Employment relationship
State-specific lawsWhat state-specific laws govern the employment relationship?
N/A
Who do these cover, including categories of workers?
N/A
MisclassificationAre there state-specific rules regarding employee/contractor misclassification?
Under California law, independent contractor classification is primarily governed by AB 5, which applies the "ABC test" in most cases. To legally classify a worker as an independent contractor, businesses must show that the worker: (1) is free from control in performing the work; (2) performs work outside the hiring entity’s usual business; and (3) is independently established in the trade.
Certain occupations are exempt from the ABC test and instead follow the Borello multi-factor test, with specific conditions and written agreement requirements (Cal. Lab. Code §§ 2775–2787). Misclassification carries serious legal and financial risks, including back wages, tax liabilities, and penalties.
Hiring entities must also report independent contractors to the EDD if they pay or contract for $600 or more, within 20 days of engagement (Unemp. Ins. Code § 1088.8). Starting January 1, 2025, the Freelance Worker Protection Act (S.B. 988) requires contracts for freelance services totaling $250 or more to be in writing (Bus. & Prof. Code §§ 18100–18107).
Intentional misclassification is unlawful and may result in additional penalties, especially if the employer makes unauthorized deductions from a misclassified worker’s pay (Cal. Lab. Code § 226.8).
ContractsMust an employment contract be in writing?
Employment contracts can be either written or oral in California.
Are any terms implied into employment contracts?
California law automatically incorporates various terms into employment contracts through statutes and court decisions. These implied terms fall into three main categories: (1) statutory obligations; (2) the covenant of good faith and fair dealing applies to all contracts but does not create new obligations beyond what the parties agreed; and (3) implied-in-fact terms may arise from an employer’s policies, practices, or conduct, even if not written in the contract. Because California’s Labor Code sets minimum standards that cannot be waived, these implied terms remain legally enforceable, even if they contradict express contract provisions.
Are mandatory arbitration agreements enforceable?
Mandatory arbitration agreements are generally enforceable in California.
How can employers make changes to existing employment agreements?
Under California law, employers can make changes to existing employment agreements, but the permissible methods and requirements depend significantly on whether the employment relationship is at-will or provides job security. For at-will employment, employers generally may make unilateral prospective changes to terms and conditions, with employees deemed to accept modifications through continued employment after receiving notice. For employment agreements that provide job security or are otherwise not at-will, employers must satisfy the three-part test established by the California Supreme Court: reasonable time in effect, reasonable notice of changes, and preservation of vested benefits.
California Civil Code Section 1698 establishes three distinct methods for modifying written employment contracts. CA CIVIL § 1698. First, a contract in writing may be modified by another contract in writing, which is the most straightforward approach requiring no additional elements. Second, written contracts may be modified by oral agreements to the extent that both parties have executed (performed) the oral agreement. Third, unless the contract expressly prohibits it, written contracts may be modified by oral agreements supported by new consideration, provided the modification complies with the statute of frauds if applicable. The statute also preserves other equitable doctrines such as estoppel, oral novation, rescission, waiver, and independent collateral contracts that may allow modifications even when statutory requirements are not met.
