, though the nonresident employees enter

California temporarily during the course of the workday. Thus, we are not

4 The question arose because state and federal law defined California‟s

boundaries in the Santa Barbara Channel differently. (See Tidewater, supra, 14

Cal.4th 557, 564.)

8

prepared, without more thorough briefing of the issues, to hold that IWC wage

orders apply to all employment in California, and never to employment outside

California.” (Tidewater, at pp. 577-578.)

We thus foresaw in Tidewater, supra, 14 Cal.4th 557, as a possibility, only

limited extraterritorial application of California‟s employment laws, precisely

balanced by interstate comity: California law, we suggested, might follow

California resident employees of California employers who leave the state

“temporarily . . . during the course of the normal workday” (id., at p. 578), and

California law might not apply to nonresident employees of out-of-state businesses

who “enter California temporarily during the course of the workday” (ibid., italics

added). In contrast, plaintiffs here claim overtime only for entire days and weeks

worked in California, in accordance with the statutory definition of overtime.

(See Lab. Code, § 510.)5 Nothing in Tidewater suggests a nonresident employee,

especially a nonresident employee of a California employer such as Oracle, can

enter the state for entire days or weeks without the protection of California law.

Oracle attempts to bolster its argument with a Washington decision, Bostain

v. Food Exp., Inc. (Wn. 2007) 153 P.3d 846, but the case offers Oracle no

assistance. Bostain involved a claim for unpaid overtime brought by an interstate

truck driver hired in Washington and based at the Washington terminal facility of

a California motor carrier. The court held the plaintiff was entitled to overtime

compensation under Washington law for the time he spent driving outside that

5 “Any work in excess of eight hours in one workday and any work in excess

of 40 hours in any one workweek and the first eight hours worked on the seventh

day of work in any one workweek shall be compensated at the rate of no less than

one and one-half times the regular rate of pay for an employee.” (Lab. Code,

§ 510, subd. (a).)

9

state. (Id., at pp. 851-854.) The question before the court was not whether another

state‟s overtime law applied, but whether the plaintiff would be paid overtime

under Washington law, or not at all. Bostain says nothing about a case such as

this, in which nonresident employees seek to apply the overtime law of the state in

which they worked and in which the employer is based, and the employer seeks to

avoid that law by applying the less favorable law of plaintiffs‟ home states. Such

disputes are resolved under the applicable conflict of laws analysis, which we

address below. (See post, at p. 12 et seq.)

Speaking further to the issue of statutory construction, Oracle contends the

Legislature would not likely have intended that California‟s wage law apply to

visiting, nonresident employees if compliance imposed practical burdens on

employers. Such burdens, Oracle suggests, might arise not just from the effort and

expense of complying with the overtime law, but from complying as well with

other provisions of California wage law governing such matters as the contents of

pay stubs, meal periods, the compensability of travel time, the accrual and

forfeiture of vacation time, and the timing of payment to employees who quit or

are discharged. Because the laws on these subjects vary from state to state, Oracle

argues, to require an employer to comply with the laws of every state in which its

employees work might amount to an undue burden on interstate commerce and,

thus, violate the commerce clause. (U.S. Const., art. I, § 8, cl. 3.) Oracle

analogizes the situation to that of a trucking company required to comply with the

conflicting laws of various states governing such matters as trailer length and mud

flaps. (See generally, e.g., Raymond Motor Transportation, Inc. v. Rice (1978)

434 U.S. 429; Bibb v. Navajo Freight Lines (1959) 359 U.S. 520.) We should,

Oracle contends, construe the overtime statutes to avoid any such constitutional

problem. We find the argument unpersuasive for several reasons:

10

First, the case before us presents no issue concerning the applicability of any

provision of California wage law other than the provisions governing overtime

compensation. While we conclude the applicable conflict-of-laws analysis does

require us to apply California‟s overtime law to full days and weeks of work

performed here by nonresidents (see post, at p. 12), one cannot necessarily assume

the same result would obtain for any other aspect of wage law. California, as

mentioned, has expressed a strong interest in governing overtime compensation

for work performed in California. In contrast, California‟s interest in the content

of an out-of-state business‟s pay stubs, or the treatment of its employees‟ vacation

time, for example, may or may not be sufficient to justify choosing California law

over the conflicting law of the employer‟s home state. No such question is before

us.

