Exempt Versus Non-Exempt Workers

“Exempt” employees include those in “administrative, executive or professional capacities”. These workers are exempt from certain protections if they earn a salary of at least twice the minimum wage. The classification is based on actual job duties, not mere titles. All other employees are “non-exempt”.

Employees Versus Independent Contractors

Workers are employees unless they:

• a) are free from control;
• b) perform work outside the usual course of the employer’s business; and
• c) are customarily engaged in an independently established trade or business.

This is called the “ABC” test.

App-Based Transportation and Delivery Drivers

Drivers for statutorily defined “network companies” meeting specified conditions are deemed independent contractors entitled to unique benefits, including a minimum earnings guarantee. Which kinds of app-based work qualify is being actively litigated.

“At-Will” Versus “Definite-Duration” Contracts

At-will employees can be terminated, or quit, “at will”, while those with contracts for a definite term of more than one month can only be terminated for cause. While at-will is the default, courts recognise oral and implied contracts for employment which may render an employment relationship one for “definite duration” despite no written contract. See Eisenberg v Alameda Newspapers, Inc, 74 Cal App 4th 1359, 1386 (1999).

Employment Contracts

California does not require a written contract for employment, and parties have considerable latitude to determine the terms of employment within mandatory state standards – such as minimum wage – that effectively become part of the employment agreement whether written or otherwise. However, certain waivers of waivable state standards must be in signed writing.

Wage Statements

Employers must provide an accurate itemised statement detailing numerous aspects of the employment, including gross wages earned and total hours worked. Employees injured as a result of a knowing and intentional failure to comply with the wage statement requirements can sue for actual damages or statutory penalties, plus costs and attorney fees.

A reasonable good faith mistake is a defence. However, since employers who fail to adhere to state standards – such as on matters of pay or rest – will often therefore provide inaccurate wage statements, the wage statement rules may provide an additional avenue of recovery for workers.

Eight-Hour Workday as State Policy

California does not set a hard limit on the number of hours that may be worked in a week or day. However, the Labor Code does specify that “[e]ight hours of labor constitutes a day’s work” and work in excess of eight hours in a day, or 40 hours in a workweek, must be compensated by at least 150% of the regular rate of pay, as must the first eight hours worked on the seventh consecutive day of work. Additionally, any work in excess of 12 hours in one day must be compensated by at least 200% of the regular rate, as must any work in excess of eight hours on any seventh day of a workweek.

Alternative Workweeks

While employers are “discouraged” from imposing work beyond the eight/40-hour state baseline (Alvarado v Dart Container Corp of California, 4 Cal 5th 542, 561 (2018), as modified (25 April 2018)), they may propose an “alternative workweek” up to ten hours per day without the extra compensation usually required. The proposal must win two thirds of a secret vote of employees to become effective. Employees must still be compensated at 150% for work in excess of the alternative workweek hours up to 12 hours in a day, and at 200% for work in excess of the alternative workweek hours of more than 12 hours in a day.

Part-Time Employment

California imposes no particular requirements on part-time employment contracts, which are subject to the same hours requirements and “at will” assumption as other employment contracts.

State Minimum Wage

Since 2023, the minimum wage has been at least USD15 per hour, plus inflation adjustments, which consist of an increase of the lesser of:

• 3.5%; or
• the actual change in inflation.

Thus, in 2026 the state minimum is USD16.90 per hour for all employers. Certain industries have their own minimum wage requirements, such as healthcare workers who may be entitled to up to USD25 per hour after 1 July 2026. 

Local Minimum Wage

Localities may set their own minimum wages, enforceable by employees via the Labor Code to the same extent as state minimums. For example, in Los Angeles as of 1 July 2026, the minimum wage is USD18.42 per hour, and an employee paid less than this in Los Angeles could bring a claim against their employer for minimum wage violations even if the wage is higher than the state minimum.

Bonuses

California treats bonuses – like almost all payments for labour – as wages, subject to the same requirements of prompt payment that apply to other wages.

Leave Entitlements

Paid vacation

While not legally required, where provided, vacation pay is considered “deferred compensation for services rendered” rather than a gratuity or gift, meaning that once earned it becomes part of an employee’s wages and is entitled to the same protections. See Suastez v Plastic Dress-Up Co, 31 Cal 3d 774, 779 (1982). Vacation pay vests as labour is performed, and once vested it becomes wages protected from forfeiture.

Upon termination or resignation, all vested vacation time must be promptly paid to the employee as wages at the employee’s usual rate. While accrued vacation cannot be subject to forfeiture, such that “use it or lose it” policies are unlawful in California, employers may set limits beyond which no further vacation will accrue. See Boothby v Atlas Mech, Inc, 6 Cal App 4th 1595, 1597 (1992).

Paid sick leave

Paid sick leave is mandatory and accrues at a rate of at least one hour every 30 hours worked, with exempt employees deemed to work 40 hours a week. An employee cannot use paid sick leave until the 90th day of employment but then may use it as it is accrued. Accrued sick leave carries over to the following year of employment, but usage can be limited by the employer to the greater of five days or 40 hours per year of employment. Paid sick leave must be compensated at the employee’s regular rate of pay, but employers are not required to compensate employees for accrued unused sick days upon termination.

