4 Surprising Things to Know About California’s Employment Law

Let’s start by testing your knowledge of California employment law with this short True/False Quiz:

  1. Employee Agreements are mandatory in California. T or F
  2. Employee Non-Compete Agreements are legal in California. T or F
  3. It is possible that the same individual may be considered an employee for purposes of one law and an independent contractor under another law. T or F
  4. A person with the title “manager” is always exempt from overtime. T or F

Below are the answers, with explanations and high-level details. Be sure to check with an expert in employment law before you make a mistake on any of these. There’s no argument on this fact: THE LAWS IN CALIFORNIA FAVOR THE EMPLOYEE, and ignorance of the law is not an excuse, here or anywhere else in the law. Please call us if you have a question because as you will see, some of the laws are a little confusing

  1. False

Although Employee Agreements can be helpful to set forth duties, expectations and responsibilities of the employee, they are not mandatory in California. An Employee Agreement can include provisions relating to salary, employment term, benefits, bonuses, dispute resolution, job termination, etc.

BE AWARE: An Employee Agreement may take the employment relationship out of the “At-Will” category, which, without such agreement, is presumed in California. Please call us for an explanation of At-Will relationships!

  1. False

In California, employee Non-Compete Agreements are illegal and will not be upheld by the courts.  They are treated as a restraint of trade.

However, of these three “non” agreements —Non-Compete, Non-Disclosure, Non-Solicitation—the second two ARE legal:

  • Employers can include Non-Disclosure Agreements (NDAs) to protect proprietary information, including client or customer lists.
  • Non-Solicitation Agreements also are valid to restrict soliciting of both employees and customers.
  1. True

This is where it gets tricky! A person working in your business could be considered as an independent contractor, or they could be an employee. The IRS and several California state agencies are involved with the determination of independent contractor status. The Employment Development Department (EDD), which is concerned with employment-related taxes, is one of these agencies. The other is the Division of Labor Standards Enforcement (DLSE), which is concerned with whether the wage, hour and workers’ compensation insurance laws apply.

Since different agencies may be involved in a particular situation (such as a termination of employment), it is possible that the same individual may be considered an employee for purposes of one law and an independent contractor under another law. Because the potential liabilities and penalties are significant—tens of thousands of dollars in back pay and statutory penalties for erroneously classifying an employee as exempt, or as an independent contractor if an individual is treated as an independent contractor and later found to be an employee—each working relationship should be thoroughly researched and analyzed before it is established.

One of the major determining factors is the degree of control, if any, that the employer maintains over the worker.  This can include hours of employment, place where work is performed, method of payment, decision making regarding the manner in which the work is performed, etc.

Having an independent contractor agreement is helpful, but it will not be the determining factor in whether an individual is an employee or independent contractor.

  1. False

While many people think that the employee’s title (e.g., manager), or the method of pay (annual salary vs. hourly wage) determines the issue of exempt status, these are not factors.  What is exempt vs. non-exempt? Simply put: exempt employees are not entitled to overtime. The issue of exemption is determined by, among other things, the employee’s actual job duties, the percentage of time he or she devotes to such duties, and whether or not the employee meets specific labor code requirements.  The designation is a legal one, under both Federal and State law, and cannot be influenced by the wants and desires of the employer… or the employee for that matter. Again as in #3 above, misclassification can result in horrendous liabilities and penalties.

How did you do on the quiz?

Bottom Line:

Knowing employment law is almost a full-time job. Organizations and their owners can lose everything if they’re not careful. Small and medium sized businesses can rarely afford a legal department, but they should take advantage of outside general counsel services to address employee and other applicable business laws and statutes, which are continually changing! It’s almost like insurance. You cannot prevent employee issues (or lawsuits) from happening, but you can reduce your losses, and sometimes avert them by proper planning and regular meetings with your advisors.

About the author: Richard W. Greenbaum owns Richard W. Greenbaum, PC. He has been providing legal counsel and representation to business clients throughout Southern California including Long Beach, Seal Beach, Torrance and the South Bay for over 25 years.

Disclaimer: The information contained in this article is intended to provide general information only and not legal advice. You should consult with an attorney licensed to practice in your jurisdiction before relying upon any of the information presented here.

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