Second, the asserted burdens on out-of-state businesses to which Oracle

refers are entirely conjectural. The stipulated facts contain nothing supporting

Oracle‟s assertions, and no out-of-state employer is a party to this litigation;

Oracle itself is based in California.

Third, the Ninth Circuit has not asked us to address, nor do we address, any

question concerning the commerce clause. (U.S. Const., art. I, § 8, cl. 3.) This

does not mean, of course, that in reaching our decision we would ignore any

constitutional ramifications. Certainly we would not construe a statute in a

manner that raised serious constitutional questions if the statute‟s language

reasonably permitted any other construction. (See People v. Engram (2010) 50

Cal.4th 1131, 1161.) Oracle, however, has raised no constitutional question of

sufficient gravity to require us to undertake the exercise of determining whether

California‟s overtime statutes might bear a restrictive, nonliteral interpretation.

Challenges to state statutes under the commerce clause are typically addressed

under the test set out in Pike v. Bruce Church, Inc. (1970) 397 U.S. 137, 142:

11

“Where [a challenged] statute regulates even-handedly to effectuate a legitimate

local public interest, and its effects on interstate commerce are only incidental, it

will be upheld unless the burden imposed on such commerce is clearly excessive

in relation to the putative local benefits.” California‟s overtime law, applying to

all work performed in the state, regulates even-handedly to effectuate the

legitimate local public interests we have previously identified, namely, protecting

health and safety, expanding the job market, and guarding against the evils of

overwork. (See Gentry v. Superior Court, supra, 42 Cal.4th 443, 456.) Oracle‟s

argument that California‟s overtime laws might burden interstate commerce more

than incidentally, by imposing onerous regulations on businesses that bring or

send employees to work temporarily in California, is based in large part on the

assumption that, if out-of-state employers must pay overtime under California law,

they must also comply with every other technical aspect of California wage law.

The assumption, as noted, is of doubtful validity. (See ante, at p. 10.) In any

event, to the extent other states have legitimate interests in applying their own

wage laws to their own residents for work performed in California, the applicable

conflict-of-laws analysis takes those interests into account. We turn to that

analysis now.

2. Conflict of Laws.

Plaintiffs, as mentioned, contend California‟s overtime law governs their

work in this state, while Oracle contends the laws of plaintiffs‟ home states

(Colorado and Arizona) govern. For over four decades, California courts have

resolved such conflicts by applying governmental interest analysis. (See, e.g.,

McCann v. Foster Wheeler LLC (2010) 48 Cal.4th 68, 83, 87-88; Kearney v.

Salomon Smith Barney, Inc. (2006) 39 Cal.4th 95, 100 (Kearney); Offshore Rental

Co. v. Continental Oil Co. (1978) 22 Cal.3d 157, 163-170; Bernhard v. Harrah’s

12

Club (1976) 16 Cal.3d 313, 320-321; Reich v. Purcell (1967) 67 Cal.2d 551, 554-

556.) Section 196 of the Restatement Second of Conflict of Laws, which Oracle

suggests might also be relevant, has nothing to do with this case. Section 196

identifies the state whose law governs the validity of an employment contract.

The right to overtime under California law is unaffected by contract. (See Lab.

Code, § 1194, subd. (a) [“Notwithstanding any agreement to work for a lesser

wage, any employee receiving less than . . . the legal overtime compensation . . . is

entitled to recover . . . the unpaid balance . . . .” (italics added); see also Gentry v.

Superior Court, supra, 42 Cal.4th 443, 456 [statutory right to overtime

compensation is unwaivable].)