The California Family Rights Act (CFRA)

Employees who have worked for an employer for at least 12 months and have completed at least 1,250 hours of work may request up to 12 workweeks in any 12-month period for family care and/or medical leave. Employers must ensure that the employee can return to the same or a comparable position after the leave. Family care and medical leave is defined broadly to include things such as birth, care of close family, the employee’s own health, and exigencies related to military service.

CFRA leave does not accrue. Employers may also require that the employee substitute paid leave to run concurrently with CFRA leave, such that the CFRA leave will exhaust accrued leave but be paid for as long as the accrued paid leave lasts. The employer can require this substitution of paid leave in the form of vacation pay and, if the CFRA leave is sought for the employee’s own health condition, the employer may also require substitution of accrued sick days.

Pregnancy disability leave

Pregnancy disability leave provides up to four months of unpaid leave for employees disabled by pregnancy, childbirth or related conditions. This leave does not accrue but is available as needed during the period of disability. Employers must maintain and pay for group health insurance during the leave. Employees eligible for CFRA leave may take both pregnancy disability leave and an additional 12 weeks of CFRA leave for baby bonding.

Paid family leave

Paid family leave provides wage replacement benefits for up to eight weeks within a 12-month period. This leave can be taken to care for seriously ill close family, to bond with a new child, or in the event of a call to military service. This is an insurance benefit of the state, not employer-provided leave, and it does not accrue. Additionally, the statute does not guarantee job protection unless the employee also qualifies for protected leave.

Confidentiality

Settlement agreements

Settlement agreements in employment litigation cannot restrict the disclosure of factual information related to claims of sexual assault, harassment or discrimination filed in civil or administrative actions.

Confidentiality agreements cannot restrain trade

Confidentiality agreements must not be structured to prevent the employee from practising their profession, or they will be deemed unlawful non-compete agreements.

Confidentiality in arbitration agreements

Courts have found that confidentiality requirements in employment arbitration agreements are substantively unconscionable and should be severed where possible.

Releases

Waiver of civil rights and non-disparagement agreements

It is illegal for an employer to condition raises, bonuses, hiring or continued employment on the employee either releasing civil rights claims or signing a non-disparagement agreement. Any agreement restricting disclosure of facts pertaining to unlawful workplace conduct must notify employees that they are not prevented from discussing unlawful acts such as harassment or discrimination.

Employer Liability for Employee Torts

Employer vicarious liability

Employers are liable for most employee torts committed within the scope of employment without proof of fault, such as negligence. See Sunderland v Lockheed Martin Aeronautical Sys Support Co, 130 Cal App 4th 1, 8 (2005). This liability extends to fraudulent, malicious and even criminal torts of employees, so long as they are committed within the scope of employment.

The “scope of employment” test for employee liability

There are two tests for “scope of employment”. Under one test, the employer is liable if the dangerous activities were undertaken with the employer’s permission and were of some benefit to the employer or inherent in the work. See Perez v City & Cnty of San Francisco, 75 Cal App 5th 826, 833 (2022). Under the other test, the employer is liable if:

• the harmful act was either required by or incident to the employee’s duties; or
• the employee’s misconduct could be reasonably foreseen by the employer (Id).

Limitations on employer liability

Torts outside the “scope of employment”

A major restriction on employer liability exists where the employee has substantially deviated from employment duties for personal purposes unrelated to the employment. If the tort is of such a personal, non-work-related nature, the employer will not be liable even if the tort is committed on employer property and/or during work hours. See Farmers Ins Grp v Cnty of Santa Clara, 11 Cal 4th 992, 1005 (1995).

Independent contractors

California generally does not impose vicarious liability on employers for the torts of their independent contractors. See Bostrom v Cnty of San Bernardino, 35 Cal App 4th 1654, 1665 (1995). However, under the “peculiar risk doctrine”, an employer may be liable where the independent contractor is hired to perform inherently dangerous work. Additionally, under the “non-delegable duty doctrine” an employer may be liable for failures to perform certain duties by independent contractors, based on the notion that certain duties simply cannot be delegated.

Employee Direct Liability

Employees are also personally liable for torts they commit at work. Thus, where an employee commits a tort within the scope of employment, both the employer and the employee may be liable.

Non-Competes Generally Void

California voids non-compete agreements in employment contexts, with narrow exceptions. California does not recognise independent consideration as a basis for validating non-compete agreements in the employment context, and any contract void under the non-compete prohibition is unenforceable regardless of where and when the contract was signed. Should an employer either enter into or attempt to enforce an illegal non-compete, the employee may sue for injunctive relief, damages or both, and recover attorney fees and costs.

Exception for Sale of Business Goodwill

A business owner selling the goodwill of a business may agree to non-competition with the buyer within a limited geographic area.

