Under federal and California law, all employees are either “exempt” or “non-exempt” from minimum wage and overtime requirements. “Exempt” employees (which include many white-collar professions) must meet the requirements of a qualified “exemption”. Such exemptions include employees serving in executive, administrative, professional, computer software, outside sales, and commissioned (inside) sales roles, as defined under the California Labor Code and Industrial Welfare Commission (IWC) Orders. There are other, less common exemptions available for certain industries or types of employees. To be considered “exempt”, an employee must spend over 50% of their time performing exempt tasks. In contrast, “non-exempt” employees (generally blue-collar workers) and all other employees who do not fall within a qualified exemption, are entitled to minimum wage and overtime requirements.

Generally, California wage and hour laws are more stringent than the federal overtime rules under the FLSA. California courts interpret the exceptions narrowly, and employers bear the burden of establishing that an exemption applies. (Ramirez v Yosemite Water Co., Inc., 20 Cal. 4th 785, 794-95 (1999).) Failure to correctly categorise an employee risks exposure to litigation under the California Private Attorney Generals Act (PAGA).

While “independent contractors” are not “employees” covered by wage and hour law protections, employers must be careful not to misclassify individuals, as California mandates a very onerous test to show an individual is an independent contractor. (See Dynamex Operations West, Inc. v Superior Court, 4 Cal. 5th 903 (2018).) California courts also presume that an employer–employee relationship exists when an individual provides services for an employer. (Ruiz v Affinity Logistics Corp., 667 F.3d 1318, 1323 (9th Cir. 2012).)

In California, the presumption is that an employee is employed “at will”, and any agreement for “permanent employment” will be construed as “at will” employment. However, such “at will” employment can be limited by an employment contract. Employment contracts can be express or implied in fact. For example, under certain circumstances, employee handbooks can qualify as employment contracts. (See Foley v Interactive Data Corp., 47 Cal. 3d 654, 677 (1988).) However, the court will consider any disclaimer language in the handbook in considering whether a valid contract was formed. (See Guz v Bechtel Nat’l Inc., 24 Cal. 4th 317, 339-40 (2000).) In addition, employment contracts can be oral. (Foley, 47 Cal. 3d at 677.) There are no set terms that are required in employment contracts.

For non-exempt employees, California employers must satisfy the federal or state law overtime compensation requirements (whichever is more protective to employees). California is more protective to employees with regard to work hours and overtime. Under California law, employers must pay one and a half times an employee’s “regular rate” if the employee works more than 40 hours in a single workweek or more than eight hours in a single workday or the first eight hours worked on the seventh consecutive day of work in a workweek; and double the “regular rate” for work in excess of 12 hours in a single day or more than eight hours on the seventh consecutive day of a workweek. (California Labor Code, Section 510.)

However, employers may adopt alternative workweek schedules (AWS) that depart from the standard eight-hour workday, under certain conditions. California Labor Code, Section 511 allows AWS arrangements only if approved by at least two-thirds of affected employees in a secret ballot election. Further, such arrangement must be fully disclosed to affected employees. Under a duly-adopted alternative workweek schedule, the employer must pay overtime at one and a half times the regular rate after ten hours per day in a 40-hour workweek, and at double the regular rate after 12 hours per day and for any work more than eight hours on those days worked beyond the regularly scheduled workdays established by the alternative workweek agreement.

For non-exempt employees, employers must comply with both federal and California law regarding minimum wage requirements. Under California law, the minimum wage is currently USD16.50/hour for employers of all sizes (whereas the federal minimum wage is currently USD7.25/hour). Some cities, such as San Francisco, Berkeley, and Anaheim, impose a higher minimum wage on employers for each hour worked within each city. Some local wage ordinances are targeted to only certain employers or city contracts.

Further, any bonus promised to employees is included in determining the employee’s “regular rate” of pay, including bonuses designed as incentives. Discretionary bonuses are not included.

