California is among the most heavily regulated states regarding the employer/employee relationship. Although the body of federal laws and regulations governing the workplace applies to all states, employers with employees in California are also subject to a variety of different and, in some cases, additional compliance requirements than employers doing business in other states. For this reason, human resource professionals should have a basic knowledge of what those differences are and how they affect the management of employee discharges. 

Although the fundamental legal concept of employment at will is the basis for the employer/employee relationship, the state constitution, statutory scheme and common law rulings of its various state and federal courts create a dense web of rules, restrictions and obligations that surround the involuntary termination of employment in California. These rules and obligations increase the compliance challenge for private employers when managing employment terminations in California.

Statutory Protections

Employees in California are protected by state fair-employment practices laws, wage and hour laws, and workplace safety laws that may differ from similar federal laws and that have application beyond the scope of their federal counterparts. For example, in addition to the categories of protected individuals under the federal anti-discrimination laws, the California Fair Employment and Housing Act (FEHA) prohibits discrimination in employment on the basis of sexual orientation, marital status, and denial of family and medical care leave, among others. 

Complex Regulatory System

The California Labor Code establishes a complex system of rules, regulations and standards administered by the Labor and Workforce Development Agency and its Department of Industrial Relations (DIR). The department is divided into the following divisions:

• Workers' Compensation.
• Occupational Safety and Health.
• Labor Standards Enforcement.
• Director's Office of Policy, Research and Legislation.
• Apprenticeship Standards.
• State Compensation Insurance Fund. 

Generally speaking, where the California Labor Code overlaps with federal laws administered by the U.S. Department of Labor—for example in regulating wages and hours and workplace health and safety—the DIR works in cooperation with the corresponding federal agency to enforce the rights of workers.

Business Case

When it comes to involuntary termination of employment, the stakes can be incredibly high. In California, perhaps the most employee-friendly state in the nation, employers must approach involuntary termination with extreme caution to reduce the risk of lawsuits, agency charges, whistle-blower complaints and other fallout. 

See California Supreme Court Cases Employers Should Be Watching.

Legal risks

Depending on the circumstances, a discharged employee may take legal action against the employer, managers involved in the decision or the discharged employee's co-workers. Unlike those in other states, California employers have limited ability to enforce predispute arbitration agreements and no ability to enforce a pretrial waiver of the right to a jury trial. Should a lawsuit proceed to a trial, a jury represents an uncertain and potentially dangerous proposition for most employers. 

See What are the California rules regarding mandatory arbitration agreements, and how do they differ from federal law? 

Being well prepared by conducting an individual analysis in every case is critical before taking action:

• Does the employee fall within a protected category?
• Is there an express or implied employment contract?
• Has the individual recently filed a workplace claim or assisted in the investigation of one?
• Has the employee recently taken or is currently taking a medical leave under the Family and Medical Leave Act (FMLA), the California Family Rights Act (CFRA), Pregnancy Disability Leave (PDL), the Americans with Disabilities Act (ADA) or other similar laws?
• Have disciplinary procedures been followed and the proper foundation for termination laid?
• Are the time and place for delivering the news appropriate?
• Have final paycheck and required notices been prepared?
• Will outplacement services be offered?
• Has security been alerted?
• Does management know how to respond to questions from co-workers?

Other Business Risks

In addition to legal risks, organizations have many reasons for striving to conduct involuntary terminations in a fair and consistent fashion. Involuntary termination may have far-reaching effects on the organization's ability to recruit and retain good employees and on the morale and productivity of co-workers. 

By following best practices in involuntary terminations, employers may help prevent:

• Lawsuits.
• Injury to competitive position and reputation.
• Whistle-blowing.
• Theft or destruction of property.
• Workplace violence. 

See:

How to Ensure Rightful Terminations in California Part 1: Setting up a defensible termination

How to Ensure Rightful Terminations in California Part 2: Creating defensible severance agreements

How to Ensure Rightful Terminations in California Part 3: Implementing a reduction in force

How to Ensure Rightful Terminations in California Part 4: Documenting employee terminations

Legal Issues

When state and federal laws overlap, state law supersedes when it provides greater protection to employees. In some cases, such as certain individual rights and exceptions to the rule of employment at will, there is only the state law to consider. The following discussion of legal issues involved in termination of employment in California notes where overlap between federal and California law exists. 

Considering the stakes involved in any involuntary termination, consulting with legal and risk management professionals is advisable. 

Employment at Will

A written disclaimer of at-will employment is paramount at the employment offer stage if an employer is to avoid breach of contract claims from terminated employees. Disclaimer language should appear in all relevant documents describing employment, including employment applications, employment offer letters and employee handbooks or policy manuals. See Employment at Will: What It Really Means in California.