Customer Non-Solicits

Customer non-solicitation agreements are illegal restraints of trade. Should an employer either enter into or attempt to enforce an illegal non-solicitation agreement, the employee may sue for injunctive relief, damages, and attorney fees and costs.

There is a narrowly construed exception that may apply when such an agreement is necessary to protect a trade secret of the employer. See Gordon v Landau, 49 Cal 2d 690, 694 (1958). However, following AMN Healthcare, Inc v Aya Healthcare Services, Inc, there is doubt as to whether even this limited exception survives (28 Cal App 5th 923 (2018)).

Employee Non-Solicits

Employee non-solicits are presumptively void, even when narrowly drawn or otherwise limited. See California Business and Professions Code Section 16600. AMN Healthcare, Inc v Aya Healthcare Services, Inc took the position that Section 16600 has no exception for “narrow” or “limited” restrictions, but found that even if such exceptions existed they would not save an agreement that “restrained individual [workers] from engaging in their chosen profession, even in a ‘narrow’ manner or a ‘limited’ way”. Id at 939.

Employer Obligations to Protect Employee Data

The Confidentiality of Medical Information Act (CMIA)

Employers who receive employee medical information, defined broadly, must establish “appropriate procedures” to ensure confidentiality. California prohibits disclosure or use of such information without authorisation in most cases that do not pertain to benefits administration. Employers who violate the CMIA can face civil penalties up to USD250,000 per violation and may be guilty of a misdemeanour.

Sunset of California Consumer Privacy Act (CCPA) exemption

As of 1 January 2023, California employers are no longer exempt from the CCPA and must therefore protect the personal information of employees and applicants from disclosure. Covered employers must provide a notice at collection and privacy policy to workers, honour certain employee data-related requests, and limit use of sensitive information. There is no private right of action except in the case of a data breach.

Genetic and biometric information

Genetic data and biometric data are classified as “sensitive” and subject to heightened protections.

Social security numbers

Employers may not publicly post or display an individual’s social security number, including on any access card, and may not:

• require transmission over the internet unless the connection is secure and/or the number is encrypted;
• require input of the number in lieu of a password;
• print the number on any mailed materials (unless legally required); or
• otherwise disclose the number.

However, employers may, and often must, obtain these numbers from employees, and can be required to disclose these numbers, including to federal agencies such as the Internal Revenue Service. See, for example, Overhill Farms, Inc v Lopez, 190 Cal App 4th 1248 (2010).

Employee Privacy Rights

The California Constitution

The California Constitution contains an explicit right to privacy. See California Constitution, Article I, Section 1. This right applies to private entities, including employers, and the California Supreme Court has cautioned that the “diverse” and “complex” employment context requires careful attention by courts.

A plaintiff seeking recovery for a privacy violation under the California Constitution must establish:

• a legally protected privacy right;
• a reasonable expectation of privacy under the circumstances (note that this may be diminished in the employment context); and
• a “serious” invasion of that privacy interest.

See Hill v Nat’l Collegiate Athletic Assn, 7 Cal 4th 1, 37 (1994).

Disclosure of application data

The California Supreme Court has stated that a “job applicant who provides personal information to a prospective employer can reasonably expect that the employer will not divulge the information outside the entity except in very limited circumstances”. See Cnty of Los Angeles v Los Angeles Cnty Emp Rels Com, 56 Cal 4th 905, 928 (2013) (holding that certain disclosures to a union were justified).

Privacy in the workplace

The California Supreme Court has stated that “the same analysis applies in the workplace as in other settings; consequently, an employee may, under some circumstances, have a reasonable expectation of visual or aural privacy against electronic intrusion by a stranger to the workplace, despite the possibility that the conversations and interactions at issue could be witnessed by coworkers or the employer”. See Sanders v Am Broad Cos, Inc, 20 Cal 4th 907, 918 (1999).

Specific facts are important, such as the use of technology to conduct surveillance, and the location where the observation occurred (eg, in a private versus public space). See Hernandez v Hillsides, Inc, 47 Cal 4th 272, 291 (2009).

Employers should ensure that any privacy notices, such as those informing employees of the monitoring of internet use or email, are sufficient to notify employees as to all potential privacy-intruding practices, as an effective notice may prevent the employee from being able to establish a “reasonable expectation of privacy”.

Privacy of employee communications

Employees are entitled only to the privacy they might reasonably expect. Even emails sent by an employee to their attorney regarding potential legal action against the employer are not confidential attorney-client communications if:

• they are sent from a company device; and
• the employee is on notice that the employer can inspect all communications sent from company devices.

See Holmes v Petrovich Dev Co, LLC, 191 Cal App 4th 1047, 1051 (2011).

Under the California Invasion of Privacy Act (CIPA), it is illegal to “intercept” (ie, wiretap) communications, or record confidential communications, without consent. A party to a communication cannot be sued for interception, but they can be sued for recording without consent. As such, employers must obtain consent from all parties before recording a communication, including through the use of transcription and recording services provided by third-party vendors, and must be cautious not to “aid and abet” the wiretapping of a conversation by such vendors.

