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Employment relationship

State-specific laws

What state-specific laws govern the employment relationship?

The sources of California employment law are numerous and include a number of statutory codes and administrative regulations. California’s anti-discrimination and disability accommodation law is the Fair Employment and Housing Act, while the California Labor Code contains expansive laws governing wages, working conditions, worker’s compensation and employment relations, among others. The Industrial Welfare Commission Wage Orders contain additional wage and hour requirements for employees in specific industries. Employee leave laws include the California Family Rights Act and pregnancy disability leave laws. Article 1(1) of the California Constitution provides all citizens with privacy, and this extends to employees. The Cal-WARN Act adds certain protections to employees in the event of mass layoffs, relocations or plant closings.

Who do these cover, including categories of workers?

The Fair Employment and Housing Act covers an employee, applicant or person providing services pursuant to a contract (California Government Code, §12940). The meaning of “person providing services pursuant to a contract” has been interpreted broadly to also include contract workers and employees of an independent contractor (Hirst v City of Oceanside, 236 Cal App 4th 774 (2015)). Volunteers and unpaid interns are now also protected under the act from discrimination and harassment (California Government Code, §12940). Employers must also reasonably accommodate the religious beliefs of volunteers and unpaid interns (California Government Code, §12940 (l)).

Independent contractors may file harassment claims against the employing entity but may not file discrimination or retaliation claims under the act. California independent contractors are not covered by requirements to pay minimum wage, overtime, meal periods, rest breaks, vacation pay out, reimbursement of work-related expenses or other similar benefits under wage/hour laws. 

Misclassification

Are there state-specific rules regarding employee/contractor misclassification?

Sections 226.8 and 2753 of the California Labor Code prohibit the willful misclassification of individuals as independent contractors, and imposes civil penalties of between $5,000 and $25,000 per violation. There is no single definition of ‘independent contractor’ and different tests have been applied depending on the law implicated and context. For example, under the Fair Employment and Housing Act, an independent contractor:

  • has the right to control the performance of the contract for services and discretion on the manner of performance;
  • is customarily engaged in an independent business;
  • has control over when and where the work is performed;
  • supplies the tools and instruments used in the work; and
  • performs work that requires a particular skill not ordinarily used in the course of the employer's work (California Government Code, §12940(j)(5).

For the purposes of determining whether an independent contractor is properly classified for wage and hour purposes, the Department of Labor Standards Enforcement follows the workers' compensation standard's multi-factor or economic realities test (see the Department of Labor Standards Enforcement Policies and Interpretations Manual, §28 (2002 edition)).

Contracts

Must an employment contract be in writing?

Generally no written agreement is required. However, a commissioned salesperson’s agreement must be in writing (California Government Code, §2751). 

Additionally, California’s Wage Theft Protection Act requires employers to provide employees with written notice of their rates of pay, allowances, regular payday and other information, at their time of hire and within seven days of any changes to such information (California Labor Code, §2810.5).

Are any terms implied into employment contracts?

There are implied covenants of good faith and fair dealing in employment contracts (Guz v Bechtel National, Inc, 24 Cal 4th 317 (2000)). Implied contract or implied terms may also be found based on:

  • an employer’s words or conduct;                                                                                                                      
  • its personnel policies or practices;                                                                                                                    
  • the employee's longevity of service;                                                                                                                  
  • actions or communications by the employer reflecting assurances of continued employment; and  
  • the practices of the industry in which the employee is engaged (Foley v Interactive Data Corp, 47 Cal 3d 654, 680 (1988)).

Are mandatory arbitration agreements enforceable?

Mandatory arbitration agreements are considered contracts of adhesion and therefore have been found to be procedurally unconscionable. They will therefore be enforced only if the terms are not substantively unconscionable (ie, one-sided or harsh) and comply with the requirements established in Armendariz v Foundation Health Psychcare Services, Inc (24 Cal 4th 83 (2000)):

  • The agreement must provide the employee with all remedies available in a court action.
  • The agreement must provide for sufficient discovery to allow employees to gather necessary evidence to prove their claims.
  • The agreement must provide for a written decision that can be meaningfully reviewed.
  • The employee cannot be required to pay any additional costs beyond those it would routinely face in court litigation.
  • The employer cannot limit the types of claim subject to arbitration such that only claims typically brought by employees are subject to arbitration.

Further, arbitration agreements cannot be used to waive an employee’s rights under the Private Attorney General Act, which must remain with the court even if the remainder of the case is sent to arbitration.

How can employers make changes to existing employment agreements?

Most employment agreements include express provisions requiring all modifications to be made in writing. Where employment is at will, the employer may unilaterally alter the terms of employment.

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