Express Contract

An express contract of employment is created when an employer and an employee demonstrate mutual intent to be bound by the terms of an employment agreement. Although written documents other than an express contract might create a contract for continued employment, absent cause for termination, California law is generally supportive of at-will employment in which unambiguous language affirms that status.

Implied Contract

An implied contract of employment may arise from an employer's oral or written communications with an employee. Generally, representations to employees regarding job security or other guarantees may raise a danger of creating an implied employment contract. For example, employee handbooks that spell out probationary periods, progressive discipline procedures, open-door policies or other employee complaint procedures must also reaffirm that employment is at will to avoid the implications of an employment contract. Implied contracts may also be found in verbal statements made by a supervisor or manager, and employees have a right to hold employers to those promises. The leading case is Cleary v. American Airlines Inc., 168 Cal. Rptr. 722 (111 Cal. App. 3d 443, 1980). 

Duty of Good Faith and Fair Dealing

An implied duty of good faith and fair dealing, automatically a part of every contract, means that neither party to a contract will deny the benefits of the contract to the other party. Thus, in the absence of an employment contract, there can be no claim for breach of this covenant. In situations involving an express or implied employment contract, however, the implied covenant of good faith and fair dealing may require "just cause" for employment decisions or prohibit terminations made in bad faith or motivated by malice. 

Public Policy Wrongful Discharge

Wrongful discharge in violation of public policy is by far the broadest category of wrongful termination in California. These types of claims are often referred to as "Tameny claims," referring to the leading court decision from the California Supreme Court, Tameny v. Atlantic Richfield Co., 27 Cal. 3d 167 (1980), that established that employers may not discharge at-will employees who refuse to participate in an illegal scheme at the employer's request.

Generally, employees may be able to bring a Tameny claim when they can show that they were terminated from employment in violation of some "duty implied in law on the part of the employer to conduct its affairs in compliance with public policy."¹ Thus, when an employee is discharged because of engaging in an activity protected under an identifiable public policy, the employee might be able to sue the employer for this variety of wrongful discharge.

Many of the individual rights statutes, including many provisions of the California Labor Code, provide the avenue for wrongful discharge in violation of public policy claims. 

Wrongful termination claims may be brought to challenge nearly any employment decision that can be argued to constitute a violation of any anti-discrimination or anti-retaliation statute, any privacy right, or any other affirmative right of employees, such as the right to file a workers' compensation claim.

Similarly, an employer may be liable for wrongful discharge if it terminates an employee for refusing to comply with an unlawful directive, such as a directive to commit a crime or to commit unlawful discrimination, retaliation or harassment. Likewise, an employer may not terminate an employee for engaging in a protected activity.

See California High Court Rules on Standard for Whistle-Blower Retaliation Claims.

General notions of justice or fair play, standing alone, do not by themselves constitute public policy. California law requires that the public policy be a "substantial or fundamental" policy that is reflected in some "well established" formal affirmative expression of law, such as a constitutional or statutory source.

Constitutional Privacy Protection

When terminating the employment relationship in California, employers must be aware of the individual privacy rights established by Article 1 of the state constitution of California:

• "Section 1. All people are by nature free and independent and have inalienable rights. Among these are enjoying and defending life and liberty, acquiring, possessing, and protecting property, and pursuing and obtaining safety, happiness, and privacy."
• "Section 13. The right of the people to be secure in their persons, houses, papers, and effects against unreasonable seizures and searches may not be violated; and a warrant may not issue except on probable cause, supported by oath or affirmation, particularly describing the place to be searched and the persons and things to be seized."
  

In Hill v. National Collegiate Athletic Association (NCAA), 7 Cal.4th 1, 15 (1994), the California Supreme Court clarified that the constitutional right to privacy applies to private as well as public entities. By contrast, the privacy restrictions imposed under the U.S. Constitution generally restrict only federal and state government factors and thus do not apply directly to most private employers. 

The privacy rights of employees has come into play in challenges to terminations for unlawful substance abuse following workplace drug testing that violated the state constitutional right to privacy. See Are employers in California legally allowed to test employees for drugs or alcohol?

Employers also face privacy issues when conducting employee searches or monitoring and surveillance of employees in the workplace. By informing employees that their communications are not secure or that their activity will be monitored, the employer can lessen employees' privacy expectation.

Reasonable Expectation of Privacy

California employees generally enjoy protection from unnecessary intrusion into areas where they have a reasonable expectation of privacy. Thus, employees have a right to sue employers for violating their state constitutional privacy rights if they can prove each of the following:

• The claim is based on a legally protected privacy interest.
• The employee had a reasonable expectation of privacy under the circumstances.
• The employer's conduct was a serious intrusion into employee privacy. 