Employee Right to Personnel Records

Current and former employees have a right to inspect and receive a copy of certain personnel records, including records of any grievance. Records must generally be provided within 30 days of a valid employee request and must be maintained for at least three years after termination of employment under the Labor Code and for four years under the California Fair Employment and Housing Act (FEHA).

Federal immigration policy has experienced significant shifts since 2025, and California has responded with new legislation to protect foreign workers. Practitioners should verify current requirements.

The Immigration Reform and Control Act (IRCA) prohibits US employers from hiring workers who are unauthorised to work in the USA, and requires employers to verify work eligibility by completing a Form I-9 for each employee, retained for three years from hire or one year after separation, whichever is longer. On 16 March 2026, US Immigration and Customs Enforcement (ICE) published a fact sheet that elevated several Form I-9 violations from technical to substantive violations, which may lead to additional penalties for non-compliant employers without a corrections period.

California law extends employment protections to all workers regardless of immigration status, and immigration-related retaliation (eg, threatening to report status, misusing E-Verify) is independently actionable, supporting both Labor Commissioner enforcement and private claims. Under the Immigrant Worker Protection Act, employers may not voluntarily consent to immigration agents entering non-public worksite areas or accessing employee records without a judicial warrant or subpoena. Effective 2026, the Workplace Know Your Rights Act requires an annual notice of employees’ rights during immigration enforcement encounters and employee designation of an emergency contact to be notified upon workplace arrest or detention. Non-compliance carries civil penalties of up to USD500 per employee per violation (and, for emergency-contact violations, up to USD500 per employee per day, capped at USD10,000 per employee).

Employers seeking to hire foreign workers must first seek certification through the US Department of Labor, then petition the US Citizenship and Immigration Services for a visa, which varies based on the circumstances. Applicants must establish that they are admissible to the USA.

One category of non-immigrant visa, H-1B, which focuses on specialty occupations, has faced particular challenges in the past year. In September 2025, Presidential Proclamation 10973 imposed a USD100,000 fee on certain new H-1B petitions. A federal judge in Massachusetts struck down the requirement in June 2026, but the decision is stayed pending appeal, so the fee is currently collectible.

California largely prohibits agreements entered into on or after 1 January 2026 that require employees to repay costs associated with sponsoring immigrant and non-immigrant visas and permanent resident status.

Application of General Employment Laws

California’s general employment laws apply to remote workers when California is the “physical location where the worker presents himself or herself to begin work”. See Ward v United Airlines, Inc, 9 Cal 5th 732, 755 (2020). Ward determined that the legislature intended the wage statement laws to apply “to workers whose work is not performed predominantly in any one state, provided that California is the state that has the most significant relationship to the work”. Id. This was satisfied for “interstate transportation workers and others who do not work more than half the time in any one state” so long as “the worker performs some work [in California] and is based in California”. Id. For remote workers based entirely within California, there is complete protection under California employment law.

Specific Rules for Certain Employees

State employee telecommuting programme

California law has a policy in favour of remote work by state employees, and every state agency must develop a remote work policy where it is favourable to the agency’s objectives.

Financial services employees

Certain financial services employees are subject to specific restrictions on remote work, which require the employer to enforce certain policies, such as prohibiting in-person consumer interactions and ensuring that remote employees have adequate equipment.

Data Privacy for Remote Workers

Other than covered financial services employees, remote workers are generally subject to, and protected by, the same data privacy laws that apply to on-site workers.

Workplace Injuries

Injuries and illnesses that occur while an employee is working from home are considered work-related if the injury or illness occurs while the employee is performing work for pay or compensation in the home, and the injury or illness is directly related to the performance of work rather than to the general home environment or setting. The regulations provide examples, including an employee dropping a box of work documents on their foot (work-related), and tripping over the family dog while answering a work call (not work-related).

Tax

For employers with employees who work partially or entirely outside California, it is important to determine whether the employee’s presence in a non-California state triggers tax withholding requirements for the employer. An employer may have tax obligations in a state based on their employee’s presence in that state even if the employer otherwise has no business contacts with that state. With international employees, the employer must further ensure that they are complying with any laws of the foreign jurisdiction in which the employee is located.

A remote employee must pay California taxes even on work performed outside California so long as the employee is deemed to be a California resident. For non-residents, California will tax only gross income sourced from within California.

Sabbaticals for Employees in Education

A leave of absence of up to one year may be granted for the purpose of study or travel that will benefit the school/university and its students.

Sabbaticals for Other Employees

In the private employment context, California courts distinguish between “legitimate” sabbaticals, in which “the leave is designed as an incentive for continued and improved performance”, and mere vacations, which include so-called sabbaticals that are “merely as a reward for a prior period of service”. See Paton v Advanced Micro Devices, Inc, 197 Cal App 4th 1505, 1521 (2011). Courts consider several factors to distinguish between sabbaticals and vacation, including the frequency and length of leave. Id. Vacation, but not sabbaticals, must be paid out on termination. Id. In addition to the factors discussed in Paton, courts will consider the extent to which the programme resembles recognised sabbatical programmes, such as in education.

