Picture a company in Texas with one employee who works from a home office in San Diego. The company pays her on its usual Texas payroll cycle, on its usual Texas pay stub, under a contract that sends any dispute to a Texas court. Then a letter arrives from a California lawyer. Which state's law controls, and should the company have been doing something different all along?
The answer is neither "Texas" nor "California." It depends on the statute, and a handful of California rules apply no matter what your contract says.
California Asks the Question One Statute at a Time
There is no master rule for out-of-state employers. For each California protection, a court asks what connection to California is enough to trigger it. Four examples show how that plays out.
Wage statements and pay timing. On June 29, 2020, the California Supreme Court decided Ward v. United Airlines (No. S248702) and Oman v. Delta Air Lines (No. S248726). Ward involved an airline incorporated in Delaware and headquartered in Illinois, sued by California-resident flight attendants. The Court held that the wage statement rule (Lab. Code § 226) applies when the employee's principal place of work is California, and, for interstate workers who are not concentrated in one state, when California is their base of work operations. Oman applied the same approach to pay timing (§ 204) and held that an employee based elsewhere who works in California only episodically, for less than a day at a time, is not covered. Residence alone did not decide it.
Overtime. In Sullivan v. Oracle Corp. (2011) 51 Cal.4th 1191 (No. S170577), the Court applied California overtime law to nonresident employees who worked full days and weeks in California. The defendant was a California-based employer, and that detail matters. It is guidance for your company, not a guarantee in either direction, and you should expect a plaintiff's lawyer to cite it.
Paid sick leave. An employee who works in California for the same employer for 30 or more days within a year from the start of employment is entitled to paid sick days (Lab. Code § 246). No California home office is required, just the days.
Discrimination and harassment. FEHA defines "employer" as any person regularly employing five or more persons (Gov. Code § 12926(d)), and a complaint can be filed with the Civil Rights Department up to three years after the conduct (Gov. Code § 12960(e)(5)). Whether it reaches a particular set of facts turns on the connection between the conduct and California.
Where the Employee Works Decides Most of It
| Employee's situation | What to expect | Authority |
|---|---|---|
| Home office in California; most of the work is done there | Wage statement and pay timing rules apply | Ward; Oman |
| Based in your state; in California only episodically, under a day at a time | Not covered by the wage statement and pay timing rules | Oman |
| Works full days and weeks in California | A California overtime claim is credible; the analysis is statute-specific | Sullivan |
| Works 30 or more days in California within a year | Paid sick days | Lab. Code § 246 |
| Primarily resides and works in California | Limits on out-of-state venue and governing-law clauses | Lab. Code § 925 |
Three Rules That Follow the Worker No Matter What Your Contract Says
Your venue clause. Under Labor Code § 925, an employer cannot require an employee who primarily resides and works in California, as a condition of employment, to adjudicate outside California a claim arising in California, or to give up the substantive protection of California law for a controversy arising in California. Adjudication includes litigation and arbitration. A noncompliant provision is voidable at the employee's request, and a court may award attorney's fees. There is an exception where the employee was individually represented by counsel in negotiating those terms, and the statute applies to contracts entered into, modified, or extended on or after January 1, 2017.
Your non-compete. Under Business and Professions Code § 16600.5, a contract that is void under California's non-compete law is unenforceable regardless of where and when it was signed, and an employer may not attempt to enforce it even if the employment occurred outside California. Entering into or attempting to enforce one is a civil violation, and the worker can sue for injunctive relief or actual damages plus attorney's fees.
Your 1099. California's ABC test requires all three prongs: the worker is free from your control and direction both under the contract and in fact, performs work outside the usual course of your business, and is customarily engaged in an independently established trade (Lab. Code § 2775(b)(1)). Willful misclassification carries civil penalties of $5,000 to $15,000 per violation, and $10,000 to $25,000 per violation for a pattern or practice (Lab. Code § 226.8).
What to Do This Quarter
- Map every worker. For each person in California, record where they do most of their work and where their supervisor and the decision-makers sit.
- Fix pay timing and pay stubs for California-based employees. Our guide to California pay stub requirements lists the nine required items.
- Test every California 1099 against the ABC test. If the facts fail the control prong, the contract label will not save it.
- Pull your templates. Find every venue, governing-law, arbitration and non-compete clause in agreements covering California employees, and note the signing or renewal date. Section 925 reaches contracts modified or extended on or after January 1, 2017.
- Count California days for traveling employees toward the 30-day sick leave trigger.
- Name one person to receive legal notices. Set the rule now: any letter, notice or complaint from California goes to counsel the day it arrives.
A wage statement problem also feeds PAGA exposure, which is why we cover it in avoiding PAGA penalties.
If the Letter Has Already Arrived
Find the deadline on the notice, preserve payroll, time and contract records, and do not change the employee's pay or status without advice. Then send us the paperwork before you respond. We advise and defend companies headquartered outside California on exactly this: see our California employment counsel for out-of-state companies page, or contact us directly.
If you would rather get ahead of it, our wage and hour and auditing your business work starts with the worker map above. For a notice that names your company under PAGA, start at our PAGA page.
Disclaimer
This article is general information about California law. It is not legal advice, and reading it does not create an attorney-client relationship. Employer Guidance Group PC is not your attorney unless and until you have signed a written engagement agreement with the firm.
California employment law changes constantly. The information here may be incomplete, out of date, unverified, or incorrect, and it does not account for your specific facts — and outcomes turn on facts. Do not act, or refrain from acting, on the basis of this article. Consult a licensed attorney about your own situation before making any employment decision.
This communication may constitute attorney advertising. Prior results do not guarantee a similar outcome.
This article is for general informational purposes only and does not constitute legal advice. Reading it does not create an attorney-client relationship.