More on Sullivan v. Oracle Corp.

The Supreme Court's discussion of the UCL claim in Sullivan v. Oracle Corp., ___ Cal.4th ___ (Jun. 30, 2011), is quite interesting.  It does nothing, however, to narrow current thinking on the scope of the UCL's extraterritorial reach. 

The plaintiffs, who are non-California residents, invoked the UCL's "unlawful" prong claim against their California-based employer, Oracle, in an attempt to revive Fair Labor Standard Act ("FLSA") claims that otherwise would have been time-barred.  Slip op. at 19 & n.8.  Their complaint alleged that Oracle violated the FLSA by failing to appropriately compensate them for overtime work they performed outside California.  This, in turn, violated the UCL's "unlawful" prong (which carries a four-year statute of limitations).   Id. at 19. 

To decide whether the UCL could be invoked as plaintiffs proposed, the Supreme Court needed to consider whether any of the conduct that violated the FLSA occurred in California.  Id. at 20-21.  The defendant's motion for summary judgment on this issue was based on stipulated facts.  Id. at 3.  The only stipulated fact relevant to the analysis was Oracle's adoption, in California, of a policy erroneously classifying the plaintiffs as exempt from the overtime laws.  Id. at 21.  "But for an employer to adopt an erroneous classification policy is not unlawful in the abstract.  [Citation.]  What is unlawful, and what creates liability under the FLSA, is the failure to pay overtime when due."  Id.

The stipulated facts did not address whether the plaintiffs' wages were paid by Oracle in California.  If they were, "the UCL might conceivably apply to plaintiffs' claims": 

In contrast to the abstract classification decision, the failure to pay legally required overtime compensation certainly is an unlawful business act or practice for purposes of the UCL.  (Bus. & Prof. Code, § 17200; see Cortez v. Purolator Air Filtration Products Co., supra, 23 Cal.4th 163, 177 [UCL authorizes, as restitution, order for payment of unlawfully withheld wages].)

Id. at 22.  The Supreme Court declined to go any further, leaving it to the federal court to decide whether the parties could augment the statement of stipulated facts to address the question of where the wages were paid (or underpaid).  Id. 

In other words, the Sullivan decision does not really impact existing jurisprudence on the UCL's operation outside the borders of California.  In fact, the Court favorably cited two decisions approving nationwide class actions for UCL violations, explaining that extraterritorial operation was proper in those cases because "the unlawful conduct that formed the basis of the out-of-state plaintiffs' claims (i.e., fraudulent misrepresentations made to induce consumer transactions) ... occurred in California."  Id. at 21 n.10 (citing Wershba v. Apple Computer, Inc., 91 Cal.App.4th 224 (2001); Clothesrigger, Inc. v. GTE Corp., 191 Cal.App.3d 605 (1987)). 

The decision does not even cite Norwest Mortgage, Inc. v. Superior Court, 72 Cal.App.4th 214 (1999), which has been the leading case on extraterritorial reach up to this point.  In Norwest, the Court of Appeal held that non-Californians could bring UCL claims if the conduct constituting the violation occurred in California.  Sullivan implicitly held exactly the same thing.  (See this blog post for a lengthier discussion of Norwest.)

Accordingly, Sullivan has changed nothing in the UCL playbook, despite the defendant's technical win on the point as framed. 

Comments

[TK]

What do you think is meant by "where the employee was paid"? Where they received their paycheck? What if the check was direct deposit? I would think that almost anyone working outside California would receive their check outside California, unless it was direct deposited into an account in California. I'm curious for your take.

[Kimberly A. Kralowec]

These were the Court's exact words:

Thus, the UCL might conceivably apply to plaintiffs’ claims if their wages were paid (or underpaid) in California, but the stipulated facts do not speak to the location of payment. The parties invite us to speculate about the place of payment as a basis for holding the UCL does, or does not, apply. We decline to do so.

Slip op. at 22.

I haven't thought about your question and don't have an opinion on it. The most salient point to be drawn from Sullivan is that the Supreme Court had no problem with the concept of a UCL "unlawful" prong claim predicated on FLSA violations, even if some of the work was performed outside California.