High-Risk Automated Decision Systems in Employment

California Government Code Section 11546.45.5 defines a “high-risk automated decision system” as “an automated decision system that is used to assist or replace human discretionary decisions that have a legal or similarly significant effect, including decisions that materially impact access to… employment”. State agencies are required to maintain comprehensive inventories of such systems, but private employers are not implicated.

Artificial Intelligence-Related Employment Discrimination

California’s existing discrimination laws under FEHA apply to artificial intelligence-assisted employment decisions.

Ongoing Developments

In 2026 the California Senate proposed Senate Bill 951, imposing notice and other obligations on some employers who fire employees or restrict hiring due to automated decision-making technology. The statute would require at least 60 days’ written notice ahead of any layoffs, or cessation of hiring, affecting 25 or more workers (or 25% of workers), and provide for penalties up to USD500 per day for violations, plus back pay where appropriate. Employers would also be required to give notice to the state and identify the specific technology and vendor at issue. The proposed statute would be enforceable through private lawsuits.

Federal and State Regulation

The federal National Labor Relations Act (NLRA) governs private-sector unions, whereas California law covers public-sector employees and is administered by the Public Employment Relations Board (PERB). Both the federal and state schemes encourage the use of collective bargaining by employees and strictly curtail employer interference with this protected collective activity.

Federal law

The NLRA declares a federal policy of encouraging and protecting collective bargaining activity by employees. Employees under the NLRA have the right to:

• self-organise;
• form, join and assist labour unions;
• bargain collectively through representatives of their choice; and
• engage in other “concerted activities” for the purpose of collective bargaining.

The Supreme Court has held, however, that the right to engage in “concerted activities” does not include a right to sue as a class where there is an applicable arbitration agreement. See Epic Sys Corp v Lewis, 584 US 497 (2018). The NLRA covers collective bargaining in private-sector employment but permits states to regulate labour relations with their own employees.

California law

The Meyers-Milias-Brown Act (MMBA)

California’s MMBA, administered by PERB, governs labour relations between local governments and their employees to promote communication between such employers and employees by providing procedures to resolve disputes relating to terms and conditions of employment, and to provide a uniform method for recognising the organisational rights of public employees.

The Educational Employment Relations Act (EERA) and Higher Education Employer-Employee Relations Act (HEERA)

The EERA governs public school employees and promotes the right of such employees to join labour organisations and be represented in employment disputes by representatives of their choice. The HEERA governs labour relations in the California State University and University of California systems.

California Labor Code Sections 922–23

California Labor Code Sections 922–923 operate as a foundational declaration of state policy for private-sector workers, finding that such workers have full freedom of association to self-organise and designate representatives to negotiate employment terms without employer interference. It is a crime for any person to coerce or compel any person to agree not to join a union as a condition of employment. However, because most conduct that is illegal under Section 922 is also covered by the NLRA, which pre-empts state law, most employer disruptions of protected union activity are challenged under the NLRA rather than the Labor Code.

The California Agricultural Labor Relations Act (ALRA)

The ALRA provides collective bargaining rights for agricultural workers who are excluded from coverage under the federal NLRA. The ALRA mirrors California Labor Code Sections 922–23 in encouraging and protecting union activity, and is administered by the Agricultural Labor Relations Board (ALRB).

The term “employee organisation” encompasses traditional unions and other employee groups. In practice, most recognised employee bodies in California are traditional labour unions, and courts frequently use “union” and “employee organisation” interchangeably.

Federal Law Is Primary

The primary scheme applicable in California is the federal scheme. In the case of collective bargaining agreements (CBAs), the Labor Management Relations Act (LMRA) governs the enforcement of such agreements in federal court.

California Specifics

CBAs are generally enforced the same as other contracts, and breaches are subject to the same remedies, including injunctive relief. However, in certain cases the existence of a valid CBA will exclude a covered worker from the right to statutory sick days under the Labor Code, so long as the CBA provides for certain minimum protections, including a wage of at least 30% more than the state minimum wage. Additionally, for agricultural workers, California mandates mediation and a conciliation process when the parties fail to reach a CBA.

Grounds for Termination

At-will employees

At-will employees can be fired at almost any time and for almost any non-discriminatory reason, or no reason at all, with no minimum notice period. Despite this, the employer cannot terminate for an illegal reason, such as illegal discrimination, or one contrary to fundamental public policy recognised in a constitutional or statutory provision.

Definite-duration employees

Employees subject to a contract for a definite term can only be terminated for specific statutory or contractual grounds. See California Labor Code Section 2924. In other words, employees subject to a definite-duration contract can only be fired “for cause”. However, when a definite-duration contract reaches the end of its term, the employment terminates automatically without need for cause.

All employees

Every employment – both at-will and for a definite duration – is terminated by any of the following:

• expiry of its appointed term (ie, the end of a definite-term contract);
• extinction of its subject;
• death of the employee; or
• the employee’s legal incapacity to act as such.

