Employee Handbook Compliance Review for Employers & Business Owners
Please contact us to schedule an appointment to review your existing employment Handbook, and/or company policies & procedures to ensure your business is California labor law compliant.
Welcome to the Law Offices of Chauvel & Glatt, LLP!
We are based in San Mateo, California, and serve the Peninsula and surrounding communities, including San Francisco to San Jose, as well as clients throughout Los Angeles, San Diego and San Bernardino Counties and the State of California. We’ve been providing legal services for more than 3 decades and specialize in the fields of Business Law, Real Estate Law, Employment Law, Estate Planning/Probate, Transportation Law, and Intellectual Property Law. We bring a wide range of knowledge and experience, with members of our team speaking English, Spanish and Tagalog.
Practice Areas
Our Team
Our attorneys enjoy working collaboratively and strive to keep matters as simple as possible. We share a desire to give you unparalleled customer service by being proactive and responsive to all your needs.
April Glatt
April Glatt
Natalia Cañas
Natalia Cañas
Derek Myers
Derek Myers
TJ Walsh
TJ Walsh
Joe Newman
Joe Newman
Ken Weinfield
Ken Weinfield
Our Expertise
- We provide legal advice relative to the myriad of employment-related requirements and rules that apply to employers under California labor law.
- We handle business formation and commercial transactions, as well as commercial litigation.
- We guide our clients through the creation of individual and family trusts, wills, trust administration and the probate process.
- Our firm advises established companies as well sole proprietors, start-ups, and independent contractors in relation to protecting their rights.
- We are well-versed in a wide variety of commercial and residential real estate matters to provide you full-service representation for all your property needs.
- Our attorneys specialize in the transportation and logistics fields and have a thorough understanding of carrier regulations and compliance issues.
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- Employee Handbooks, Employment Law
Posted in: News
With hundreds of laws in California that relate to employment, it is essential to have experts review your employee handbooks to ensure compliance. Employee handbooks condense and disseminate these laws into an easily understood format to ensure that the business and the employees understand all workplace policies and expectations. Laws regularly change, statutes are revised, and information is added, as a California employer, it is best practice to regularly update your employee handbooks to remain compliant with all relevant state and federal laws.
With a comprehensive and regularly maintained employee handbook, your business has enhanced protections in the case of lawsuits by current or former employees, as you can prove that stated and agreed-upon practices were followed. An up-to-date employee handbook also guides your employees and management on relevant employment laws and how to navigate workplace practices, avoiding repercussions in the form of lawsuits, administrative penalties, fines, and reputational harm.
Legal Foundations of Employee Handbooks in California
While Californian law does not place requirements on whether a business must have an employee handbook, there are laws governing what must be included in an employee handbook if the business has one. Additionally, whether a business has an employee handbook or not, businesses must inform their employees of various legal rights and workplace policies.
Covered topics in an employee handbook should include an at-will statement to clarify that in California employment is considered at-will, state laws, federal regulations, workplace policies, and a place at the end of the document where the employee acknowledges that they have read and understood the policies detailed in the handbook. Including the acknowledgment section for the employee’s signature helps protect your business in the case of legal action, as it confirms the employee was made aware of all relevant policies and laws.
State-specific laws typically expand on the laws set by the federal government and must be detailed in an employee handbook. California provides greater protections to employees than are offered federally, and there are laws governing paid sick leave, crime victim and domestic violence leave, voting leave, rehabilitation leave, meal and rest break mandates, pay transparency policies, and more. Federal laws cover policies that are set by federal law and case precedent, such as the Americans with Disabilities Act and accommodations under it, the Family Medical Leave Act and how to administer it for your company, religious accommodations, equal opportunity employment, anti-discrimination, and federal safety standards, which are separate from state-specific laws but can be expanded upon by state laws. Determining which policies and protections must be included in an employee handbook can be daunting to navigate, so let the attorneys at Chauvel & Glatt, LLP handle the intricacies to keep your business in compliance.
A crucial component to add to any employee handbook is an at-will statement to reinforce that both the employee and the employer can terminate the working relationship at any point. Paired with a clause stating that an employee handbook does not count as an employment contract, this helps protect your business from litigation if and when the employee-employer relationship ends.
Key Reasons to Update Employee Handbooks Regularly
There are a number of reasons to ensure regular reviews and updates to your employee handbook including workplace trend changes, HR best practices updates, revisions to local laws and ordinances, state law changes and implementation, and federal law and agency updates.
