California Law: Global Reach For Employee Rights?

California's employment laws are unique and complex, and sometimes contradict federal rules or those followed by other states. This raises the question of whether California law applies to overseas employees of California-based companies. The answer is that it depends on the specific circumstances. If a non-California resident performs work in California, even occasionally, they are entitled to the protections of California labour laws, including overtime pay. However, U.S. citizens employed outside the U.S. by a U.S. company are protected by specific federal laws, such as Title VII, the ADEA, and the ADA, which prohibit discrimination based on race, colour, sex, national origin, religion, age, and disability.

California's wage and hour laws for out-of-state workers

California's wage and hour laws are considered among the best in the United States for workers. But do these laws apply to out-of-state workers?

Sullivan v. Oracle (2011):

In this case, three employees who did not live in California performed some of their work for their employer in California. They claimed that California's overtime laws applied to the work they did in California for a California-based employer. The California Supreme Court agreed, for the following reasons:

• California's overtime laws apply to all employment in the state, regardless of the employee's place of residence.
• Other states cannot shield California-based employers from California wage laws regarding work performed in California.
• Even if they could, California's interest in protecting workers would take precedence.

Ward v. United Airlines (2020):

In this case, the California Supreme Court addressed whether California Labor Code section 226 (requiring specific wage statements) applies to pilots and flight attendants who perform most of their work outside of California's jurisdiction. The Court decided that this depends on whether the workers' principal place of work is in California. If it is, then Section 226 applies, and the employer must issue compliant wage statements.

The Court established a two-part test to determine a worker's principal place of work:

• The worker spends the majority of their time working in California.
• The worker has a definite base of operations in California and performs at least some work in the state for the employer.

Oman v. Delta Air Lines (2020):

In this case, flight attendants who worked mainly outside of California argued that Labor Code sections 226 and 204 (governing wage statements and payment frequency) applied to them. The Court applied the test set forth in Ward and concluded that whether the statutes applied depended on whether the workers were based in California for work purposes.

The Court clarified that California's power to protect workers within its borders is not limited by the worker's residency or employment by a nonresident entity. Therefore, if employees are based in California for work purposes, the requirements of sections 226 and 204 apply, regardless of the employer's residence.

Takeaways for Out-of-State Workers:

Out-of-state workers performing work in California are entitled to certain protections under California law, even if they work mostly outside the state. This includes the right to overtime pay, wage statements, and minimum wage for work performed in California. The specific laws that apply will depend on whether the worker's principal place of work is considered to be in California, as determined by the two-part test outlined in the Ward case.

Additionally, California wage and hour laws only cover employees, not independent contractors. Exempt employees, such as executive, administrative, and professional employees, are also not covered by certain laws, like overtime rules.

California Labor Code requirements for non-residents

California labor laws are renowned for their comprehensive nature and the protections they offer to employees. These laws apply to individuals who perform work within the state, regardless of their residency or employer location. Thus, if a non-resident is working in California, they are subject to the state's labor laws.

There are also scenarios where California labor laws have extraterritorial reach. This depends on the relationship between the employer, employee, and the state. California labor laws may apply in the following situations:

• Temporary Assignments: Out-of-state workers temporarily assigned to work in California are protected by the state's labor laws for the duration of their assignment. This includes requirements for minimum wage, overtime pay, meal and rest breaks, and other labor standards.
• Principal Place of Work: If California is the principal place of work for an out-of-state employee, meaning they spend a substantial amount of time working within the state, they are considered a California employee and are subject to its labor laws.
• Employer's Principal Place of Business: If an employer is based in California, their out-of-state employees may be subject to the state's labor laws, especially if the employer exerts significant control over the employment relationship.

The California Supreme Court, in Sullivan v. Oracle, ruled that California's overtime laws extend to non-residents employed within the state, even if their employer is headquartered elsewhere. Additionally, the California Labor Code includes provisions that imply jurisdiction over out-of-state employers, such as holding individuals accountable for violations of wage payment laws, regardless of their location.