Collective Redundancies

The California Worker Adjustment and Retraining Notification Act (the “Cal/WARN Act”)

The Cal/WARN Act imposes advance notice requirements on employers conducting mass layoffs, plant closures, or relocations, and provides greater protections than the federal counterpart, which may also apply.

Notice requirements

An employer cannot execute a mass layoff, relocation or termination at a covered establishment without providing 60 days’ advance written notice to affected employees and specified government agencies, which must include all of the contents required by the federal Worker Adjustment and Retraining Notification Act, with additional state requirements. Notice requirements are waived if the layoff/relocation/termination is necessitated by a “physical calamity or act of war”.

Liability

An employer who fails to give notice must pay affected employees back pay at the average regular rate of compensation received during the last three years of employment, or the final rate (whichever is higher), as well as the value of any benefits that would have been received. An employer who fails to pay is subject to a civil penalty of up to USD500 per day of violation unless the employer pays all applicable employees the amounts owed within three weeks from the date of the layoff/relocation/termination.

At-Will Employees

At-will employees can be terminated at any time without cause or minimum notice.

Definite-Duration Employees

Employees with contractual employment terms are entitled to any notice provided in the employment contract. Courts have approved employment contracts that permit termination without cause on 60 days’ written notice, and with cause with no notice. However, there are no minimum notice terms for termination for cause in a contractual employment.

Employees Subject to a CBA

CBAs are highly customisable by the parties, and unions may negotiate for notice periods in the applicable CBAs, which become enforceable once executed.

Severance

The requirement to pay “severance” will only arise from a contract between the employer and employee, when required by a CBA, or when an employer violates the Cal/WARN Act and is liable for quasi-severance penalties.

Employees subject to a definite-duration contract can be terminated on grounds agreed in the contract, as well as for specific statutory reasons:

• wilful breach of duty by the employee in the course of employment;
• habitual neglect of duty; or
• continued incapacity to perform.

Similarly, an employee subject to a CBA may be dismissed based on grounds agreed between the union and the employer.

Release of Claims

Courts enforce even very broad releases that cover known and unknown state and federal claims arising from employment or its termination. Releases often require explicit waiver of California Civil Code Section 1542, which generally prevents the release of unknown claims. The question of whether future claims can be released is complex, as California generally prohibits contracts that excuse a party from their own future lawbreaking.

Claims under FEHA can be released, but such releases are subject to court scrutiny to ensure that the release was knowing and voluntary and not itself the product of discrimination.

Other Limitations

Certain provisions in termination agreements are simply unlawful. These chiefly relate to employee non-solicits, customer non-solicits, and non-compete agreements, which are strictly limited.

Protected Characteristics Under FEHA

Under FEHA, it is illegal to discriminate against any employee because of race, religious creed, gender expression, sexual orientation, reproductive health decision-making, veteran or military status, colour, national origin, ancestry, physical disability, mental disability, medical condition, genetic information, marital status, sex, gender, gender identity or age.

Whistle-Blowers

Employers are prohibited from retaliating against an employee for disclosing information to a government or law enforcement agency, to a supervisor or to a public investigatory body, hearing or inquiry where the employee has reasonable cause to believe that the information reveals a violation of law. Retaliation against employees who refuse to participate in illegal activities is also unlawful.

Occupational safety complaints

It is unlawful to discharge or discriminate against an employee due to that employee’s institution of a proceeding relating to their rights, their testifying in such a proceeding, or due to the employee’s exercise of any right afforded by the occupational safety laws.

Labor rights and wage complaints

Employers may not take any adverse action against an employee because of the employee’s engaging in conduct protected by the Labor Code, filing a bona fide complaint or claim with the Labor Commissioner, making a complaint that they are owed wages, or exercising any rights.

Immigrant Employees

Reporting – or threatening to report – an employee’s immigration status (or that of their family), real or suspected, to the authorities because the employee has exercised their rights constitutes an “adverse action” for the purpose of determining a violation of the employee’s rights.

At-Will Employees

Even for at-will employees, California courts recognise a tort of wrongful termination in violation of public policy, and in some cases courts will impute an implied contract to an otherwise at-will relationship based on the parties’ conduct.

Wrongful termination in violation of public policy

The primary theory requires the employee to prove four elements:

• that the employee was employed by the defendant;
• that the defendant discharged the employee;
• that a violation of public policy substantially motivated the discharge; and
• that the discharge caused harm to the employee.

See Diego v Pilgrim United Church of Christ, 231 Cal App 4th 913, 920 (2014).

Additionally, the policy providing the basis of the claim must meet the following requirements (Id):

• the policy must be delineated in either constitutional or statutory provisions;
• the policy must be “public” in that it “inures to the benefit of the public” rather than serving merely the interests of the individual;
• the policy must be “well established” at the time of the discharge; and
• the policy must be “substantial” and “fundamental”.

Breach of implied contract

A terminated at-will employee who can prove that the employer breached an implied-in-fact covenant to terminate only for good cause may be able to recover on tort and contract theories. In other words, even where there is no written contract at issue, sufficient evidence of an intent to make the employee terminable only for cause can overcome the presumption of at-will employment and entitle the employee to assert wrongful termination as though they were definite-duration employees. See Foley v Interactive Data Corp, 47 Cal 3d 654, 677 (1988).