We typically summarize governmental interest analysis as involving three

steps: “First, the court determines whether the relevant law of each of the

potentially affected jurisdictions with regard to the particular issue in question is

the same or different. Second, if there is a difference, the court examines each

jurisdiction‟s interest in the application of its own law under the circumstances of

the particular case to determine whether a true conflict exists. Third, if the court

finds that there is a true conflict, it carefully evaluates and compares the nature

and strength of the interest of each jurisdiction in the application of its own law „to

determine which state‟s interest would be more impaired if its policy were

subordinated to the policy of the other state‟ [citation], and then ultimately applies

„the law of the state whose interest would be the more impaired if its law were not

applied.‟ ” (Kearney, supra, 39 Cal.4th 95, 107-108, quoting Bernhard v.

Harrah’s Club, supra,16 Cal.3d 313, 320.)

a. Do the relevant laws differ?

We determine, first, “whether the relevant law of each of the potentially

affected jurisdictions with regard to the particular issue in question is the same or

13

different.” (Kearney, supra, 39 Cal.4th 95, 107.) California‟s overtime law

clearly differs from that of Colorado and Arizona, plaintiffs‟ home states.

California law requires overtime compensation at the rate of one and one-half

times the regular rate of pay for work in excess of eight hours in one workday, 40

hours in one workweek, and the first eight hours on the seventh workday in one

week. Overtime compensation increases to twice the regular rate for work in

excess of eight hours on the seventh workday. (Lab. Code, § 510, subd. (a).) In

contrast, Colorado requires pay at one and one-half times the regular rate for work

in excess of 40 hours in one workweek, 12 hours in one workday, and 12

consecutive hours without regard to when the workday starts and ends. (7 Colo.

Code Regs. § 1103-1(4) (2011).) Arizona has no overtime law, so the federal

FLSA applies by default, requiring overtime compensation at one and one-half

times the regular rate for hours worked in excess of 40 hours in one workweek.

(29 U.S.C. § 207(a)(2)(C).) Unlike California law, neither Colorado law nor the

FLSA requires double pay for any work.6

b. Does a true conflict exist?

Because the relevant laws differ, we next “examine[] each jurisdiction‟s

interest in the application of its own law under the circumstances of the particular

case to determine whether a true conflict exists.” (Kearney, supra, 39 Cal.4th 95,

107-108.) In conducting this inquiry, “we may make our own determination of

[the relevant] policies and interests, without taking „evidence‟ as such on the

6 Differences also exist in the way California law, Colorado law and the

FLSA determine whether an employee is exempt from the requirement of

overtime compensation. These additional differences do not, however, affect our

analysis or conclusion.

14

matter.” (Offshore Rental Company, Inc. v. Continental Oil Co., supra, 22 Cal.3d

157, 163, fn. 5.)

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.

Arguing against this conclusion, Oracle points out that Colorado‟s and

Arizona‟s workers’ compensation statutes, like California‟s, expressly have

extraterritorial effect for certain resident employees who suffer industrial injuries

outside their home states. (See Colo. Rev. Stat. § 8-41-204 [discussed in

Hathaway Lighting v. Indus. Claim App. Off. (Colo.Ct.App. 2006) 143 P.3d 1187,

1189]; Ariz. Rev. Stat. § 23-904.A [discussed in DiMuro v. Industrial Com’n of

Arizona (Ariz.Ct.App. 1984) 688 P.2d 703, 707]; cf. Lab. Code, § 3600.5,

15

subd. (a).) Broadly extrapolating from these statutes, Oracle argues that Colorado

and Arizona have an interest in extending the protection of their employment laws

to their residents who work in other states. Certainly a state has such an interest,

at least in the abstract, when the traveling, resident employee of a domestic

employer would otherwise be left without the protection of another state‟s law.

(Cf. Tidewater, supra, 14 Cal.4th 557 [California overtime law protects residents

working offshore within California‟s state law boundaries]; Bostain v. Food Exp.,

Inc., supra, 153 P.3d 846 [Washington overtime law protects resident interstate

truck driver; no other state‟s law claimed to apply].) But the statutes on which

Oracle relies speak narrowly to the subject of workers‟ compensation.