One of the largest driving factors for updating an employee handbook is new or updated state laws. A frequently updated law in California that might impact your employee handbook is the annual minimum wage increase for both exempt and nonexempt employees. Discrimination law was a category that saw more than one update in 2025 for California, and ensuring compliance with the new laws concerning protected characteristics, identification requirements, court duty excused absences, and employment discrimination policy enforcement will protect your business from costly lawsuits, fines, and reputational harm.
Federal laws and policies frequently change, and staying abreast of those changes and updating your employee handbook will help your business practices remain compliant with all federal agencies and laws. A recent Occupational Safety and Health Administration ruling regarding PPE is an example of a change that could affect employee handbook written policies and business practices and should be included in an employee handbook update.
Various municipalities in California have city and county-specific laws that must be included in an employee handbook if your business operates in those areas. Both San Francisco and Los Angeles have scheduling laws that require employers to provide schedules at least two weeks in advance, San Francisco has a law requiring supplemental compensation for a new child bonding period, and Los Angeles has specific laws regarding how paid sick leave may be used in addition to use for illness as examples of locality specific laws.
Changing workplace trends towards practices like hybrid or remote work environments and technology advancements and subsequent adoption of advancements like AI, along with HR best practices including pay transparency and interdepartmental collaboration are more causes to update employee handbooks. Hybrid and remote work policies should be clearly stated in employee handbooks to guard against misinterpretation or confusion about work duties and working hours. With the increased utilization of AI, handbooks must be updated to reflect what the acceptable and ethical use of AI looks like within the company to prevent any misunderstandings or potential regulatory fallout.
Recent Legislative and Judicial Changes Affecting Employee Handbooks
Several new legislative changes have taken effect in California for 2025 that necessitate employee handbook updates, including ones affecting minimum wage, paid time off, discrimination, retaliation, workplace safety, and arbitration.
For all employers, no matter how many people they employ, the nonexempt hourly wage has increased to $16.50, although some localities have higher minimum wages, such as Los Angeles with $17.28 as the hourly minimum, and San Francisco’s hourly minimum wage of $18.67. If your business operates or has any remote employees located in one of these municipalities, ensure that your handbook is updated to reflect these minimum wages. For exempt employees statewide, the new minimum annual salary is $68,640.
California’s Fair Employment and Housing Act (FEHA) was revised to state that not only is discrimination prohibited based on individual protected characteristics, but is also prohibited for combinations of two or more protected characteristics – also known as intersectionality. It is important that harassment policies reflect this update.
Covid-19 protocols and regulations have been changed for 2025 and should be reviewed to determine how they impact your business. Employers are also still required to initiate and maintain an Injury and Illness Prevention Program to promote workplace safety and wellness, which should be referenced and discussed in the employee handbook. However, employers should have separate detailed policies regarding their Injury Illness Prevent Program and Workplace Violence Prevention Plans as required by California law.
7 Critical Policies to Review and Update in California Employee Handbooks
The best practice for employee handbooks is to review and update them at least annually, but biannual or quarterly reviews will help ensure your company remains in compliance with changing legislation.
1. Wage and Hour Compliance
Not only does California have minimum wage adjustments annually, but they also require overtime pay for nonexempt employees if those employees work more than 8 hours consecutively in a day, 40 hours in one week, for all hours worked on a seventh consecutive day in a single workweek, and if the employee works more than 12 hours in a single 24-hour day nonconsecutively.
California laws dictate the length and frequency of both meal breaks and rest periods during an employee’s shift and can vary depending on municipality. Clearly outlining these policies is a requirement for California employee handbooks.
Currently, California’s pay transparency requires all job postings to include pay ranges and give employees the right to request pay scale information at any point in their employment. There is also legislation currently in session that would require pay scales listed in job advertisements to be no more than 10% above or below the mean pay rate within the wage range.
Penalties for violating wage requirements can include fines, imprisonment, legal fees, back pay to affected employees, and levies against the business’ property. The employment law services at Chauvel & Glatt, LLP can help you address these regulations in your employee handbook and implement practices to avoid facing problems with wage and hour compliance.
2. Leave Policies
Leaves of absence laws in California were recently updated to state that employees can use paid sick leave for time off work needed because the employee or one of their family has experienced an act of violence or a crime, allowing them to use that paid time off to receive services from a shelter, seek medical attention, counseling, obtain safety protections, or file for a restraining order. Employers can also no longer require employees to use up to 2 weeks of earned vacation time before applying for the state’s paid family leave benefits.
Updates to the California Family Rights Act have increased the amount of income paid to an employee on Paid Family Leave (PFL) or State Disability Insurance (SDI) to 70-90% of their income. These expansions have expanded the relationships that qualify for job-protected care under PFL to include immediate family, in-laws, and a designated person who can be chosen or extended family.