Definite-Duration Employees

Breach of the employment contract

To establish wrongful dismissal under a definite-duration contract, the employee must prove that the employer terminated the employment prior to the term’s expiry, without the good cause required by California Labor Code Section 2924. This is treated as a breach-of-contract action.

Breach of the implied covenant of good faith and fair dealing

The “implied covenant of good faith and fair dealing” applies to all contracts and requires the parties to prosecute the contractual relationship without interfering with the other party’s ability to receive their benefits under the contract. In practice, this means that the employer cannot frustrate the employee’s ability to benefit under the contract, even if this does not rise to a breach of any particular contractual term.

Remedies for Wrongful Dismissal

At-will employees proceeding on a public policy theory

For at-will employees proceeding under a public policy theory, the remedy is tort damages, and a victorious employee may recover compensatory damages for lost wages as well as potentially punitive damages where the employer’s conduct was particularly egregious. See Freund v Nycomed Amersham, 347 F3d 752, 760 (9th Cir 2003).

Definite-duration employees

Definite-duration employees wrongfully discharged are entitled to expectation damages representing the wages and benefits they would have received under the remainder of the contract term. Definite-duration employees may not sue for tort damages under the implied covenant and may not claim under both the implied covenant and the written contract for the same employer conduct. Definite-duration employees proceeding on an implied covenant of good faith and fair dealing theory are restricted to contract remedies and cannot seek tort remedies. See Foley v Interactive Data Corp, 47 Cal 3d 654, 693 (1988).

Discriminatory discharge

Discharging an employee on a discriminatory or retaliatory basis is prohibited by FEHA. Such workers may recover any relief available in civil actions. Employees may also seek tort damages, including punitive damages for public policy violations based on FEHA’s policy, while FEHA itself gives rise to the full range of statutory remedies. See Stevenson v Superior Ct, 16 Cal 4th 880, 895 (1997).

The “same-decision” defence

If an employer can prove that it would have made the same employment decision without the discriminatory motive, the court cannot award economic damages, back pay or reinstatement, but may still award declaratory relief, injunctive relief (to end the discrimination) and attorney fees. See Harris v City of Santa Monica, 56 Cal 4th 203, 235 (2013).

Whistle-Blowers

Employees subject to adverse action, including termination, for reporting suspected lawbreaking can recover all available remedies, plus a civil penalty of up to USD10,000 per employee per violation for the benefit of the employee, not the state. Additionally, employees discharged for making bona fide safety complaints are entitled to reinstatement and reimbursement for lost wages and benefits. These statutory remedies are cumulative, and employees may also pursue common law and/or FEHA claims based on the same conduct. See Prue v Brady Co/San Diego, 242 Cal App 4th 1367, 1381 (2015).

Constructive Discharge

Where the former employee can establish that the employer’s conduct effectively forced their resignation, such as by making work intolerable, they may be able to establish “constructive discharge”. The employee must still prove the other elements of a wrongful dismissal claim, but the doctrine can transform a resignation into a “firing” for purposes of wrongful dismissal.

Discrimination in employment is prohibited at both the state and federal level, with California’s FEHA working alongside several important federal statutes to prohibit employment discrimination.

FEHA

California’s FEHA prohibits discrimination in employment based on protected characteristics such as race or sex. FEHA also requires employers, labour organisations, employment agencies and training programmes to take reasonably necessary steps to prevent discrimination and harassment from occurring. FEHA prohibits retaliation against employees who have opposed discriminatory practices or have filed complaints and/or given testimony to that effect.

The exhaustion requirement for FEHA claims

A person claiming to be subject to employment discrimination must file a verified complaint with the Civil Rights Department, setting forth the details of the claim, and obtain a “right-to-sue” letter. Failure to comply with this requirement can lead to dismissal of a FEHA claim.

Remedies

Courts may grant any relief available in a civil action for a violation of FEHA, including injunctive relief, hiring, reinstatement, upgrading, back pay, front pay and other equitable relief.

While California has no specific requirements for digitalisation in employment disputes, California courts and agencies are typically at or near the forefront of the use of digital technology in dispute resolution. Since the COVID-19 pandemic, remote court access has become common, and many arbitration agreements permit remote hearings. In addition, under California’s Uniform Electronic Transactions Act, electronic records and signatures are given the same legal effect as paper versions.

The Berman Hearing

Scope and procedure

Berman hearings are limited to wages, overtime, meal/rest break pay, final pay and related compensation-based claims. The Berman hearing is designed to provide quick, informal and affordable resolution to claims, and is held within 90 days of the matter being accepted by the Labor Commissioner, who must file an order, decision or award within 15 days of the hearing. Pleadings are limited to a complaint and an answer; there are relaxed rules of evidence, and there is no right to formal discovery and no need for a party to be represented by a lawyer.

