Which Law Tells Employers How To Treat Their Employees?

Recent news reports about labor law violations at plants operated by one of Apple's contractors in China prompt consideration of who may regulate an employer's relationships with its workers. An employer based in California may have employees in other states, and in other countries. Employers in other states and countries may have employees in California. Which rules must the employers in such situations follow?

Within the United States

Within the United States, the Constitution requires each state to give "full faith and credit" to "public Acts, Records, and judicial Proceedings of every other State." But, the Due Process Clause bars a state from applying its law to a dispute unless it has a significant contact or significant aggregation of contacts, creating state interests, such that choice of its law is neither arbitrary nor fundamentally unfair. Phillips Petroleum Co. v. Shutts, 472 U.S. 797 (1985). A state may enforce its own law over another state's law if it has a materially greater interest.

Here are some specific applications of those principles:

Although any state that has sufficient contacts with the parties and the dispute may apply its workers compensation law, once a state has made a final award under its workers compensation law, other states are barred by the full faith and credit clause from awarding the worker additional compensation for the same injury. Magnolia Petroleum Co. v. Hunt, 320 U.S. 430 (1943).

California has a strong policy against enforcement of non compete clauses under Business and Professions Code section 16600. Therefore, a California court should enforce that policy in a dispute over the employment of a non-California worker who had agreed not to compete with his former Maryland-based employer, where it would bar a California company from hiring the worker. Application Group, Inc. v. Hunter Group, Inc., 61 Cal.App.4th 881, 72 Cal.Rptr.2d 73 (1998).

California's Fair Employment and Housing Act does not apply to the relationship between a California company and its employees based on other states. Campbell v. Arco Marine, Inc., 42 Cal.App.4th 1850, 50 Cal.Rptr.2d 626 (1996).

California's wage and hour laws apply to work performed by out-of-state residents in California for California employers, but not to work performed by those employees in other states. Sullivan v. Oracle Corp., 51 Cal.4th 1191, 254 P.3d 237 (2011).

Outside the United States

When an employer based in the United States has employees in another country, it must comply with that country's laws, but the United States may also regulate the employment relationship. For example, Congress has expressly extended the reach of federal anti-discrimination protections to a U.S. citizen working in a foreign country for a United States employer, unless compliance would violate the law of the foreign country. See Public Law No. 102-166. Although it is generally assumed that Congress could constitutionally extend other employment laws to the operations of American companies overseas, it has declined to do so.

California law recognizes that an employer who complies with a foreign government's wishes may lack the discriminatory intent to violate the Fair Employment and Housing Act. In West v. Bechtel Corp., 96 Cal.App.4th 966, 117 Cal.Rptr.2d 647 (2002), an arm of the Saudi government contracted with a Bechtel entity for services on a project in Saudi Arabia. Bechtel terminated the plaintiff's involvement in the project after the Saudi entity objected to his employment because he was over 50. Because the Bechtel manager who terminated the plaintiff's involvement in the project lacked personal animus based on age, the claim for age discrimination lacked merit.

Foreign employers with employees in the United States must abide by the laws of  the United States and the laws of the states in which they have employees, unless the employee works for a foreign government on a diplomatic mission. In that case, the Foreign Sovereign Immunities Act bars liability.

California Employers Must Pay California Overtime To Non-Resident Employees

Answering a question from the Ninth Circuit, the California Supreme Court has ruled that employers based in California must abide by California overtime rules for non-California employees while they are working in California. Sullivan v. Oracle Corp., Case No. S170577 (Jun. 30, 2011).

The plaintiffs worked for Oracle as instructors. Two were based in Colorado and one in Arizona. They sought overtime under California law for the full days and full workweeks that they spent in California. Unlike the plaintiffs' home states, California requires time and a half for all hours worked in excess of 8 in a day and on the seventh successive day of work in a workweek, and double time for all hours worked in excess of 12 in a day, and in excess of 8 on the seventh successive day of work in a workweek. They also sought enforcement of Oracle's overtime obligations under the federal Fair Labor Standards Act (FLSA) through California's Unfair Competition Law (UCL), which provides a longer statute of limitations.

On their face, California's overtime rules applied to the work in question, and California's governmental interest analysis approach to conflict of laws questions pointed to the application of the California rules. It was doubtful that there was a true conflict of governmental interest. To the extent there might have been, California's interest in assuring that work performed in California was compensated fairly outweighed any other state's interest. That also entitled the plaintiffs to enforce their California law overtime claims under the UCL. The court said that it might not reach the same result for other wage and hour rules, such as meal and rest periods and vacation pay accrual. It also explained that the case before it dealt with an employer based in California.

However, the plaintiffs were not entitled to enforce the FLSA overtime claims (which included work performed outside California) through the UCL. Unless the legislature expressly specifies otherwise, California statutes are not interpreted to reach conduct outside the state's borders. Here, there were no facts to support a conclusion that failure to pay overtime as required by the FLSA occurred in California.

UPDATE (December 13, 2011)

The Ninth Circuit acknowledged the California Supreme Court's answers to the questions it had posed, and reversed the District Court's grant of summary judgment. Application of California overtime rules to work performed in California for a California company by its out-of-state employees did not violate the United States Constitution because California had sufficient contacts with the controversy, and applied its law equally to all workers in California. Sullivan v. Oracle Corp., Case No. 06-56649 (9th Cir. Dec. 13, 2011).