For both bereavement and reproductive loss (on the part of either the employee or their partner/spouse), employers with 5 or more employees must provide a minimum of 5 days of leave. These days do not have to be consecutive as long as they are taken within 3 months of the loss.
All these policies should be revised or updated in an Employee Handbook to ensure your policies are compliant with update to date California labor law requirements.
3. Harassment, Discrimination, and Retaliation Protections
California’s FEHA has expanded protected characteristics to include sex, color, age, ancestry, creed, both mental and physical disabilities, marital status, medical conditions, denial of family and medical care leave, sexual orientation, religion, race, primary language, citizenship, immigration status, and national origin, and prohibits discrimination based on these categories either solely or in combination with other protected characteristics.
The FEHA also mandates required components of anti-harassment training that include written policies available to all employees, , official policies for responding to and handling complaints, complaint investigation processes, and appropriate remedial actions. Including these procedures and processes in your employee handbook provides transparency and accountability, while protecting your business from legal action in the event of a harassment claim.
Employers are now required to post notices and inform employees of whistleblower rights, and the information must include the whistleblower hotline number. This notice must be displayed where employees can easily access it, and remote employees should receive this information via email. It is recommended as a best practice to also include this information in an employee handbook.
4. Remote and Hybrid Work Policies
In California, employers must reimburse employees for the portion of their internet and phone bills used for work, and all other reasonable work expenses such as equipment, supplies, and mileage.
Even for remote employees, California employers are required to ensure workplace safety through ergonomic equipment and proper training to reduce injury and accident risks. They must also ensure remote and hybrid employees know how to file worker’s compensation claims for injuries sustained while working at home.
Strong data security measures in the form of VPN access, confidentiality policies, and secure communication channels are essential for managing remote and hybrid employees and should be clearly communicated in employee handbooks.
5. Employee Conduct and Social Media Policies
Laws in California protect employees’ rights to lawful off-duty conduct, however, an employee can still be terminated if the behavior will negatively affect or harm the business and if it violates documented company policy. If the behavior was discovered by the employer in a way that could be considered an invasion of privacy, it could violate the employee’s rights.
Social media policies need to be in place and documented in a handbook to outline expectations for employee and business use and to protect the company from litigation in the event an employee is terminated due to social media content. Ensuring the policies are regularly reviewed and updated in the everchanging online environments keeps companies in compliance with all relevant laws.
6. Workplace Safety and Health Policies
Regulatory penalties for violating Cal/OSHA requirements have increased in 2025, making it crucial to review and update workplace safety and health practices in your employee handbook to avoid violations and protect your business from fines and damages.
Creating a written Injury and Illness Prevention Program in compliance with California law is required to ensure employees comply with safe and healthy work practices. Including this program in the handbook allows employees to review it as needed, improving the safety of the workplace.
As of February 3, 2025, COVID-19 prevention regulations are no longer in effect for California, eliminating regulatory requirements for COVID-19 prevention in places of business. However, the regulations requiring reporting and recordkeeping by employers of employees who have contracted COVID-19 and been at work during the incubation or infection period remain in effect until February 3, 2026.
7. Hiring, Discipline, and Termination Procedures
Recent California law updates prohibit employers from requiring an applicant to have a driver’s license unless the position requires driving and the employer reasonably believes that other forms of transportation would negatively impact travel time or costs for the employer.
“Ban the Box” laws prohibit employers from asking applicants about criminal conviction history in the initial application and interviewing process, and are prohibited from considering criminal history not resulting in a conviction when making hiring decisions, but background check results can be considered when determining whether to accept or deny a candidate after a conditional offer has been presented.
In California, depending on whether an employee was terminated or voluntarily left and whether notice was given or not, the final paycheck due to an employee must be ready for them either on their last day or within 72 hours of their last day. Stating these parameters in the handbook provides clarification and accountability for both parties.
Ensuring Legal Compliance and Reducing Liability Risks
Conducting annual reviews of employee handbooks and ensuring compliance with updated and new California labor laws protects your business from regulatory penalties, reputational harm, and litigation.
Consulting employment attorneys will help you interpret changes and implement them to comply with California’s strict laws and avoid broad generalizations that could infringe on employee rights.
Best Practices for Communicating Updates to Employees
When handbooks are updated, ensure all employees are provided with an updated Employee handbook and confirm receipt and acknowledgement of such Handbook. Utilizing acknowledgment systems with physical or digital signatures confirms employees have read and understood the updates and helps protect the business. Previous handbook versions should be retained for compliance review and protection in the case of legal action.
