If your Corporation has out-of-state employees working in California, and your Corporation has not complied with California’s daily/weekly overtime pay requirements for non-exempt employees (California Labor Code §§ 510, 1194), this article will likely cause you a great deal of indigestion:

Responding to certified questions from the US Ninth Circuit Court of Appeals, the California Supreme Court has affirmatively stated that California’s overtime laws apply to all employees who work in the State of California, regardless whether these employees reside in state or out-of-state. [Sullivan v. Oracle Corporation (9th Cir. 2009) 557 F.3d 979, 983 (Sullivan III) – CA. Supreme Court: S170577, CRC Rule 8.548]

Of equal significance, is the Court’s reminder that the same violates California’s Unfair Competition Law [UCL], Business & Professions Code § 17200, citing the Court’s previous ruling in Cortez v. Purolator Air Filtration Products Co. (2000) 23 Cal. 4th 163, 177. Accordingly, out-of-state Plaintiff-employees who work in California may utilize a (4) four-year statute of limitations when attempting to address violations of the State’s overtime laws.

More Class Action Litigation: Expect more class-action lawsuits filed in California by out-of-state employees who work in California, for unpaid overtime claims against their employers. Using the UCL, these plaintiffs may allege that the proposed class period includes a four year period that precedes the date that the lawsuit is filed. The math is easy – the potential financial exposure for any employer could be in the millions of dollars.

What Remedial Action Should Employers Take?

• Remember, the employer’s location (as well as the employee’s residence) has no bearing on liability for unpaid overtime. Rather, whenever the employee performs work within the state of California, whether it is for a day, a week or longer, your Company may be subject to California’s overtime laws.

Misclassification of your employees as exempt, in violation of California’s Wage Orders, risks the financial exposure described in this article. You must be certain that your “exempt employees” meet California’s standards. Your classification system should be subject to a compliance review.

• If your Company “fits the description” and has potential exposure for unpaid overtime, it is important that you immediately develop a comprehensive plan that addresses the violation(s), in order to close this window of exposure.

• One part of this plan would likely include calculation and voluntary payment of unpaid overtime to attempt to forestall litigation.

Be Careful – Any approach has to be thoughtfully evaluated and developed. Even inadvertent mistakes could result in more California Labor Code violations. As but one example, California’s labor laws prohibit a release signed by an employee in exchange for payment of wages that are owed by the employer. California Labor Code § 206.5.

• Your Company’s Employee Handbook should be re-evaluated, to determine the extent to which the language contained in the Handbook conforms with California employment laws to which your Corporation is subject.

• Changes to policies, procedures, with appropriate team training and communication, should also be incorporated as part of any transition plan, to facilitate the changes that are needed.

For all of these reasons, it may be a wise choice to utilize a Human Resources professional and/or an employer defense attorney as part of your team, to help guide you through the critical phases of this transition, especially when the end objective is to lessen the likelihood of class-action litigation and your Company’s financial exposure.