In California, wages include accrued vacation pay, and vacation is viewed as a form of deferred compensation. Employers are not required to provide vacation days to employees. However, if the employer does provide vacation days to its employees, when an employee has earned vacation time, it becomes a vested right of the employee, the employer cannot reclaim it, and the vacation time must be paid out to the employee upon the employee’s separation. (California Labor Code, Section 227.3.)

The federal Family and Medical Leave Act (FMLA) provides job security to an employee who is absent from work either (i) because of the employee’s own serious health condition; (ii) to care for specified family members with serious health conditions; (iii) for the birth of a child and to care for a newborn child; or (iv) because of the adoption or foster care of a child by the employee. (29 USC, Section 2601, et seq.) The FMLA provides covered employees with 12 workweeks of leave for specified reasons in a leave year. FMLA leave is unpaid unless a form of available paid time off is taken by the employee.

The California Family Rights Act (CFRA) covers more employers than the federal FMLA and provides broader protections. In addition, The California Pregnancy Disability Leave Law (PDLL) requires covered employers to provide four months of leave per pregnancy.

However, there are various types of paid leave available under California law. The California Paid Family Leave (PFL) provides for up to eight weeks of payments from the State Disability Fund for wage loss of employees who take time off work to care for a seriously ill child, spouse, parent, grandparent, grandchild, sibling, or domestic partner, or to bond with a minor child within one year of the birth or placement of the child in connection with foster care or adoption. San Francisco requires non-governmental employers with 20+ employees, regardless of location, to supplement PFL benefits so that employees receive 100% of their wages, subject to a cap, for eight weeks of parental leave to bond with a new child (“San Francisco Paid Parental Leave”). Through this programme, employers pay an additional 30–40% of the employee’s wages (in addition to the approximate 60–70% of wages provided for under California’s PFL).

California also requires employers to provide paid sick time which may be used by the employee for his or her own illness or to care for specified others who are ill. The statutory accrual rate for paid sick leave is one hour for every 30 hours worked. Employees may use paid sick leave beginning on their 90th day of employment. Thereafter, they may use sick leave as it accrues. Employers may limit an employee’s use of accrued paid sick leave to 40 hours or five days per year. Several cities also mandate additional paid sick leave requirements within their jurisdictions, including San Francisco, Oakland, Los Angeles, San Diego, and Long Beach.

Regarding confidentiality, under California law, everything that an employee acquires by virtue of his or her employment (other than compensation for services) belongs to the employer “whether acquired lawfully or unlawfully, or during or after the expiration of the term of his employment.” (California Labor Code, Section 2860.) This protection clearly extends to trade secrets. A non-disclosure or confidentiality agreement between the employer and the employee may be helpful but is not required.

In a settlement agreement, the employee may seek a non-disparagement provision binding upon the employer’s officers, managing agents and particular supervisors. If so, the employer may insist that this provision be mutual. However, exceptions to a non-disparagement provision must be made for truthful testimony given in compliance with a subpoena or court order. Further, a non-disparagement provision must include, in substantial form, the following language: “Nothing in this agreement prevents you from discussing or disclosing information about unlawful acts in the workplace, such as harassment or discrimination or any other conduct that you have reason to believe is unlawful.”

Generally, covenants not to compete in the employment context are void under California law, subject to limited exceptions. (California Business and Professions Code, Section 16600.) Moreover, including or requiring a non-compete clause in an employment contract, or requiring an employee to sign a non-compete agreement, constitutes “an act of unfair competition”. Lastly, employers are now required to notify certain employees that their non-compete clauses or agreements are void. Employers who try to enforce a non-compete clause are subject to civil liability. The employee, former employee, or prospective employee against whom the employer attempts to enforce the non-compete may bring a private action for injunctive relief, monetary damages, or both, and may recover attorney fees and costs. (California Business and Professions Code, Section 16600.5.) The parties cannot avoid this rule by designating another state’s law as governing their employment agreement.