If the employee is successful in establishing a prima facie claim against the employer by demonstrating each of the above elements, then the burden shifts to the employer to establish a defense by showing each of the following:

• A legitimate, compelling business interest prompted the intrusion.
• The intrusion was legally authorized or socially beneficial.
• The intrusion was reasonably calculated to further the legitimate, compelling business interest. 

See Managing Workplace Privacy and Workplace Privacy in California.

Anti-discrimination Law

The California FEHA protects private- and public-sector employees from discrimination, retaliation and harassment in employment. This protection includes all aspects of termination of employment, and it applies to employment agencies and unions. 

Scope of Coverage

All employment provisions of the FEHA apply to employers with five or more full- or part-time employees. In addition, the FEHA's anti-harassment provisions apply to all employers with only one or more employees. Thus, the FEHA extends anti-discrimination and anti-harassment protection to employees of smaller employers in California not covered by the federal Civil Rights Act of 1964 (15 or more employees) or the Age Discrimination in Employment Act (20 or more employees). 

Protected Categories

The FEHA provides protection from discrimination, retaliation and harassment in employment based on all the following protected categories: race, religious creed, color, national origin, ancestry, physical disability, mental disability, medical condition (cancer and genetic characteristics), marital status, sex (including transgender status), gender identity (including expression), pregnancy, military and veteran status, age (40 or over), sexual orientation or genetic information. The FEHA expands the categories of protected individuals beyond those protected under the federal anti-discrimination laws.

See CA Employment Discrimination.

Proof of Discrimination

Under the California FEHA, discriminatory discharge claims may be proven by direct evidence, such as open remarks about an employee's protected status. California courts applying the FEHA to discrimination claims under state law in cases involving no direct evidence of discrimination apply the same burden-shifting analysis developed under federal law.

Thus, an employee claiming unlawful discrimination under the FEHA must first state a prima facie case that would permit an inference of discrimination (e.g., by showing that the person is a member of a protected category, that an employer made the decision to terminate that person's employment, that the person was treated differently from similarly situated persons not in the same protected category, and that some causal link exists between the differential treatment and the protected category).

If the employee can provide evidence to state a prima facie case, the burden shifts to the employer to articulate legitimate, nondiscriminatory reasons for the termination decision.

Disability Discrimination

California's disability discrimination statutes are more protective than the federal ADA. For example, California considers an employee to have a disability if he or she is limited in a major life activity. By contrast, the ADA requires a showing that the employee is substantially limited in a major life activity. California considers work to be a major life activity, even if the disability affects only the ability to do one job. But most federal courts have ruled that, under the ADA, working is a major life activity if someone is unable to perform a broad range of jobs. See Discrimination Laws Regarding People with Disabilities.

Harassment

The FEHA contains express provisions requiring an employer to take reasonable steps to prevent harassment and to investigate complaints of harassment. The outcome of such an investigation may lead to the termination of employment of the harasser. Moreover, whereas workplace harassment may not directly involve termination of employment itself, in many cases, an employee may claim constructive discharge as a result of an unresolved allegation of harassment. Constructive discharge often arises in cases of harassment in which the victim's employment is not terminated by the employer, but the victim quits because he or she is no longer able to work in the hostile environment. Under this theory, a court will permit an employee who actually quit to bring a legal claim asserting termination. The circumstances that existed when the employee quit must have been so intolerable that a reasonable person in the same circumstances would feel compelled to quit.

Comparison to Federal Law

Although the basic principles regarding harassment under the FEHA are generally the same as under federal law, the FEHA anti-harassment provisions apply more broadly, including covering employers with one or more employees, protecting independent contractors and extending personal liability to individual supervisors.

Layoffs and Plant Closings

Providing coverage of more employees than the federal WARN Act, the California WARN Act requires employers to provide a 60-day notice to affected employees and both state and local representatives before a plant closing or mass layoff. Covered establishments are those with 75 or more employees full or part time. Employers must provide a 60-day advance notice in the following circumstances:

• Plant closure affecting any amount of employees.
• Layoff of 50 or more employees within a 30-day period regardless of percentage of workforce.
• Relocation of at least 100 miles affecting any amount of employees.

See General Provisions of the Federal and California WARN Laws.

Communications

Managing employment termination in California includes a variety of notice requirements. HR professionals responsible for employees in California must be familiar with the various requirements as to content, timing and methods of delivery to avoid violating the Labor Code and other statutory and regulatory mandates. See What notices or forms must employers provide to terminating employees in California?

Required notices

Unemployment Insurance Code. Change-of-status notice or termination notice is required by Unemployment Insurance Code C.C.R. §1089-1(d). Employers are generally required to give immediate written notice to employees who are terminated, discharged, laid off or placed on leave of absence. Employers should include a minimum of the following information in the notice: the employee's name, the employer's name, the employee's Social Security number, the date of the change or action and the type of action. 