Employee election of forum: court or Labor Commissioner

When an employer fails to pay due wages, the employee has a choice between filing a civil claim in court or filing a wage claim with the Labor Commissioner under the Berman hearing procedure – there is no requirement of exhaustion as exists for discrimination claims. See Arias v Kardoulias, 207 Cal App 4th 1429, 1434 (2012). 

Appeals

An employer must post a bond for any appeal that covers the amount of the award. Further, employers are liable for employee attorney fees if the employee wins anything above zero after the appeal, but employees are only liable for employer fees if they are awarded zero – even employees whose claims are dismissed on jurisdictional grounds are not liable. Id at 1438. Appeals of Berman orders are de novo, essentially providing for a complete redo of the hearing. If no appeal is filed, the order becomes a “final order” which is enforceable as a civil judgment.

The Private Attorneys General Act (PAGA)

PAGA authorises employees who have personally suffered an enumerated Labor Code violation within a year to recover civil penalties for Labor Code violations on behalf of themselves, other employees and the State of California itself. Under PAGA, the employee is “deputised” by the Labor and Workforce Development Agency (LWDA) and brings a civil action in court. Any provision of the Labor Code that provides for a civil penalty assessed by the LWDA can instead be enforced through a PAGA action. PAGA has a one-year statute of limitations.

Remedies

To incentivise public actions in furtherance of PAGA’s pro-enforcement goals, the statute provides that 35% of the penalty assessed can be awarded to the workers, and these awards can be substantial. No other monetary remedies are available, but workers may be awarded injunctive relief and attorney fees.

Notice requirement

PAGA requires written notice, which must include some factual basis for the claims rather than mere recitation of statutory violations, filed online with the LWDA and mailed to the employer, and a fee of USD75 (which may be waived). The plaintiff cannot sue under PAGA for 65 days, during which the LWDA must either take the case or permit the employee to proceed. However, employees are not barred from suing under the Labor Code in court before, or contemporaneously with, notice to the LWDA, and can amend such lawsuits to add PAGA claims following the LWDA’s declination or expiry of the notice period. See Brown v Ralphs Grocery Co, 28 Cal App 5th 824, 835 (2018). The LWDA very rarely decides to investigate a case.

FEHA

An employee bringing employment discrimination claims under FEHA must exhaust administrative remedies by filing a complaint with the Civil Rights Department and obtaining a “right-to-sue” letter. Unlike Labor Code claims subject to the Berman hearing procedure, there is no dedicated tribunal responsible for FEHA disputes; upon exhausting administrative remedies, the plaintiff may sue in court.

Class Actions

California has a state policy in favour of class actions to resolve disputes. See Marler v EM Johansing, LLC, 199 Cal App 4th 1450, 1462 (2011). Almost all employment claims can theoretically be resolved on a classwide basis, but class action plaintiffs may not seek the civil penalties available under PAGA.

Generally Available Arbitration

Pre-dispute mandatory arbitration agreements are enforceable unless they are:

• subject to generally applicable contract defences such as fraud or unconscionability; or
• applied to prohibited disputes such as sexual assault and harassment (the employee may elect to arbitrate such claims).

This is occasionally phrased as a “policy in favour” of arbitration, though in recent years courts have been clear that this “policy” does not permit courts to actually favour arbitration, requiring “equal treatment” instead. See Morgan v Sundance, Inc, 596 US 411 (2022); Quach v California Com Club, Inc, 16 Cal 5th 562 (2024).

Challenges to Arbitration Agreements

Unconscionability is the most common challenge to arbitration agreements, and requires both “procedural” and “substantive” unconscionability, evaluated on a “sliding scale” such that a great deal of one will excuse a small amount of the other.

Procedural unconscionability concerns the process of forming the contract. Factors such as the font size, the complexity and length of the agreement, and the extent of negotiation, if any, bear upon this inquiry. Substantive unconscionability concerns the unfairness of the terms themselves.

In California, arbitration agreements between employers and their workers are subject to minimum requirements. See Armendariz v Foundation Health Psychcare Services, Inc, 24 Cal 4th 83 (2000). To avoid unconscionability, an agreement that requires employees to arbitrate statutory employment claims must provide for:

• a neutral arbitrator;
• adequate discovery;
• a written arbitration decision;
• all remedies available in court; and
• payment by the employer of any costs unique to arbitration.

The baseline assumption in California employment litigation is that each party is responsible for their own attorney fees. However, in the employment context this is subject to numerous exceptions. A prevailing plaintiff in a FEHA action will ordinarily recover attorney fees, but a prevailing employer defendant can only recover attorney fees if the plaintiff’s case was frivolous, unreasonable, without foundation or brought in bad faith.

The law provides for attorney fees and costs for prevailing employees alleging payment below the minimum wage. Unlike under FEHA, the award is not discretionary. There is one-way fee-shifting in favour of workers who prevail in whistle-blower retaliation claims.

Finally, California Code of Civil Procedure Section 1021.5 allows courts to award attorney fees to a successful party in any action that results in the enforcement of an important right affecting the public interest, which can apply in employment litigation.