It is also essential to provide accessible/in-language updates for multilingual or disabled employees to comply with anti-discrimination and accommodation laws.
Professional Handbook Reviews for California Companies
Updating your employee handbook in proactive compliance with changing laws protects your business from costly litigation, claims of discrimination, and regulatory impacts. It also increases transparency and accountability for your business, encouraging a culture of legal compliance that can only benefit your company.For a comprehensive review your employee handbook, or for assistance in building a new employee handbook, contact the employment attorneys at Chauvel & Glatt, LLP today.
- Wage and Hour
Posted in: News
California has some of the most stringent wage and hour laws in the country, and employers must stay compliant to avoid costly penalties and legal disputes. The complexity of state labor laws, combined with frequent legislative updates, makes it essential for businesses to remain informed about their obligations.
For employers, failing to follow wage and hour laws can lead to lawsuits, government investigations, and reputational damage. Understanding these regulations and implementing best practices is crucial for maintaining a lawful and efficient workplace. Chauvel & Glatt can audit your workplace practices to ensure you are California Labor Compliant.
Understanding California’s Wage and Hour Laws
California’s labor laws generally offer greater protections to employees than federal laws under the Fair Labor Standards Act (FLSA). When state and federal laws differ, employers must follow the law that provides the highest level of benefits to employees.
For example, California’s minimum wage is always higher than the federal minimum wage. Additionally, California has unique rules regarding overtime, breaks, and employee classification that differ significantly from federal standards. Key wage and hour laws California employers must understand include but are not limited to:
Minimum Wage Requirements
California’s minimum wage varies depending on county and even local ordinances. As of 2025, the statewide minimum wage is $16.50 per hour for all employers, regardless of size.
Many cities and counties, such as San Francisco and Los Angeles, have higher minimum wage rates. Employers must follow the local minimum wage if it exceeds the state rate. Employers should monitor updates to local and state minimum wage laws and adjust payroll accordingly.
Overtime Rules in California
California’s standard overtime laws are also stricter than federal requirements. Employers must pay overtime as follows:
- 1.5 times the regular pay rate for hours worked over 8 hours in a single workday, or over 40 in a workweek, and the first 8 hours on the seventh consecutive workday in a workweek.
- 2 times the regular pay rate for hours worked over 12 in a single workday and or over 8 hours worked on the seventh consecutive workday in a workweek.
Meal and Rest Break Laws
California requires employers to provide unpaid meal breaks as follows:
- A30-minute meal break by the end of the 5th hour of work.
- A second 30-minute meal break if the employee works more than 10 hours in that same workday.
If an employee is not given a compliant meal break, the employer must pay an additional one hour of pay as a penalty for each missed break.
Similarly, employees are entitled to a paid 10-minute rest break for every four hours worked. Rest breaks should be provided in the middle of the work period whenever possible, and uninterrupted and free from work duties. Failing to provide proper meal and rest breaks can lead to wage claims, class-action lawsuits, and significant financial penalties.
Common Wage Violations and How to Avoid Them
California employers must comply with some of the nation’s strictest wage and hour laws. Even unintentional violations can lead to costly penalties, employee lawsuits, and government enforcement actions. Understanding the most common violations can help businesses avoid legal risks and ensure compliance with state labor laws.
Misclassifying Employees as Exempt or Independent Contractors
One of the most frequent and expensive mistakes employers make is misclassifying employees as either exempt from wage and hour laws or as independent contractors rather than employees.
Exempt vs. Nonexempt Employees
To be classified as exempt, an employee must meet both a salary threshold and a job duties test under California law. Exempt employees are not entitled to overtime pay, meal and rest breaks, or certain wage protections. As of 2025, exempt employees must earn at least $68,640 annually and primarily perform executive, administrative, or professional duties which is a legal analysis.Employers that misclassify employees as exempt without meeting these requirements can face liability for unpaid overtime, break penalties, and other damages.
To avoid misclassification, employers in consultation with their legal advisor should regularly review job classifications to ensure employees meet both the salary and duties tests. If unsure, it is safer to classify workers as nonexempt to ensure compliance with wage and hour laws. HR teams and supervisors should receive training on these distinctions to prevent costly errors.
Improper Handling of Final Paychecks and Accrued Vacation Pay
California has strict rules on when an employee must receive their final paycheck. Missing these deadlines can lead to waiting time penalties, requiring employers to pay one day’s wages for each day the final paycheck is late, up to 30 days.