Accordingly, those statutes for present purposes show only that Colorado and

Arizona know how to assert an interest in applying their laws extraterritorially,

and thus highlight the same states‟ failure to assert any extraterritorial interests

with respect to overtime compensation. In any event, Colorado and Arizona have

expressed no interest in disabling their residents from receiving the full protection

of California overtime law when working here, or in requiring their residents to

work side-by-side with California residents in California for lower pay. (Cf.

Phillips Petroleum Co. v. Shutts (1985) 472 U.S. 797, 822 [as a matter of due

process, a state “ „may not abrogate the rights of parties beyond its borders having

no relation to anything done or to be done within them‟ ”].)

Oracle next posits that Colorado and Arizona have an interest in providing

hospitable regulatory environments for their own businesses and, based on that

premise, argues those states also have an interest in shielding their own businesses

from more costly and burdensome regulatory environments in other states. We do

not doubt the premise that a state can properly choose to create a business-friendly

environment within its own boundaries. “[T]he federal system contemplates that

individual states may adopt distinct policies to protect their own residents and

16

generally may apply those policies to businesses that choose to conduct business

within that state.” (Kearney, supra, 39 Cal.4th 95, 105.) However, every state

enjoys the same power in this respect. Therefore, “[i]t follows from this basic

characteristic of our federal system that, at least as a general matter, a company

that conducts business in numerous states ordinarily is required to make itself

aware of and comply with the law of a state in which it chooses to do business.”

(Ibid.) The federal Constitution does not require a state “ „to substitute for its own

[laws], applicable to persons and events within it, the conflicting statute of another

state‟ ” (Phillips Petroleum v. Shutts, supra, 472 U.S. 797, 822 [discussing the full

faith and credit and due process clauses (U.S. Const., art. IV, § 1 & 14th

Amend.)]) or permit one state to project its regulatory regime into the jurisdiction

of another state (Healy v. The Beer Institute (1989) 491 U.S. 342, 336-337

[discussing the commerce clause (U.S. Const., art. I, § 8, cl. 3)]). Consequently,

neither Colorado nor Arizona has a legitimate interest in shielding Oracle from the

requirements of California wage law as to work performed here.

c. Which state’s interest would be more impaired?

The final step in governmental interest analysis requires us “ „to determine

which state‟s interest would be more impaired if its policy were subordinated to

the policy of the other state‟ ” and to apply “ „the law of the state whose interest

would be the more impaired if its law were not applied.‟ ” (Kearney, supra, 39

Cal.4th 95, 108, quoting Bernard v. Harrah’s Club, supra, 16 Cal.3d 313, 320.)

Assuming for the sake of argument a genuine conflict does exist (see ante, at

p. 15), to subordinate California‟s interests to those of Colorado and Arizona

unquestionably would bring about the greater impairment. To permit nonresidents

to work in California without the protection of our overtime law would completely

sacrifice, as to those employees, the state‟s important public policy goals of

17

protecting health and safety and preventing the evils associated with overwork.

(Gentry v. Superior Court, supra, 42 Cal.4th 443, 456.) Not to apply California

law would also encourage employers to substitute lower paid temporary

employees from other states for California employees, thus threatening

California‟s legitimate interest in expanding the job market. (Ibid.) By way of

comparison, not to apply the overtime laws of Colorado and Arizona would

impact those states‟ interests negligibly, or not at all. Colorado overtime law

expressly does not apply outside the state‟s boundaries, and Arizona has no

overtime law. (See ante, at p. 14.) Alternatively, viewing Colorado‟s and

Arizona‟s overtime regimens as expressions of a general interest in providing

hospitable regulatory environments to businesses within their own boundaries, that

interest is not perceptibly impaired by requiring a California employer to comply

with California overtime law for work performed here.

For these reasons, we answer the first of the certified questions as follows:

The 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, such that overtime pay is required for work in excess of eight hours per

day or in excess of forty hours per week. (See Sullivan III, supra, 557 F.3d 979,

983.)

