Employment laws in California have always strongly favored employees, but there has always been a balance. In order to enjoy the employee-friendly laws of the state, the worker had to at least be a resident. That’s no longer the case thanks to a recent 9th Circuit Court decision in Sullivan v. Oracle Corp. that extends overtime pay to employees visiting from other states.
The ruling applies to overtime work performed in California for an employer based here by an out-of-state employee whose own state laws do not conflict with California’s overtime laws. That last part is key and will require L.A.-based employers to be mindful of every time an employee who resides in another state comes to the city to work regardless of how brief. Employers also will have to become experts on the differences in – and potential conflicts with – California’s overtime laws and the laws of all states where they have employees.
Employers whose principal place of business is Los Angeles will then have to pay these out-of-state employees California-based overtime, assuming there are no conflicts with the states of residence. The logistics of complying will be a potential nightmare for businesses throughout the state.
The biggest casualties of the law in Los Angeles could be the travel, trade show and convention industries. Employers will think twice before they bring their out-of-state employees into the city. That’s not good for the local economy.
Any employee of an L.A.-based company in town for a convention will have a claim for daily and weekly overtime if they work more than eight hours in a day or 40 hours in a week. Similarly, every out-of-state trainer or anyone here to help out on a special project or just a business meeting may also have a claim. Employers will not only be liable for all unpaid overtime but expensive attorneys’ fees. The law also opens up employers to the threat of class-action lawsuits for noncompliance. While such massive suits serve a purpose, they can be abused. And there is always a cost in defending these claims. Finally, and quite often, the attorneys filing the suits reap the majority of the financial windfall.
Attorneys will now be able bring individual cases and class-action lawsuits against employers in Los Angeles on behalf of clients in 49 other states who worked here for as little as one day. That may sound like an extreme example, but one of the plaintiffs in the Sullivan case, a resident of Arizona, worked only five days in California in one year and only 15 days in the state the previous year. This is now binding law in California and, frankly, it frightens me.
The convention, event and meetings industry is a huge industry nationwide. A study in 2009 by PricewaterhouseCoopers on behalf of the Convention Industry Council found spending throughout the country of more than $263 billion in this sector. Lodging, food service and transportation accounted for 43 percent or $113 billion of that total. Almost 1.8 million events were attended by an estimated 205 million people.
The report does not break down the numbers by market, but the Los Angeles Convention Center is regarded among the top convention centers and is in the world’s 19th largest economy. Throw in Long Beach and Santa Ana, and Los Angeles is the third largest economic center and a leading hub of entrepreneurialism globally.
For now, the new law excludes other California Labor Codes such as meal and rest breaks, vacation and pay stub requirements. However, I predict that it is just a matter of time. It reminds me of the concern that motorcycle riders had that the seat belt law in California would lead to the helmet law. Well, they were right. Any additional benefits would be ripe for both individual and class-action lawsuits, too.
This decision was based on the California Supreme Court’s June directive that the state’s overtime laws apply to out-of-state employees. In addition to applying the rules set forth by the California Supreme Court, the 9th Circuit Court rejected two constitutional challenges thereby allowing three nonresidents to maintain an action against Oracle for overtime based on the time they worked in California.
The law also leaves open a significant question: What if the employee qualifies as exempt from overtime in their home state but not here? Would the employer be required to pay overtime for work performed in California? Neither court provided any guidance in this regard, which promises to confuse the issue and discourage even more L.A.-based businesses from bringing their employees into the city from elsewhere in the country.
We want people to come to Los Angeles for conventions, meetings, events and other business. Quite honestly, they need to come here.
Michelle Lee Flores is a partner at Fisher & Phillips LLP in downtown Los Angeles, specializing in employment litigation including wage and hour class actions, employment compliance and preventive training.
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