Terminated employees must receive their final paycheck immediately upon termination. Employees who resign with at least 72 hours’ notice must be paid on their last day, while those who quit without notice must receive final wages within 72 hours. Final paychecks must include all wages earned through the last day worked, including unpaid overtime and commissions, as well as accrued, unused vacation pay, which California considers earned wages. Employers cannot delay or withhold payment by requiring employees to return company property first.
To stay compliant, businesses should prepare final paychecks in advance for planned terminations or resignations with notice. HR and payroll teams should be trained to issue final checks on time and ensure vacation pay is included when applicable.
Failing to Reimburse Business Expenses
California law prohibits employers from shifting business costs onto employees. Under Labor Code Section 2802, businesses must reimburse workers for all necessary expenses incurred on the job.
Reimbursable expenses include cell phone and internet costs when used for work purposes, mileage and travel expenses for personal vehicles used on the job (reimbursed at the IRS rate of 70 cents per mile in 2025), and remote work expenses such as office supplies, printers, and required software.
Employers should implement a clear reimbursement policy that specifies eligible expenses and requires employees to submit reimbursement requests with documentation. Regular audits of reimbursement payments help ensure compliance and prevent potential wage claims.
Wage and hour violations can result in costly penalties, lawsuits, and reputational damage. Employers can mitigate risks by properly classifying employees, issuing final paychecks on time, and reimbursing all necessary business expenses. Proactive compliance measures, such as regular audits and HR training, help businesses avoid disputes and maintain a lawful workplace. Consulting an experienced employment attorney can provide additional guidance on wage and hour compliance, ensuring businesses remain protected.
What to Do If Faced with a Wage and Hour Claim
Despite an employer’s best efforts, wage and hour claims can still arise. Whether due to an oversight, a misunderstanding, or an intentional violation, these claims can lead to significant financial penalties and reputational damage. Employers must act quickly and strategically to address wage disputes and minimize liability.
Steps to Take If an Employee Files a Wage Claim with the California Labor Commissioner’s Office
- Review the Claim Carefully: When an employee files a wage claim with the California Labor Commissioner’s Office (DLSE), employers receive a notification outlining the alleged violation. Carefully review the details, including the time period covered, the employee’s allegations, and any requested payments.
- Gather Relevant Records: Accurate recordkeeping is critical, as California law generally favors employees when employers lack documentation. Employers should immediately collect all relevant documentation, including time records, payroll data, meal and rest break logs, employment agreements, or handbooks.
- Assess the Validity of the Claim: Employers should evaluate whether the claim has merit by comparing the allegations with available records. If a mistake was made, it may be best to settle early. If the claim is unfounded, employers should prepare a strong defense. This is something that should be considered in consultation with an employment attorney.
- Respond to the DLSE Notice: Employers typically have 10 days to respond to a wage claim. This response should be thorough and supported by clear documentation. Employers can dispute claims by demonstrating compliance or correcting any discrepancies.
- Prepare for the Settlement Conference: The DLSE will often schedule a settlement conference to resolve the dispute informally. Employers should bring all relevant records to the conference and be prepared to negotiate if appropriate. In addition, employers may choose to seek legal representation to ensure they don’t unknowingly admit to liability.
- Defend Against a Formal Hearing: If no settlement is reached, the case proceeds to a formal hearing before a Labor Commissioner’s hearing officer. Employers must present evidence, call witnesses if needed, and make legal arguments supporting their position.
- Comply with the Final Decision: If the Labor Commissioner rules in favor of the employee, the employer may be required to pay back wages, penalties, and interest. If the employer disagrees with the ruling, they may file an appeal in civil court.
How the California Labor Commissioner Handles Disputes
The California Division of Labor Standards Enforcement (DLSE) oversees wage and hour claims, investigating complaints and enforcing state labor laws. The DLSE process generally follows these steps:
- Filing of a Claim: Employees file complaints for unpaid wages, missed breaks, overtime violations, or improper classification.
- Notification and Response: Employers receive notice and must respond within 10 days.
- Settlement Conference: The DLSE attempts to resolve the dispute through negotiation.
- Formal Hearing: If no settlement is reached, a hearing officer reviews the evidence and makes a legally binding decision.
- Enforcement of Judgment: If the employer is found liable, they must pay or appeal within 10 days.
Failure to comply with a DLSE decision can lead to wage garnishments, liens, and additional penalties.
Preventative Measures to Reduce Legal Risks and Financial Penalties
Employers can take several proactive steps to minimize the risk of wage and hour claims:
- Maintain Accurate Records: Keep precise time and payroll records for at least four years to defend against claims.
- Regularly Audit Payroll Practices: Periodic compliance reviews can help catch and correct errors before they become legal issues.
