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January 23, 2009
Beware California’s Wage Laws
A large software company hired hundreds of contractors to train its customers in the use of its products. It also asked the instructors to travel from where they lived to other states where customers were located. But that led to complicated decisions about what state and federal wage laws should apply to the travelers.

What happened. Oracle, although incorporated in Delaware, is headquartered in California. For many years, it classified its instructors as “teachers,” a category under both the California Labor Code and the federal Fair Labor Standards Act (FLSA) that exempted them from eligibility for overtime pay.

In 2003, however, with a background of protests and threats from the instructors to mount a class-action lawsuit, Oracle reclassified its California-based contractors as nonexempt and reached a settlement with them to award some back overtime pay. But three instructors from out of state—two live in Colorado and one in Arizona—also sued, charging that Oracle failed to pay them according to California wage laws when they worked in that state. “Murphy,” “Edwards,” and “Benton” had recorded working in California between 2001 and 2004 for as many as 33 days each year or as few as 5.

They sued for overtime pay whenever they had worked more than 8 hours in a day—a California wage provision not found in FLSA or most other state compensation statutes. A federal district judge in California heard their claims and ruled in favor of Oracle on all charges. Murphy, Edwards, and Benton appealed to the 9th Circuit, which covers Alaska, Arizona, California, Hawaii, Idaho, Montana, Nevada, Oregon, and Washington.

What the court said. Appellate judges first reviewed how California courts have interpreted the state’s labor code. They found it very clear that the code applies to all work done in the state, regardless of where the workers live. Next they had to determine if California law violated either Colorado or Arizona wage and hour laws, so they studied both. They concluded, “We fail to see any interest Colorado or Arizona have in ensuring that their residents are paid less when working in California than California residents who perform the same work.”

The three workers also charged violation of California’s Unfair Competition Law, and judges ruled that Oracle had violated that statute, too, while the three instructors were working in California but not when they worked outside the state. Sullivan, Evich, and Burkow v. Oracle Corporation, U.S. Court of Appeals for the 9th Circuit, No. 06-56649 (2008).

Point to remember: California is arguably the most employee-friendly state in the nation—an expensive place for employers to do business.

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