Like with non-compete agreements, covenants not to solicit a former employer’s customers are generally void under California law. A former employee has the right to compete with his or her former employer, even for the business of those who had been customers of the former employer, provided such competition is fairly and legally conducted. Therefore, a covenant not to solicit the former employer’s customers is treated as a covenant not to compete and is invalid under the California Business and Professions Code, Section 16600.

The California Constitution explicitly recognises privacy as an inalienable right under Article I, Section 1. The California Supreme Court has construed the California Constitution to provide broader protection than the privacy rights guaranteed by the US Constitution. This right of privacy applies to private employers. There is also a common law right to privacy claim in California.

California statutes provide additional protections for employee privacy. For instance, the Confidentiality of Medical Information Act (CMIA) prohibits employers from disclosing employees’ medical information without authorisation, even when the employee’s medical condition is relevant to employment decisions, such as requests for paid leave or fitness-for-duty evaluations. Further, the California Consumer Privacy Act (CCPA) requires that a business that collects a consumer’s personal information must disclose to that consumer the categories of personal information being collected, and the purposes for which the information will be used. Further, many employers are implementing systems in the workplace, such as time-tracking systems, that use biometric data. The Civil Code, Section 1798.100 requires these businesses to take steps to protect unique, permanent biological identifiers, including imagery of the iris, retina, fingerprint, face, hand, palm, vein patterns, and voice recordings. Under the CCPA, consumers may bring a private claim against companies that fail to maintain reasonable security practices, resulting in a data breach. (Civil Code, Section 1798.100 et seq.)

In addition, various federal and state laws may limit an employer from monitoring its employees’ email and Internet use and from accessing their personal files on company computers, including the Federal Wiretap Act, Federal Stored Communications Act, and California Invasion of Privacy Act.

The Immigration Reform and Control Act of 1985 (IRCA) prohibits US employers from hiring workers who are unauthorised to work in the US. The IRCA also holds the employer responsible for confirming the employee’s eligibility. (Public Law No 99-603, 100 Stat. 3359 (1986).) Under the IRCA, all employers must complete an Employment Eligibility Verification Form (Form I-9) for all current employees. Further, under the IRCA, employers must maintain those forms on file for either three years from the date of hire or one year after employment ends, whichever is longer.

Because employers may not directly ask about a candidate’s national origin, citizenship, or immigration status during the recruitment process, they must use neutral questions to determine whether the candidate requires immigration sponsorship to begin working or to continue employment in the future. The Immigration and Employee Rights Section of the US’ Civil Rights Division (IER) developed two questions that employers may ask candidates to determine if immigration sponsorship is needed:

• Are you legally authorised to work in the US?
• Do you now, or will you in the future, require immigration sponsorship for work authorisation (for example, H-1B status)?

Some foreign nationals may have an employment authorisation document (EA), including:

• individuals with a pending adjustment of status application, seeking to adjust their status from non-immigrant to green card;
• certain international entrepreneurs;
• individuals with Temporary Protected Status (TPS);
• individuals with Deferred Action for Childhood Arrivals (DACA);
• certain asylum applicants; and
• certain students, including students authorised for practical training in their field of study.

However, California enacted a law prohibiting local government E-Verify mandates for private employers. (Assembly Bill 1236, 2011–2012, Reg. Sess. (Ca. 2011).)

If an employer employs foreign workers, special procedures need to be followed. The employer may need to offer immigration sponsorship for the employee, including visas. For non-immigrants, common visas include H-1B (specialty occupation worker), L-1 (intracompany transfer), and TN Professionals. For immigrants, three steps are typical: the employee must have a permanent labour certification with the DOL, an immigrant visa petition filed with the USCIS, and the foreign national’s permanent resident status must be granted. Common immigrant categories include EB-1, EB-2, EB-3, EB-4, and EB-5.

