Oracle Overtime Case Spells Trouble for California Tech Companies

On June 30, 2011, California’s Supreme Court closed the books on Sullivan vs. Oracle, an overtime pay case that had been winding its way through California’s justice system in various forms since it was first introduced as Gabel and Sullivan vs. Oracle Corp. in 2003.

In Sullivan vs. Oracle, the plaintiffs, a group of Oracle employees who are residents of Colorado and Arizona, argued that they should be entitled to overtime pay according to California’s wage and hour laws. The plaintiffs are instructors who travel around the U.S. training Oracle customers on how to use the company’s various software applications.

They maintained that they were misclassified as teachers under federal law for the purposes of applying California law. Being classified as teachers under federal law put them in the category of “exempt” workers who are not entitled to overtime pay. The plaintiffs argued that they were in fact “non-exempt” employees and thus eligible for overtime pay under applicable laws.

Meanwhile, Oracle contended that California law should not apply to visiting employees for a variety of reasons. One, the company argued that the laws of the employees’ home states should follow them wherever they work. Two, Oracle claimed that applying California’s wage laws to visiting, non-resident employees would have imposed undue burdens on California employers. And three, the software company maintained that Arizona and Colorado’s wage and hour laws conflicted with California’s; therefore, Oracle couldn’t apply California’s laws without infringing on Colorado’s and Arizona’s.

After a lengthy analysis of California’s, Colorado’s and Arizona’s overtime laws, California’s Supreme Court did not find any conflicts among the three states’ laws and ruled in favor of the plaintiffs on two claims, according to Laura Maechtlen, a San Francisco-based partner in the law firm Seyfarth Shaw’s labor and employment practice.

The court decided that non-exempt employees who are residents of Colorado or Arizona, who work for a company based in California and who spend whole days or whole weeks working in California are in fact eligible for California’s overtime pay while they’re working in California.

While the ruling only applies to overtime eligible employees who are residents of Colorado and Arizona, says Maechtlen, it may have far-reaching implications for employees and employers across the U.S., especially other California-based tech companies.

“We think that plaintiffs and employees in the future may try to expand the holding in a couple of different ways,” she says.

For example, non-exempt employees of California-based companies who live in other states besides Colorado and Arizona and who spend time working in California might also file suit to see if they can obtain California’s overtime wages for days or weeks worked in California, if California law is more favorable than the overtime law in their home state, she says.

Maechtlen says the ruling also begs the question of whether California’s overtime laws will apply to employers based in other states that send their employees to California to work for full days or weeks. If so, will those employers have to pay California’s overtime wages to overtime-eligible employees working (but not residing) in California, even if those companies aren’t based in The Golden State?

A third implication: Since employees residing in Colorado and Arizona can now bring overtime claims against a California-based employer for whole days or whole weeks of overtime performed in California, Maechtlen says they might be able to file other legal charges under California’s wage and hour laws. For example, she says, workers who are residents of Colorado and Arizona might be able to make a legal case for earning California’s minimum wage rather than their home state’s for work performed in California. They might also be entitled to break periods under California labor laws.

“If non-exempt employees are not provided those meal or rest periods in accordance with California law, the employer could be subject to a penalty of one hour of pay for each missed meal or rest period,” says Maechtlen.

Employees of Arizona and Colorado stand to gain the most from the court’s ruling in Sullivan vs. Oracle and have the best chances of bringing additional wage and hour claims against California-based employers. Maechtlen notes that it may be harder for residents of other states to bring such wage and hour claims against California-based employers because they are two steps removed from the Sullivan vs. Oracle verdict. For those employees, she adds, the Supreme Court would first have to decide if California law applies, then decide whether wage and hour claims other than overtime would be recoverable.

“It’s a little bit of an open question as to how this decision will be used to challenge pay practices in the future,” she says. “It’s going to be up to each company to decide what they need to do in response to it. What employers should be doing is taking a look at who they have travelling [to California], the amount of time they spend there, and if it will be a burden for them to apply California’s wage and hour laws to them when they’re working there.”

Meridith Levinson covers Careers, Project Management and Outsourcing for CIO.com. Follow Meridith on Twitter @meridith. Follow everything from CIO.com on Twitter @CIOonline and on Facebook. Email Meridith at mlevinson@cio.com.