- Train Managers and Supervisors: Ensure managers understand wage laws, including overtime and break requirements, to prevent unintentional violations.
- Clearly Define Policies in Employee Handbooks: A well-drafted employee handbook should outline meal breaks, overtime procedures, and timekeeping policies. The handbook should also be updated each year to ensure that all policies are up to date.
- Work with a Skilled Attorney: Consulting an employment attorney can help employers navigate California’s complex labor laws and respond effectively to claims.
By implementing these measures, employers can significantly reduce their exposure to wage and hour disputes.
Seek Professional Legal Counsel for Complex Wage and Hour Issues
California’s wage and hour laws are among the strictest in the nation, requiring employers to be diligent in their compliance efforts. From correctly classifying employees to ensuring proper overtime pay and break periods, the risks of noncompliance are high. Employers who fail to follow the law face lawsuits, costly penalties, and damage to their business reputation.
To avoid these risks, businesses should:
- Stay informed about legal updates affecting wage and hour compliance.
- Implement robust timekeeping and payroll systems to track employee work hours and breaks.
- Train managers and HR personnel to enforce compliance policies consistently.
- Seek legal counsel to ensure policies and practices align with current laws.
Proactive compliance is the best strategy for avoiding and minimizing your risk against wage and hour disputes. By taking preventative steps, maintaining accurate records, and responding appropriately to claims, employers can protect their businesses and foster a fair, law-abiding workplace.
For organizations seeking help with wage and hour requirements in California, the professional employment law attorneys at Chauvel & Glatt, LLP, are available for consultation. Chauvel & Glatt, LLP attorneys are dedicated to representing employers – never employees. These skilled lawyers can advise California businesses on the most effective way to protect against wage and hour claims and represent companies should claims be filed. To learn more about how Chauvel & Glatt, LLP, may assist your organization, schedule your consultation today.
The content of this blog is provided for informational purposes only and is not intended as legal advice. Every legal matter is unique, and the information presented here may not apply to your specific situation. Reading this blog does not create an attorney-client relationship between you and Chauvel & Glatt, LLP. For personalized legal assistance or advice, please contact a qualified attorney. If you would like to discuss your legal needs, we invite you to contact our office to schedule a consultation.
- Employee Misclassification, Employment Law, Independent Contractors
Posted in: News
California has some of the strictest worker classification laws in the country, and the passage of Assembly Bill 5 (AB 5) has only reinforced the state’s commitment to worker protections. For small and medium-sized businesses, ensuring compliance with these laws is crucial to avoid costly misclassification lawsuits, penalties, and regulatory scrutiny.
The distinction between an independent contractor and an employee is more than just a label—it determines whether a worker is entitled to labor protections, such as minimum wage, overtime pay, and benefits. Misclassification can result in severe consequences, including back wages, tax liabilities, and potential civil lawsuits. Let’s break down the laws regarding employment classification in California.
Understanding AB 5 and the ABC Test
AB 5, which took effect on January 1, 2020, codified the California Supreme Court’s landmark decision in Dynamex Operations West, Inc. v. Superior Court (2018). This decision significantly narrowed the circumstances under which a worker could be classified as an independent contractor. AB 5 introduced the ABC test, making it the default standard for determining worker classification.
The law was enacted to address concerns about companies misclassifying workers as independent contractors to avoid providing benefits, unemployment insurance, and workplace protections. While independent contractor arrangements can provide flexibility, they can also leave workers vulnerable to exploitation if improperly classified.
AB 5 has had a significant impact on various industries, including ride-hailing services, trucking, entertainment, and freelance work. While some businesses have successfully adapted, others have faced legal battles and significant financial penalties for misclassification.
The ABC Test: The Core of Worker Classification
AB 5 introduced the ABC test, which presumes that a worker is an employee unless the hiring entity can prove all three of the following conditions:
(A) The worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract and in fact. This means the worker must be able to perform their work without significant oversight from the employer. If the business controls how, when, or where the worker performs their tasks, the worker is likely an employee.
(B) The worker performs work that is outside the usual course of the hiring entity’s business. This is the most challenging part of the test for many businesses. If the worker provides services that are integral to the company’s main business operations, they are likely an employee. For example, a bakery hiring a freelance cake decorator to design specialty cakes may fail this test because decorating cakes is part of the bakery’s core business.
(C) The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the hiring entity. The worker must be independently providing similar services to other businesses, not just working for one company. For instance, a freelance graphic designer with multiple clients and their own website or business license is more likely to qualify as an independent contractor.
Failing to satisfy any one of these prongs means the worker must be classified as an employee.