California does not have restrictions for or against mobile work. But, California’s various employment regulations still apply to remote workers. Regulations in the following categories often have novel or overlooked applications to remote employees:

• wage and hour law;
• safety regulations;
• employee reimbursement requirements; and
• privacy regulations.

California’s Industrial Welfare Commission (IWC) wage orders apply broadly to employment within the state, including to remote employees. These wage orders require employers to pay employees for all hours worked and define “hours worked” as the time during which an employee is subject to the employer’s control – including when an employee performs duties at home.

California employers are required to provide safe work environments, even to remote employees. This can include addressing ergonomic workstations through the use of certain chairs, desks, and computer equipment.

California Labor Code, Section 2802 requires employers to reimburse employees for necessary and reasonable work-related expenses such as internet and cell phone usage incurred while working remotely.

California employers are responsible for protecting remote employees’ personal data, which can be less secure for employees working remotely due to the use of home internet and personal devices.

California does not have any restrictions on sabbatical leave in the private sector. However, California does recognise a difference between sabbatical leave and vacation leave. Vested vacation leave is governed by California Labor Code, Section 227.3, which requires employers to pay out accrued and unused vacation time at the end of employment. This does not apply to sabbatical leave. Sabbatical leave is treated like an employee retention programme and is typically governed by the employer’s policy alone.

California is often on the forefront of regulations and statutory requirements for new work manifestations. Currently, the largest shift in working environments comes from the use of artificial intelligence. California regulates the use of AI in certain employment contexts, like hiring and firing. The California Civil Rights Department (CRD) has adopted a set of regulations that would require employers to show any AI hiring filters are free from discrimination in the categories protected by the Fair Employment Housing Act (FEHA) and to keep AI records for a period of time. The California legislature has also put forward SB 7, which would further regulate the use of AI in employment decisions.

California has a strong union presence, with more than 3,000 labour unions. In 2024, union members accounted for 14.5% of wage and salary workers in California, as compared to the national rate of 9.9%. California also has the highest number of union members in any state (2.4 million). And in the public sector, unions represent more than 80% of California’s 200,000+ state employees.

Union rights and regulations are governed at the federal level by the NLRA, which protects the rights of employees to form, join, and support a union.

California has state-level regulations on unions as well, set out in the California Labor Code. For example:

• Collective Bargaining – California Labor Code, Section 923 sets forth California’s public policy to ensure employees have full freedom of association, self-organisation, and the ability to designate representatives of their choosing for collective bargaining.
• Prohibition of Promises Against Public Policy – California Labor Code, Section 921 prohibits promises between employees and employers that require joining, remaining, or refraining from joining labour organisations, as such promises contrary to public policy.
• Jurisdictional Strikes – California Labor Code, Section 1115 declares jurisdictional strikes unlawful and against public policy.
• Employer-Dominated Unions – California Labor Code, Section 1122 provides liability for employers that organise or control unions and employee groups, allowing injured parties to recover damages.

California also has a state agency, the Division of Labor Standards Enforcement (DLSE), which enforces California’s labour laws, including labour laws related to unions.

In California’s public sector, relations between public entities and their employers are governed by the Meyers-Milias-Brown Act (MMBA) (California Government Code, Section 3500 et seq).

Unions typically serve as the representative bodies for employees in California. Employees’ decision to form a union, their representatives, and the bargaining agreements between the union and the employer are governed by the NLRA and overseen by the NLRB.

Once employees form a union, they may enter into a collective bargaining agreement (CBA) with the employer. California state law specifically recognises a union’s right to enter into a CBA as long as that agreement is not against public policy. The process of negotiating and formalising a CBA is governed by the NLRA.

What constitutes grounds for termination in California varies depending on the type of employment held by the worker. Most California employees are at-will employees and may be terminated without cause for any non-discriminatory reason under California Labor Code, Section 2922. For employees subject to a CBA, the employer must comply with the bargaining agreement when terminating an employee, which may include notice periods, improvement plans, a tiered warning system, etc. And, for employees that have an employment agreement – whether written, oral, or implied – the employer may have to show “good cause” in order to terminate employment.