See Notice to Employee as to Change in Relationship.

The California Employment Development Department (EDD) also requires employers to distribute the pamphlet For Your Benefit: California's Programs for the Unemployed (DE 2320) to employees at the time of discharge or layoff or when an employee is placed on a leave of absence. The pamphlet explains the state's unemployment insurance and disability insurance programs. Generally, the pamphlet must be provided to the employee no later than the effective date of the termination.

Health Insurance Premium Payment (HIPP). Under certain conditions, employers with 20 or more employees are required to notify their employees who are being terminated, voluntarily or involuntarily, of the availability of HIPP. This requirement applies if the employer provides health insurance. HIPP informs employees of the possibility of continued health insurance coverage at the state's expense. 

COBRA and Cal-COBRA Rights Notice

In general, following employment termination, if employers provide health care insurance benefits to their employees, they must give information to qualifying employees and beneficiaries about continuing health and disability benefits, portability, and continuation coverage. Cal-COBRA is similar to the federal COBRA, but it has broader and longer coverage.

See Cal-COBRA Election Form and What is California's Cal-COBRA program, and how does it differ from federal COBRA?

Communicating the Termination

In addition to legal requirements, HR professionals in California should follow best practices regarding communications when terminating employment. Studies have shown that employees are less likely to bring lawsuits or file charges post-discharge when they feel their employer has treated them fairly and respectfully during the termination process. 

Payment of Final Wages

An employee who is discharged, fired or laid off must be paid all wages due, including accrued vacation, immediately upon termination. An employer must pay all final wages due at the place of termination, unless the employee requests that final wages be mailed to him or her. Additionally, an organization must pay any final wages earned and unpaid at the time an employee is discharged by making a direct deposit, if preauthorized by the employee. See Paydays, pay periods, and the final wages.

Timing

An employer that willfully fails to pay any wages due a terminated employee in compliance with the law may be assessed a "waiting time" penalty equal to the employee's daily rate of pay for each day the wages remain unpaid, up to a maximum of 30 calendar days. Employees have three years in which to file a claim to recover waiting time penalties. However, an employee will not be awarded waiting time penalties if he or she avoids or refuses to receive payment of the wages due.

An organization's inability to pay the employee is not a defense for the penalty, nor is ignorance of the law. If a good-faith dispute exists concerning the amount of the wages due, no waiting time penalties will be imposed for the amount not in dispute, provided the employer pays all wages due that are not in dispute in a timely fashion. If the organization fails to pay what is undisputed, the good-faith defense will not be allowed, regardless of the outcome of the disputed wages. 

See What are the waiting time penalties in California?

If an employee is discharged before completing the terms of a bonus or commission, the employee may be entitled to recover at least a pro rata share of the promised amount. There is an exception to the timing of the final payment of wages due at the end of the employment in which the bonus or commission cannot be reasonably calculated at the end of the employment. In such a situation, an employer must pay the earned bonus or commission once it can be reasonably calculated.

See In the state of California, how are commission and bonus payments handled for employees who terminate employment?

Expense reimbursements are required by the California Labor Code and must be paid according to the employer's regular reimbursement schedule to terminated employees.

Deductions

California courts have long held that the final paycheck may not be subject to offset, even for acknowledged debts of the employee to the employer. 

See DLSE Deductions from Wages.

Severance Agreements and Waivers and Releases

A severance agreement between a departing employee and his or her employer is an agreement to provide the departing employee with a certain amount of compensation as consideration for the employee's agreeing to a waiver and release of claims arising out of the employment relationship. Severance agreements should be well thought out to promote the strategic objectives of the employer. Appropriate documentation and communication are key roles of HR professionals.

Currently no federal or California laws mandate severance pay for terminated employees. However, severance agreements are subject to federal and state laws regulating equal employment opportunity, employee pension, and welfare benefits plans and taxation.

See Designing and Administering Severance Pay Plans.

In addition to the federal law requirements, employers managing termination of employment in California must be aware of the various restrictions on the types of claims that may be waived in a severance agreement to ensure the agreement is enforceable.

Employment Agreements

Noncompetes are unlawful, and similar post-employment agreements are difficult to enforce in California due to the state Labor Code and the "mobility of labor" principles. However, some California cases have held post-employment restrictions enforceable to the extent necessary to protect an employer's trade secrets.

See Are noncompete or similar postemployment agreements enforceable in the state of California?

Related Resources

SHRM Toolkits 
Preventing Unlawful Workplace Harassment in California
Preventing Unlawful Workplace Discrimination in California
Preventing Unlawful Workplace Retaliation in California

Agencies and organizations

California Department of Industrial Relations, the Division of Labor Standards Enforcement, Retaliation Complaints Unit

California Department of Industrial Relations

U.S. Department of Labor
SHRM California Resources