Overview of AB 2257 and Its Modifications to AB 5
The strict ABC standard led to unintended consequences, particularly for freelancers and gig workers. The passage of AB 2257 in September 2020 addressed these concerns by modifying the law to include additional exemptions and clarifications to AB 5.
While AB 5 still governs worker classification, AB 2257 created new exemptions, allowing more workers to be classified as independent contractors under a less restrictive test.
The exemptions under AB 2257 allow certain professionals and industries to bypass the ABC Test and instead be classified under the Borello Test—a more flexible standard that focuses on multiple factors, including the level of control a hiring entity has over a worker and whether the work is project-based. These exemptions include:
1. Freelance Writers and Journalists
AB 5 originally placed strict caps on freelance writers, limiting them to 35 submissions per client per year before they would have to be classified as employees. This caused major disruptions in the journalism and publishing industries.
How AB 2257 changed the law:
- The 35-submission cap was eliminated, allowing writers and journalists to freely contract without an arbitrary restriction.
- Freelance editors, copy editors, and content creators are also exempt, provided they have control over their work and do not replace regular employees.
- Independent photojournalists and videographers are exempt as long as they don’t shoot video content for scripted content like television shows or advertisements.
Industries Impacted:
- News agencies, magazines, and online publications.
- Freelance journalism, blogging, and editorial work.
- Content marketing and advertising industries.
2. Musicians and Performing Artists
AB 5 caused serious issues for musicians, bands, and performing artists, making it difficult for venues to book independent talent without the burden of classifying them as employees.
How AB 2257 changed the law:
- Musicians, composers, and songwriters can now work as independent contractors.
- Live performers, bands, and solo artists who perform original music at venues or private events are exempt.
- Recording artists and session musicians are covered under exemptions, allowing them to work with studios without being classified as employees.
- Event organizers and booking agents can hire musicians on a contract basis without violating AB 5.
Industries Impacted:
- Live entertainment and music venues.
- The recording industry and music production.
- Independent performers and artists.
3. Certain Business-to-Business Relationships
One of the biggest concerns with AB 5 was that it harmed small business owners and independent professionals who worked with other businesses on a contractual basis.
How AB 2257 changed the law:
- Expands the business-to-business exemption for independent contractors operating as sole proprietors or LLCs.
- Allows freelancers and independent businesses to work with companies without being classified as employees, as long as they control their work and pricing, they provide services directly to the hiring business, not its clients, and they maintain separate business locations and handle their own expenses.
Industries Impacted:
- Independent consultants and marketing professionals.
- Graphic designers, IT professionals, and web developers.
- Business services like bookkeeping, administrative support, and coaching.
4. Referral Agencies and Professional Services
AB 2257 provides clearer exemptions for referral agencies that connect clients with independent professionals for specialized services.
How AB 2257 changed the law:
- Referral agencies, such as those that connect customers with independent cleaners, dog walkers, or event planners, are exempt from AB 5 restrictions.
- However, the professionals they refer must meet specific independence requirements, including:
- Setting their own rates.
- Choosing their own clients.
- Providing their own tools and supplies.
Industries Impacted:
- Home services (cleaning, repair, moving).
- Personal services (tutors, dog walkers, fitness trainers).
- Consulting and professional networks.
How Exemptions Work and Additional Requirements for Businesses
While AB 2257 expanded exemptions, it did not eliminate all restrictions on independent contracting. Businesses and workers must still comply with California law when structuring their relationships.
1. Independent Contractors Must Meet the Borello Test
Even with an exemption from the ABC Test, workers must still satisfy the Borello factors, which examine:
- Who controls the manner and means of work.
- Whether the worker supplies their own tools and materials.
- Whether the worker has an independent business or offers services to multiple clients.
2. Contracts and Documentation Are Key
Businesses hiring independent contractors must have clear agreements in place outlining:
- The scope of work and payment terms.
- The independent nature of the relationship.
- Acknowledgment that the worker is responsible for their own expenses and taxes.
3. Industry-Specific Compliance May Still Apply
Even for exempt professions, businesses should check if other state or federal labor laws apply. Some industries, like transportation and healthcare, still face strict classification rules even after AB 2257.
How Small and Medium Employers Can Stay Compliant with California’s Independent Contractor Laws
Misclassifying employees as independent contractors can lead to serious legal and financial repercussions, including:
- Civil penalties and back wages: Businesses may be required to pay unpaid wages, benefits, and penalties for violating wage and hour laws.
- State audits and fines: The California Labor Commissioner’s Office and Employment Development Department (EDD) conduct audits that can lead to hefty penalties.