California does not have mandatory notice provisions for terminating at-will employees. Employees who have employment agreements or are subject to CBAs may be entitled to notice before termination, which would be governed under their respective agreements.

For large-scale layoffs, California’s Worker Adjustment and Retraining Notification (WARN) Act requires employers with 75 or more employees to provide 60 days’ notice before conducting mass layoffs, plant closures, or relocations affecting 50 or more employees. This state law supplements the federal WARN Act by applying to smaller layoffs and employers than those covered by federal law. The California WARN Act applies even to temporary layoffs lasting less than six months, as interpreted by courts.

California does not require cause for terminating at-will employees. If the employee has a contract or is subject to a collective bargaining agreement, termination for cause will be governed by the employee’s respective agreement.

Termination agreements, or severance agreements, are generally permitted under California law with a few caveats. Severance agreements cannot waive rights afforded by California’s FEHA or certain federal rights (eg, rights set forth by the Age Discrimination in Employment Act).

Under California Government Code, Section 12964.5, employers are prohibited from including provisions that restrict employees from disclosing information about unlawful acts in the workplace, such as harassment or discrimination. If a severance agreement contains a non-disparagement or confidentiality clause, then it must include language substantially similar to: “Nothing in this agreement prevents you from discussing or disclosing information about unlawful acts in the workplace, such as harassment or discrimination or any other conduct that you have reason to believe is unlawful.”

Severance agreements must notify employees of their right to consult an attorney and provide a reasonable time period of at least five business days to review the agreement. Under federal law, if an employee is over 40, an employee must be provided at least 21 days to review and eight days to revoke, in order to waive age discrimination claims pursuant to the ADEA and Older Workers Benefit Protection Act (OWBPA). Employees may voluntarily waive these review periods and sign agreements earlier, but such a waiver must not be induced by fraud, misrepresentation, or threats.

There is no category of employee that is protected from termination in California. However, California recognises a number of protected classes for employees under FEHA and the California Family Rights Act (CFRA). Employers may not terminate an employee based on protected characteristics. The common protected categories for employees in California are race, religion, colour, national origin, ancestry, physical disability, mental disability, medical condition, marital status, sex, age, and sexual orientation.

California recognises a few avenues for an employee to bring a wrongful dismissal claim. First, a worker may sue for wrongful dismissal if the termination violates public policy. Some examples of terminations that are against public policy include dismissals for refusing to commit perjury, filing workers’ compensation claims, protesting unsafe working conditions, or reporting criminal activity. More broadly, wrongful dismissal claims are available if the employee is terminated because he or she exercised statutory rights or refused to violate the law.

California also allows wrongful dismissal claims if the dismissal breaches an implied contract or the implied covenant of good faith and fair dealing. An employer can create an implied contract by making promises of job security, writing out written termination guidelines, or making assurances that an employee will not be terminated without good cause. Breaking one of these or similar promises can be grounds for a wrongful dismissal claim.

Technically, California also recognises wrongful termination claims based on discriminatory terminations that violate FEHA. However, FEHA has its own statutory system of recovery, which supplants the common law wrongful dismissal claim in practice.

California law protects all employees from employment discrimination and harassment on the basis of race, religious creed, colour, national origin, ancestry, physical disability, mental disability, medical condition, genetic information, marital status, sex, gender, gender identity, gender expression, age, sexual orientation, reproductive health decision-making, and veteran or military status. FEHA requires employers to provide reasonable accommodations to employees with physical or mental disabilities. Furthermore, FEHA protects employees from retaliation for asserting these rights.

FEHA applies to all employers with five or more employees. However, FEHA’s anti-harassment protections apply to all employees, regardless of the size of their employer.

