Blog: The California Workplace Advisor

Founders have finite bandwidth, and in the early days, employment law compliance rarely feels as urgent as fundraising, product development, and building out the team. But the choices you make as you scale from 0 to 25 employees can have outsized consequences later—particularly when it comes to hiring, pay practices and leave obligations, and basic compliance infrastructure. The time you spend now developing compliant building blocks in a few key areas will cost far less than fixing a shaky foundation after you scale.

To start, prioritize knowledge and resource building in the following areas:

1. A multi-state compliance strategy
2. Core new hire documentation
3. Wage and hour compliance
4. Leave and accommodation basics
5. Required postings and notices

Develop a Multi-State Compliance Strategy Early
With the ease of hiring remote employees comes the potentially unanticipated challenge of navigating multi-state compliance as a small startup. The laws of the state and local jurisdiction where an employee physically performs work—and not the startup’s HQ location—generally govern the employment relationship. As an early priority, consider adopting a set of uniform core policies that extend California’s generous protections across all jurisdictions, with state-by-state addendums as needed to address state-specific quirks.

Rollout Standardized New Hire Documents
This may seem like a no-brainer, but not all templates are created equal. Be sure to partner with employment counsel you trust to get the basics right. Start with the trifecta of new hire agreements—an offer letter, a confidential information and invention assignment agreement, and an arbitration agreement.

• Create offer letter templates to meet your needs. At a minimum, standard offer letter templates should include at-will employment language, details surrounding compensation including any sign-on or year-end bonuses, details regarding whether the role is exempt from overtime, and contingencies including background checks and the verification of I-9 documentation. Create variations on your standard template that are specific to hourly/non-exempt roles (office managers, lab techs, executive assistants) and salaried/exempt roles (most engineers and scientists), and temporary employees (the candidate you want to test drive before you make a permanent hire).
• Use a Confidentiality and IP Assignment Agreement to protect proprietary technology. If the core of your business is new technology, include a “CIAA” as a part of your standard arsenal of new hire forms. Consider how you will define “confidential information” and ensure the language encompasses your core technologies but also isn’t so broad that a court is unlikely to enforce it if a dispute should arise. Expect new hires to ask for one-off adjustments to your standard agreement and proceed with caution—a new employee is unlikely to walk away if you hold the line and decline to tailor your standard agreement to their liking, but changes made to the agreement without input and sign off from corporate counsel could create unintended issues for the organization down the line.
• Consider whether an arbitration agreement fits your risk strategy. Arbitration agreements are a powerful tool, especially as a shield to class action lawsuits. While a potential class action may seem like a distant threat during the early stages of a company’s growth, rolling out an arbitration agreement early can protect you later as wage and hour lawsuits have a 3 to 4 year look back period from the date the lawsuit is filed. Keep in mind that employers retain flexibility regarding whether and how aggressively to enforce arbitration agreements in particular disputes, leaving little downside to rolling one out early.
• Pay particular attention to state-specific laws when implementing non-compete and non-solicitation provisions. If you plan to include provisions that may restrict employee mobility in your policies or new hire documents, pay particular attention to how each of the states where your employees are located approach this area of law as the enforceability of these provisions varies widely by state. In California, employment-related non-compete agreements are widely unenforceable. In addition, no-poach and employee non-solicitation provisions that interfere with employee mobility are increasingly vulnerable in California and need to be narrowly tailored to comport with California law.

Get Wage and Hour Compliance Right from the Start
The combination of California’s extensive regulation of the employer-employee relationship and a startup’s need to build and scale quickly create the perfect storm for potential wage and hour exposure. Reduce this risk by prioritizing compliance in the following areas:

• Make informed decisions when hiring “contractors.” California law presumes that all workers are employees. Before hiring an individual as a contractor, ensure that the role satisfies California’s “ABC Test” to support this classification. Contractor classifications should be used sparingly and approached with recognition that most workers should be classified as employees and not contractors.
• Be skeptical when classifying roles as exempt from overtime. California uses strict tests that examine job duties and compensation to determine whether an employee may be classified as exempt from overtime. Do not rely on industry practice, job titles, or employee preference when making this determination. Roles such as executive assistants and office managers are frequently misclassified as exempt despite the fact that their core job duties do not support this. Misclassification can lead to significant liability in the form of damages and penalties for missed meal and rest periods, unpaid overtime and inaccurate wage statements. Notably, misclassification almost always results in an underpayment of wages which in turn triggers waiting time penalties for misclassified workers who have separated from employment. Waiting time penalties accrue at a rate of 1 day’s pay for every day any amount of wages remain unpaid for up to 30 days. For example, a misclassified employee earning $75,000 annually could face waiting-time penalties exceeding $8,000.
• Invest in timekeeping software to ensure non-exempt employees are paid for every minute they work. Non-exempt employees should clock in immediately upon arriving at work (or sitting down at their desk at home if they work remotely) and should not perform any work tasks after clocking out for the day. For roles that are expected to work after regular business hours like EAs who may frequently respond to emails or take phone calls in the evenings, make sure this time is captured in your timekeeping system to avoid off-the-clock work claims. Educate new hires by including a brief overview of timekeeping expectations in your onboarding presentation.
• Make sure to comply with California’s strict timing requirements for final paychecks. When terminating an employee, they need to receive their final pay on the day they are terminated. When an employee resigns, they need to receive their final pay within 72 hours of their final day of employment. While this might seem like a small detail, steep penalties can accrue for every day that final pay is late (1 day’s pay for every day up to 30 days).

Understand Core Leave and Accommodation Requirements
Whether your startup has two employees or dozens, various state and federal regulatory schemes create entitlements to leaves of absence and accommodations—adjustments to work responsibilities needed to allow an employee with a medical condition or other disability to perform their job. For California startups with 25 or fewer employees, the primary sources of these entitlements are the California Family Rights Act (“CFRA”), the California Fair Employment and Housing Act (“FEHA”), California’s sick leave laws, and the federal Americans with Disabilities Act (“ADA”). These laws are complex and difficult to navigate without guidance.

• Familiarize yourself with basic leave entitlements. In a nutshell, CFRA provides job-protected leave to employees who need time off for their own serious health condition, to care for a sick family member, to bond with a new child, and in connection with a close family member’s military services. Don’t forget to review local ordinances for potential additional obligations relating to paid sick leave and paid family leave. If you have remote workers or operations outside of California, be sure to familiarize yourself with any additional leave-related laws in those jurisdictions as well.
• Understand an employer’s obligation to engage in the interactive process. California’s FEHA and the federal ADA prohibit discrimination and also create affirmative obligations for employers to engage in the interactive process with employees who have disabilities that limit their ability to perform the essential functions of their job. The obligation to engage in the interactive process can be triggered by a multitude of factual scenarios, such as when an employee is injured (either at work or outside of work) or when an employee’s mental health condition substantially limits a major life activity. The interactive process can become tricky, especially when the employee in need of an accommodation also has performance issues.
• Train managers to recognize when it’s time to loop in People Ops or seek outside advice. You can and should prepare managers to spot potential issues with simple training during onboarding and any time an employee is promoted from an individual contributor role into a people manager role. To start, make sure your managers know that even informal requests for accommodation can trigger the company’s obligation to engage in the interactive process. They should also understand the importance of appropriately documenting requests for leave, accommodation, or workplace support while maintaining employee confidentiality. Finally, be sure managers are trained to recognize the potential risk associated with an underperforming employee who is suddenly taking frequent or extended time off so that outside employment counsel can oversee the performance management and leave or accommodation process.

Don’t Overlook Required Postings and Notices
California requires employers to post certain notices in the workplace and to provide copies of various pamphlets at the time of hire, when certain events occur such as disability leave, or at the time of termination. The California Department of Industrial Relations and the Employment Development Department provide useful resources summarizing many of these requirements. Be sure to check local ordinances for any additional requirements that may apply to your California-based employees.

For more information, contact China Daly in the San Francisco office of Hirschfeld Kraemer LLP. She can be reached at 415-835-9027 or cdaly@hkemploymentlaw.com.