- Potential lawsuits: Workers can sue for misclassification, seeking damages for unpaid wages, denied benefits, and emotional distress.
- Tax liabilities: The IRS and state tax agencies may impose penalties for failure to withhold payroll taxes.
As a result, California’s strict independent contractor laws can present significant challenges for small and medium-sized businesses. Ensuring compliance with AB 5 and AB 2257 is critical to avoiding lawsuits, audits, and penalties. Below is a comprehensive guide on how companies can evaluate their workforce, properly classify workers, explore alternative staffing solutions, and defend against misclassification claims.
Evaluating Your Current Workforce
Before making any hiring or classification decisions, businesses should conduct a thorough assessment of their existing workforce to ensure compliance with California law.
Conducting an Internal Audit of Worker Classifications
A worker classification audit helps identify potential misclassification risks before legal issues arise. Employers should:
- Identify all independent contractors currently working for the company.
- Evaluate job duties to determine if workers meet the ABC test requirements.
- Review past hiring practices to ensure consistency in classification decisions.
- Consult with HR professionals or legal counsel if misclassification risks are identified.
If a worker fails any part of the ABC test, they may need to be reclassified as an employee.
Reviewing Contracts and Job Descriptions
Businesses should carefully review all contracts and job descriptions to ensure they align with independent contractor classification. This includes:
- Ensuring contracts clearly state that the worker is an independent contractor.
- Defining job duties to reflect independence—workers should not perform tasks central to the company’s core business.
- Avoiding language that suggests employer control over work schedules, methods, or supervision.
A properly structured contract alone does not determine independent contractor status—the actual work relationship must also meet legal requirements.
Assessing the Level of Control Over Independent Contractors
One of the most critical factors in classification is how much control the business exercises over the worker. To maintain independent contractor status:
- The worker should set their own hours and work schedule.
- They should use their own tools and equipment.
- They should work for multiple clients, not just one company.
- Payment should be structured per project, not on an hourly or salary basis.
If a business exerts too much control, the worker is likely an employee, even if they are labeled an independent contractor.
Best Practices for Properly Classifying Workers
If a worker qualifies as an independent contractor, businesses should take proactive steps to maintain compliance and minimize misclassification risks. To align with AB 5, businesses should:
- Clearly define independent contractor roles to ensure they fall outside the company’s usual business operations.
- Ensure contractors operate their own businesses and work with multiple clients.
- Limit oversight and control over how contractors complete their work.
- Avoid long-term contractor relationships that resemble employment.
While a written contract alone does not determine classification, it is an essential part of protecting a business. A strong independent contractor agreement should specify that the worker is an independent contractor, not an employee. It should also define project-based work rather than ongoing employment, ensure the contractor has the right to take on other clients and avoid clauses that impose excessive control over the worker’s tasks or schedule.
In addition, businesses should maintain detailed records to support independent contractor classification, including:
- Invoices from contractors showing project-based payment structures.
- Payment records proving that contractors were not paid hourly.
- Email communications demonstrating the worker’s independence.
- Proof of the worker’s separate business operations, such as websites or marketing materials.
Proper documentation is essential in defending against EDD audits or legal claims.
Defending Against Misclassification Claims
Suppose your business faces an EDD, IRS, or Labor Commissioner audit. In that case, it is crucial to seek legal guidance from an experienced employment law firm. A California employment law attorney from Chauvel & Glatt, LLP, can assist you during this process by:
- Reviewing worker classifications and ensuring compliance.
- Assisting in responding to audits and investigations.
- Developing a legal defense strategy against misclassification claims.
- Helping your business implement best practices to avoid future issues.
By taking proactive steps and seeking legal guidance, businesses can mitigate misclassification risks while maintaining workforce flexibility.
Take a Proactive Approach to California Employment Classification
Worker classification under California’s strict independent contractor laws is a complex and evolving issue. Small and medium-sized businesses must stay informed about AB 5, AB 2257, and the ABC test to avoid legal pitfalls.
By conducting proper workforce evaluations, maintaining clear contracts, and consulting legal professionals when necessary, employers can mitigate risks and ensure compliance. Given the high stakes of misclassification lawsuits, taking proactive steps now can prevent significant financial and legal consequences down the road. At Chauvel & Glatt, LLP, we pride ourselves on supporting businesses like yours with the complexities of independent contractor classification laws. Whether you are currently facing an audit or you want to implement best practices for employee classification, our employment law attorneys are available for a consultation. Schedule your appointment today to discuss your needs and discover more about how Chauvel & Glatt may be able to support your business.
