Employment relationship

State-specific laws

What state-specific laws govern the employment relationship?

The sources of California employment law are numerous, including a number of statutory codes and administrative regulations. California’s anti-discrimination and disability accommodation law is the Fair Employment and Housing Act. The California Labor Code contains expansive laws governing wages, working conditions, worker’s compensation, employment relations, among others. The Industrial Welfare Commission (IWC) 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 section 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, an applicant, or a person providing services pursuant to a contract (Cal. Govt. 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 (Cal. Govt. Code § 12940). Employers must also reasonably accommodate the religious beliefs of volunteers and unpaid interns (Cal. Govt. Code § 12940 (l)).

Independent contractors may file harassment claims against the employing entity but may not file discrimination or retaliation claims under the act. 

The California Labor Code is the primary wage and hour law in California that governs the payment of minimum wage, overtime, meal periods, rest breaks, vacation pay out, and reimbursement of work-related expenses to employees. California independent contractors are not entitled to the wage and hour protections in the California Labor Code. 

The Industrial Welfare Commission (IWC) Wage Orders cover a wide variety of industries, including the manufacturing industry, the personal services industry, the public housekeeping industry, the mercantile industry, the transportation industry, the amusement and recreation industry, the broadcasting industry, the motion picture industry, agricultural operations, household occupations, and miscellaneous employees. The IWC Wage Orders are not applicable to independent contractors. 

The California Family Rights Act covers employers with 5 or more employees on payroll during each of any 20 or more calendar weeks of the current calendar year. All employees are eligible for its protections, including employees on the payroll who received no compensation and part-time employees. 

The California WARN Act applies to "covered establishments" who have employed 75 or more full and part-time employees in the preceding 12 months.

The California Healthy Workplace Healthy Family Act of 2014 provides entitlement to paid sick leave for any employee who, on or after July 1, 2015, works in California for 30 or more days within a year from the beginning of employment, including part-time and temporary employees. There are exceptions for employees covered by qualifying collective bargaining agreements, In-Home Supportive Services providers, and certain employees of air carriers.

Misclassification

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

Under the new legislation signed into law in California in September 2019, Assembly Bill 5 (AB5), starting January 1, 2020 workers will be presumed to be employees unless the employer can prove that the workers are independent contractors under the articulated test, which is referred to as the “ABC Test.” Under the ABC Test, the employer must be able to prove all three parts of the test:

A. the worker is free from the employer's control or direction in performing the work;

B. the work takes place outside the usual course of the business of the company; and

C. customarily, the worker is engaged in an independent trade, occupation, profession, or business.

 

AB5 does retain some exemptions for certain occupations with the stated purpose of retaining statutory and case law exemptions already in effect. These exempt professions, include, but are not limited to: physicians, surgeons, dentists, psychologists, veterinarians, lawyers, architects, engineers, private investigators, accountants, securities broker-dealers, investment advisors, direct sales persons, commercial fisherman, and real estate licensees. The exemption will also exist for workers who offer “professional services” defined to include: marketers, human resources administrators, travel agents, graphic designers, fine artists, still photographers, freelance writers, freelance editors, freelance newspaper cartoonists, licensed estheticians, licensed electrologists, licensed manicurists, licensed barbers, and licensed cosmetologists. Notably, AB5 does not provide general exemptions for nurses, programmers, or workers in the entertainment/motion picture industry. However, there are some industries specifically excluded from this legislation, with specific criteria attached to them, including repossession agencies, business-to-business contracting, subcontracting in the construction industry, referral agency relationships with service providers, and motor clubs contracting with individuals. AB2257 expanded the scope of these exemptions, now allowing sole proprietors to qualify as well. Other professions were also added. The referral agency exemption now includes a non-exhaustive list of services that may qualify, including consulting, interpreting services, and caddying. The professional services exemption adds translators, copy editors, illustrators, content contributors, advisors, producers, narrators, and cartographers. AB2257 also added exemptions for recording artists, songwriters, lyricists, composers, proofers, managers of recording artists, record producers and directors, musical engineer and mixers, musicians engaged in the creation of sound recordings, vocalists, photographers working on recording photo shoots and related content, independent radio promotors, and any other individual engaged to render any creative, production, marketing, or independent music publicist services related primarily to the creation, marketing, promotion, or distribution of sound recordings or musical compositions. Undoubtedly, the scope and nuances of the exemptions will be an area ripe for litigation.

The ABC test applies for purposes of the California Labor Code, the Unemployment Insurance Code, and the Industrial Welfare Commission (IWC) wage orders. Accordingly, for wage and hour purposes, employers must follow the ABC test.

Sections 226.8 and 2753 of the California Labor Code prohibit the willful misclassification of individuals as independent contractors, and impose civil penalties of between $5,000 and $25,000 per violation. Misclassified employees can also back pay (including overtime), penalties, and fees.

Under the Fair Employment and Housing Act, which protects employees from workplace discrimination, 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 the time and place 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 (Cal. Govt. Code § 12940(j)(5)).
Contracts

Must an employment contract be in writing?

Generally no written agreement is required. However, a commissioned salesperson’s agreement must be in writing (Cal. Lab. 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 (Cal. Lab. 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)). However, where there is an express at-will agreement signed by the employee, it cannot be overcome by proof of an implied contrary understanding (Guz, 24 Cal. 4th 317, 340 n. 10 (2000)).

Are mandatory arbitration agreements enforceable?

Assembly Bill 51 (AB51), which went into effect on January 1, 2020, prohibits employers from conditioning employment, continued employment, or any employment-related benefit on the applicant or employee waiving rights under the Fair Employment and Housing Act or the Labor Code, including the right to proceed in civil court; and prohibits employers from retaliating against an applicant or employee for refusing to waive employment-related rights. Under AB51, therefore, mandatory arbitration agreements are not enforceable. A federal court temporarily enjoined enforcement of AB51 while it determined whether it was superseded by the Federal Arbitration Act. 

On September 15, 2021 the Ninth Circuit Court of Appeals reversed (in part) the District Court's conclusion that AB51 is preempted by the FAA and vacated the preliminary injunction issued by the District Court, holding that the FAA does not preempt AB 51 to the extent it attempts to regulate the employer's conduct prior to executing the arbitration agreement. Chamber of Commerce of United States v. Bonta, 13 F.4th 766 (9th Cir. 2021). However, the Court held that the FAA does preempt AB 51 to the extent it attempts to impose penalties on those employers who have already successfully executed arbitration agreements governed by the FAA. In short, AB51's prohibition on mandatory arbitration agreements currently stands. However, AB51 does not affect arbitration agreements in force prior to enactment of the law.

The issue has not been settled, however, as appellees filed its petition for rehearing on October 20, 2021, the Court of Appeals subsequently ordering any hearings on the petition be deferred pending the U.S. Supreme Court's ruling in Viking River Cruises, Inc. v. Moriana. On August 22, 2022, the Court granted a panel rehearing, withdrew the panel opinion, and resubmitted the matter to the panel.

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 a signed writing between both the employer and the employee. Where employment is at will, the employer may generally unilaterally alter the terms of employment, with the exception of mandatory arbitration agreements. If an employer wants to change the terms of a confidentiality agreement during employment, employers should offer independent consideration.