B. Does the UCL Apply to Violations of the Labor Code in California?

With the second certified question, the Ninth Circuit asks us in effect to

decide whether Oracle‟s alleged violations of the overtime provisions of California

law (Lab. Code, §§ 510, 1194) constitute unlawful acts potentially triggering

liability under the UCL (Bus. & Prof. Code, § 17200 et seq.). 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.

18

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.

Accordingly, we answer the second certified question as follows: Business

and Professions Code section 17200 does apply to the overtime work described in

question one. (See Sullivan III, supra, 557 F.3d 979, 983.)

C. Does the UCL Apply to Claims Under the FLSA for Overtime Work

Performed by Nonresidents in Other States?

Our discussion thus far has exclusively concerned Oracle‟s alleged failure to

compensate plaintiffs according to California law for overtime worked in this

state. We turn now to the third certified question, which concerns plaintiffs‟ claim

that Oracle has also failed to compensate them according to the FLSA (29 U.S.C.

§ 207(a)) for overtime worked in other states.7 This claim, despite its reference to

the FLSA, arises under California and not federal law. In the prior class action

(see ante, at p. 2), plaintiffs settled their timely claims under the FLSA, which

were subject to a limitation period of two or three years, depending on the

circumstances. (29 U.S.C. § 255(a).) Now, in this action, plaintiffs attempt to

restate time-barred FLSA claims, which were excluded from the prior settlement,

as UCL claims based on the predicate “unlawful . . . act” (Bus. & Prof. Code,

§ 17200) of violating the FLSA.8 (See Korea Supply Co. v. Lockheed Martin

7 Plaintiffs do not specifically identify the states in which they performed the

overtime work relevant to this claim. As noted, plaintiffs worked in several states

other than California and their home states. (See ante, at p. 2 & fn. 2.)

8 Plaintiffs candidly explained at oral argument in the Ninth Circuit that their

reason for suing under the UCL is to obtain recovery for a year the FLSA no

longer reaches by invoking the UCL‟s four-year statute of limitations. (Bus. &

Prof. Code, § 17208.)

19

Corp. (2003) 29 Cal.4th 1134, 1143 [UCL borrows violations from other laws,

making them independently actionable as unfair practices].) The question before

us is whether the UCL reaches plaintiffs‟ FLSA claims under the circumstances of

this case. We conclude it does not.

Plaintiffs‟ claim implicates the so-called presumption against extraterritorial

application.9 (See generally Diamond Multimedia Systems, Inc. v. Superior Court

(1999) 19 Cal.4th 1036, 1059.) However far the Legislature‟s power may

theoretically extend, we presume the Legislature did not intend a statute to be

“ „operative, with respect to occurrences outside the state, . . . 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.” ‟ ” (Ibid., quoting North

Alaska Salmon Co. v. Pillsbury (1916) 174 Cal. 1, 4.) Neither the language of the

UCL nor its legislative history provides any basis for concluding the Legislature

intended the UCL to operate extraterritorially. Accordingly, the presumption

against extraterritoriality applies to the UCL in full force. (See, e.g., Norwest

Mortgage, Inc. v. Superior Court (1999) 72 Cal.App.4th 214, 222-225.) We thus

proceed to consider whether plaintiffs‟ proposed application of the UCL would

cause it to operate, impermissibly, with respect to occurrences outside the state.

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

9 Plaintiffs‟ claim also potentially implicates the due process clause of the

United States Constitution (14th Amend.), which places additional limitations on

the extraterritorial application of state law. (See, e.g., Phillips Petroleum Co. v.

Shutts, supra, 472 U.S. 797, 818.) We need not address any such constitutional

issue, however, given our conclusion that the UCL does not apply.

20

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] compensation”].) 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.10 Nor does any other basis for

applying the UCL to those claims appear in the stipulated facts.

10 The decisions on which plaintiffs rely in arguing to the contrary, Wershba

v. Apple Computer, Inc. (2001) 91 Cal.App.4th 224, and Clothesrigger, Inc. v.