FEHA provides a range of remedies for employees who experience discrimination, including reinstatement, back pay, injunctive relief, and damages. The Department of Fair Employment and Housing (DFEH) is tasked with investigating complaints, conciliating disputes, and prosecuting violations. FEHA is intended to supplement, not replace, other remedies for employment discrimination, allowing employees to pursue common law claims alongside statutory claims.

California does not have any blanket proscription against or requirement for the digitalisation of employment disputes. However, it is common for California courts and agencies to hold remote hearings at their discretion.

Different types of employment claims are subject to different litigation processes depending on the underlying claim.

Discrimination, Harassment, and Retaliation Claims

Under California law, employees who wish to bring a claim for employment discrimination, harassment, or retaliation must exhaust their administrative remedies before filing a lawsuit in state court. To exhaust their remedies, employees must first file a complaint with the California DFEH, which investigates the claim. Following an investigation, the DFEH attempts conciliation, an informal dispute resolution process between the employee and employer that avoids resorting to the courts. If that fails, the DFEH may go forward with an agency hearing.

An employee can also seek a Right-to-Sue letter from the DFEH, which allows the employee to proceed with litigation immediately. This letter satisfies the requirement that the employee exhaust his or her administrative remedies.

Labor Code Violation Claims

Under California law, employees who wish to bring a claim for violations of the Labor Code also must exhaust their administrative remedies before filing a lawsuit in state court. To exhaust their remedies, employees must first file with the Labor and Workforce Development Agency (LWDA), depending on the alleged violation. Some common divisions within the LWDA are the California Division of Labor Standards Enforcement (aka the Labor Commissioner’s Office), Cal-OSHA, and the Division of Workers Compensation.

DLSE adjudicates wage claims on behalf of workers who file claims for non-payment of wages, overtime, or vacation pay, pursuant to California Labor Code, Sections 96 and 98. DLSE deputies hold informal conferences between employers and employees to resolve wage disputes. If a matter cannot be resolved at the informal conference, an administrative hearing is held to make a final determination on the matter.

Notably, employees who seek to bring claims under the Private Attorneys General Act (PAGA) must first exhaust their administrative remedies with the LWDA.

Collective Activity Claims

Claims related to activity protected by the NLRA or a collective bargaining agreement are subject to the requirements of the NLRA. An employee claiming to have been subject to an unfair labour practice must file a charge with the NLRB and go through their administrative process. Employees covered by a CBA typically must seek relief through their union or other arbitration procedures set out in the CBA.

California will enforce arbitration provisions in employment contracts and in the employment context. However, there are a few restrictions. First, the arbitration agreement cannot be unconscionable (ie, excessively one-sided or procedurally unfair) or require the employee to waive his or her ability to file complaints with the DFEH or EEOC. Second, California law requires the arbitration agreement to meet certain minimum standards to be enforceable. These standards are:

• neutral arbitrators;
• adequate discovery;
• written award;
• all types of relief offered by a court; and
• no additional costs beyond those required by a court.

Provided the arbitration agreement meets these minimum standards and is not unconscionable, California courts will typically enforce it.

It is important to note that California has grown increasingly skeptical of arbitration agreements in the employment context. The California Assembly passed AB 51, which sought to limit mandatory arbitration agreements for employees. On 1 January 2024, a federal court enjoined state officials from enforcing AB 51. But the legal environment in California continues to trend towards viewing arbitration agreements in the employment context as suspicious.

Generally, California follows the “American Rule”, which requires that each party bear its own costs in litigation. However, many statutes in the employment context provide for fee-shifting or the award of attorney’s fees by the prevailing party. For example, PAGA cases allow for the award of attorney fees, if the employee prevails. Employees can also recover attorney fees in successful claims alleging discrimination, harassment, or retaliation under FEHA or federal counterparts (ADA, Title VII, etc).

California courts commonly use the “Lodestar” method to determine attorney fees for a prevailing party. The Lodestar is calculated by multiplying the reasonable number of hours spent on the case by a reasonable hourly rate.