5 Crazy and Unfair Employment Laws That Could Kill Your Business
If you own a business in California, you already know the odds are stacked against you when a labor law issue comes up. As more employment laws are passed, they consistently benefit employees while placing a greater burden on employers.
Here are 5 of the most punishing provisions in California employment law that every employer should understand.
1. No Protection Under Corporate Law
Any savvy business owner knows that one of the primary advantages of forming a Corporation or LLC is separating personal assets from business assets, so that if someone sues your company, it is the company's assets at risk, not your house.
Labor lawsuits are the one area of California law where that protection disappears. You can be held personally liable for a labor claim made against your business. Even worse, a supervisor who does not own any part of the business can be held personally liable for labor claims made against the company.
Two hundred years of corporate law protecting business owners from personal liability, gone the moment an employment claim is filed.
If you are facing a claim that spans multiple legal areas, our Hybrid and Non-FEHA Claims defense page explains how these overlapping exposures work and how we approach them.
2. I'm Suing, But You're Paying For It
The current system is designed so that employees have very little to lose by suing their employer, even with a weak case.
The employee's attorney typically takes the case on a contingency basis, meaning they charge nothing unless they win. And if they win anything at all, even on just one of many claims, California law requires you, the employer, to pay all of the opposing attorney's legal fees.
Here is what that looks like in practice.
You are accused of five violations. You prove without a doubt that four of them never happened. But on the fifth, you made a minor payroll error. You now owe all of the employee's attorney costs for the entire case.
Imagine the jury awards the employee $50,000. Painful, but survivable. Then the attorney fee bill arrives, often more than double the award after a year and a half of litigation. That $50,000 problem just became a $150,000 problem.
And if you win everything? You still pay your own attorneys. There is no way to get through an employee lawsuit at zero cost, even when the claims are entirely false.
This is exactly why the people who actually benefit from these lawsuits are rarely the employees. It is the attorneys filing them.
3. George Got a Raise? Where's Mine?
In 2016, California signed the California Fair Pay Act (CFPA). The intention was equal pay for equal work. The reality placed a significant new burden on employers.
Under the CFPA, if pay differences exist between employees in the same or similar roles, the employer must be able to prove those differences are based on a legitimate, documented factor such as seniority, a merit system, or measurable differences in the quantity or quality of work.
The bigger problem is that the law explicitly permits employees to discuss their pay with one another, and you cannot discourage them from doing so. Once those conversations occur, an employee earning less can demand documented proof that the difference is justified.
If that employee belongs to a protected class, a pay gap conversation can quickly become a discrimination claim. You may have perfectly legitimate reasons for the pay difference, but without documentation, legitimate reasons are not enough. See our FEHA/EEO Defense page to learn how these claims typically develop and what a strong defense looks like.
4. I Burned Your Store Down, the Smoke Made Me Sick, Now Pay Me
Workers' compensation law in California operates on a simple principle: if the applicant was an employee and the claim involves an on-the-job injury, the analysis begins there, regardless of the circumstances surrounding their termination.
An employee can cause serious problems in the workplace, get terminated for legitimate reasons, and then file a workers' comp claim after the fact for an injury they allege occurred while employed. This is a regular pattern. Continuous trauma claims filed post-termination are common and are routinely pursued successfully.
Even worse, if an employee files a workers' comp claim before termination, you may find yourself unable to act on serious performance or conduct issues without also facing a wrongful termination claim.
Workers' comp claims carry another cost that employers often underestimate. Every claim, including fraudulent ones, raises your insurance premiums. A cluster of claims can double your premium in short order. Too many claims and your insurer drops you entirely, which creates its own legal problem since California requires every business to carry workers' comp coverage.
5. Meet My Friends — They Will Decide How Much You Owe Me
In a jury trial, you are supposed to be judged by your peers. But how many business owners actually end up on a jury deciding an employment case?
First, only about 1% of the population are business owners with employees, so the jury pool is unlikely to include anyone sympathetic to or even able to understand the difficulty of running a business and managing employees.
Second, it is unlikely that any smart attorney on the employee side would allow an employer to serve on any jury. It is likely a business owner would be removed with one of the peremptory challenges allowed to the employee's attorney.
Third, even if there were some good candidates allowed on your jury, they will likely be the minority and not have much sway in the outcome.
Typical juries consist mainly of employees and former employees. They are more likely to sympathize and identify with the employee rather than side with "business", which is evident through the long history of outrageous awards given to employees in California.
Want some examples?
Roscoe's Chicken and Waffles, a Los Angeles institution, was forced into bankruptcy after a jury awarded an employee more than $3 million in a discrimination case. An AutoZone employee on minimum wage was awarded over $185 million in damages after being terminated for cause.
Even if you prove your case, a jury that sympathetically awards a small amount to the employee can trigger the outsized attorney fee obligation described above, turning a nominal loss into a six-figure bill.
Final Thoughts
The most effective tool available to California employers for avoiding jury exposure is a properly drafted arbitration agreement that requires each party to cover its own attorney fees and keeps disputes out of the courtroom entirely. Boilerplate agreements will not hold up. Yours needs to be drafted by a qualified employment attorney and kept up to date.
Beyond arbitration, update your employee policies and procedures regularly and document everything. Those two habits, combined with strong dispute resolution agreements, are the most reliable ways to reduce your exposure in this environment.
Want to know where your business is most exposed? DefendMyBiz represents California employers exclusively, from policy reviews to full litigation defense. Contact us today for a free consultation.
FAQs
Can I really be held personally liable for a labor claim against my company?
What happens if an employee sues me and I win?
Can I stop employees from talking about their salaries?
How do I protect myself from a post-termination workers' comp claim?
Is an arbitration agreement really effective against these types of claims?
Disclaimer: The above content is for informational purposes only. This is not legal or tax advice. Laws, IRS guidance, and withholding requirements can change, and outcomes depend on specific facts. You are advised to contact a qualified attorney for any legal advice.