GTE Corp. (1987) 191 Cal.App.3d 605, are inapposite. In each case, the unlawful

conduct that formed the basis of the out-of-state plaintiffs‟ claims (i.e., fraudulent

misrepresentations made to induce consumer transactions), and that justified the

application of California law to resolve those claims, occurred in California. (See

Wershba v. Apple Computer, Inc., supra, at pp. 241-242; Clothesrigger, Inc. v.

GTE Corp., supra, at p. 613.)

21

In contrast to the abstract classification decision, the failure to pay legally

required overtime compensation certainly is an unlawful business act or practice

for purposes of the UCL. (Bus. & Prof. Code, § 17200; see Cortez v. Purolator

Air Filtration Products Co., supra, 23 Cal.4th 163, 177 [UCL authorizes, as

restitution, order for payment of unlawfully withheld wages].) Thus, the UCL

might conceivably apply to plaintiffs‟ claims if their wages were paid (or

underpaid) in California, but the stipulated facts do not speak to the location of

payment. The parties invite us to speculate about the place of payment as a basis

for holding the UCL does, or does not, apply. We decline to do so. Whether the

parties are entitled to rely on facts or assertions beyond the stipulated facts to

support or defeat the motion for summary judgment is a question of federal

procedure for the federal courts. Given the limitations of the certified question

procedure, which does not confer on us plenary jurisdiction over cases pending in

the courts of other sovereign entities, our answer must be confined to the

circumstances of this case as established by the stipulated facts.

22

Accordingly, we answer the third certified question as follows: Business

and Professions Code section 17200 does not apply to overtime work performed

outside California for a California-based employer by out-of-state plaintiffs in the

circumstances of this case based solely on the employer‟s failure to comply with

the overtime provisions of the FLSA.

WERDEGAR, J.

WE CONCUR:

CANTIL-SAKAUYE, C.J.

KENNARD, J.

BAXTER, J.

CHIN, J.

CORRIGAN, J.

BOREN, J.*

* Presiding Justice of the Court of Appeal, Second Appellate District,

Division Two, assigned by the Chief Justice pursuant to article VI, section 6 of the

California Constitution.

23

See next page for addresses and telephone numbers for counsel who argued in Supreme Court.

Name of Opinion Sullivan v. Oracle Corporation

__________________________________________________________________________________

Unpublished Opinion

Original Appeal

Original Proceeding XXX on request pursuant to rule 8.548, Cal. Rules of Court

Review Granted

Rehearing Granted

__________________________________________________________________________________

Opinion No. S170577

Date Filed: June 30, 2011

__________________________________________________________________________________

Court:

County:

Judge:

__________________________________________________________________________________

Counsel:

Callahan, Thompson, Sherman & Caudill, Robert W. Thompson and Charles S. Russell for Plaintiffs and

Appellants.

Law Offices of Jeffrey K. Winikow and Jeffrey K. Winikow for California Employment Lawyers

Association as Amicus Curiae on behalf of Plaintiffs and Appellants.

Paul, Hastings, Janofsky & Walker, Paul W. Cane, Jr., and Stephen L. Berry for Defendants and

Respondents.

Steinbrecher & Span, Robert S. Span and Alan K. Steinbrecher for Air Transport Association of America,

Inc., California Hotel & Lodging Association and California Restaurant Association as Amici Curiae on

behalf of Defendants and Respondents.

Mitchell Silberberg & Knupp, Lawrence A. Michaels and Adam Levin for Employers Group as Amicus

Curiae on behalf of Defendants and Respondents.

Gibson Dunn & Crutcher, Pamela L. Hemminger, Gail E. Lees, Elisabeth C. Watson and Christopher

Chorba for California Employment Law Council as Amici Curiae on behalf of Defendants and

Respondents.

Counsel who argued in Supreme Court (not intended for publication with opinion):

Charles S. Russell

Callahan, Thompson, Sherman & Caudill

2601 Main Street, Suite 800

Irvine, CA 92614

(949) 261-2872

Paul W. Cane, Jr.

Paul, Hastings, Janofsky & Walker

55 Second Street, 24th Floor

San Francisco, CA 94105-3441

(415) 856-7000