Friday, November 7, 2008
Ninth Circuit Allows Overtime Case Against Oracle to Proceed
By STEVEN M. ELLIS, Staff Writer
Three former employees software developer Oracle Corporation hired to train its customers can proceed with a suit alleging the company violated California law by classifying them as teachers to avoid overtime compensation, the Ninth U.S. Circuit Court of Appeals ruled yesterday.
Reasoning that a California court would conclude the state has a greater interest in applying its own law to work done here by Colorado and Arizona residents than those states have in applying their laws, the court held that state overtime requirements apply to work done in California by nonresidents, even those who work primarily in other states.
A Delaware corporation, Oracle is headquartered in Redwood City, south of San Francisco, and from 1999 to 2006 hired “instructors” through a Canadian subsidiary to travel throughout the United States and Canada training customers to use its software.
Classified as ‘Teachers’
Oracle initially classified its instructors as “teachers” exempt from the overtime provisions of California’s Labor Code and the federal Fair Labor Standard Act, but in 2004 it reclassified instructors nationwide and began paying them overtime, apparently prompted by a 2003 class action in the U.S. District Court for the Central District of California that was settled.
However, the settlement excepted claims under California law for periods of time employees may have worked in the state while a nonresident, and three former employees filed an action in a California court seeking to certify a class of hundreds of other instructors after Oracle declined to retroactively provide overtime payments for work performed prior to the reclassification.
Colorado residents Donald Sullivan and Deanna Evich, who respectively worked 74 and 80 days in California in six years with Oracle, and Arizona resident Richard Burkow, who worked 20 days during four years with the company, claimed Oracle violated the Labor Code and the Unfair Competition Law when it failed to pay overtime for work performed in California to instructors domiciled in other states.
They similarly alleged a violation of the Unfair Competition Law predicated on a claim the company violated the FLSA by failing to pay overtime for work performed throughout the country.
Oracle removed the suit to the district court, and U.S. District Judge Alicemarie H. Stotler of the Central District of California granted the company summary judgment, but Judge William A. Fletcher partially reversed on appeal, rejecting Stotler’s conclusions that the Labor Code does not apply to nonresidents who work primarily in other states, and that the law would violate the Constitution if it did.
Applying California choice of law rules, the judge wrote that California’s Labor Code applied to the three plaintiffs, rather than the laws of Colorado or Arizona, because California overtime law was “clearly intended to apply to work done in California by nonresidents,” and because Oracle had failed to demonstrate that application of the other states’ laws would further those states’ interests.
Fletcher conceded that California’s overtime compensation requirements were “materially different” than Colorado and Arizona law, but he reasoned that California law should be applied because the state’s “strong interest” in applying its law to work performed in California by other states’ citizens was compelling, particularly given that the other states had “no interest” in that Colorado overtime law did not extend beyond the state’s boundary and Arizona law made no provision for payment of overtime at all.
Declining, as a result, to proceed to the third step of traditional choice of law analysis, which compares the impairment of interests, the judge then opined that application of the California Labor Code did not violate due process under the Fourteenth Amendment because Oracle’s presence and activities in California constituted sufficient contacts with the state such that choosing California law was neither arbitrary nor fundamentally unfair.
He similarly rejected Oracle’s argument that applying the California law would violate the Dormant Commerce Clause, which prohibits states from passing legislation that improperly burdens or discriminates against interstate commerce, noting that there could be “no plausible…argument when California has chosen to treat out-of-state residents equally with its own.”
However, Fletcher affirmed Stotler’s decision with respect to the plaintiffs’ Unfair Competition Law claim based on alleged violations of the FLSA, concluding that the state law does not apply to the claims of nonresidents who allege violations of the federal act outside of California.
Judge Ronald M. Gould and U.S. District Judge Louis H. Pollak of the Eastern District of Pennsylvania, sitting by designation, joined Fletcher in his opinion.
The case is Sullivan v. Oracle Corporation, 06-56649.
Copyright 2008, Metropolitan News Company