California labor laws cover a range of protections for employees, including minimum wage and overtime regulations, meal and rest break requirements, sick leave and paid time off provisions, and robust laws prohibiting workplace harassment and discrimination. Understanding these laws is crucial for both employers and employees to ensure legal compliance and protect their rights.

California's payroll taxes

California's labour laws and wage requirements are among the best in the US, and they extend to non-residents of the state who work within its borders. This includes California's payroll taxes.

The state has four payroll taxes, administered by the Employment Development Department (EDD):

• Unemployment Insurance (UI): Paid by employers, this provides temporary payments to individuals who are unemployed through no fault of their own. Most employers pay a percentage on the first $7,000 in wages for each employee in a calendar year. New employers pay 3.4% for two to three years, after which the EDD notifies them of their new rate each calendar year in December.
• Employment Training Tax (ETT): Also paid by employers, this provides funds to train workers in specific industries, making businesses more competitive and fostering a healthy labour market. The ETT rate is 0.1% and is paid on the first $7,000 in wages for each employee in a calendar year. All new employers pay ETT for the first tax year.
• State Disability Insurance (SDI): This is deducted from employees' wages. It provides temporary payments to workers who are unable to work due to a non-work-related illness, injury, or pregnancy. It also includes Paid Family Leave (PFL), which provides benefits to workers who need time off to care for a sick family member, participate in an event due to a family member's military deployment, or bond with a new child. The SDI withholding rate is 1.1%.
• California Personal Income Tax (PIT): This is withheld from employees' wages and credited toward the amount due for the employees' annual California state income tax. Income tax rates are based on employees' tax W-4 or DE 4 forms.

Who Pays California's Payroll Taxes?

Employers conducting business in California are required to register with and file reports and pay taxes to the EDD if they have paid over $100 in total wages to one or more employees in a calendar quarter. Household employers must register after paying $750 in cash wages to one or more employees in a calendar quarter.

California employers owe unemployment insurance and employment training tax to the EDD each quarter. The due dates are the final day of the following month from which the quarter ends, or the next business day if it falls on a weekend or holiday. For example, the first quarter (January-March) is due on April 30.

How to Submit California's Payroll Taxes

California employers can submit taxes electronically through the EDD's e-Services for Business, or by mail if they acquire a special waiver from the EDD. Taxes can also be submitted through Express Pay, Federal/State Employment Taxes (FSET), Electronic Funds Transfer (EFT), or by credit card, cash, or Rippling's full-service payroll software.

California's unique employment laws

California's employment laws are unique, complex, and sometimes contradictory to federal rules or the rules followed by most other states. California's laws are among the best in the country for workers. The state's laws apply to work performed in California by non-residents, and even to work performed by overseas employees of California-based companies.

California employees may claim the most favorable protection and benefits provided by either federal, state, or local rules, or rights granted within a collective bargaining agreement. Whichever law favors the employee more will be the law that is applied.

• Most Favored Nation Status: Employees can claim the most favorable protections and benefits provided by either federal, state, or local rules, or rights granted within a collective bargaining agreement.
• Joint Employer Liability: California has its own approach to defining and assessing liability on "joint" employers. The state considers common ownership or control when determining liability for payment of wages, overtime, and worker's compensation coverage.
• Workplace Privacy and Personnel Records: California has a specific constitutional provision protecting employees' "right to privacy." Employees can say anything they want about their employer on social media, and employers must respond with a statement about the protection of personnel records.
• Covenants Not to Compete: Unlike most states, California does not allow employers to require employees to sign covenants not to compete as a condition of employment.
• Disabilities and the Interactive Process: California law requires covered employers to engage in an interactive process for qualified workers claiming a disability. Failure to do so can result in statutory violations, even if no reasonable accommodation can be made.
• Personnel Records and Privacy: California employers have restrictions on when they can provide federal immigration enforcement agents access to their business and employee records. Employers must also provide notice to employees and union representatives before an inspection.
• Drugs, Alcohol, and Smoking in the Workplace: California prohibits smoking in the workplace and continues to prohibit the use of recreational marijuana, despite federal regulations indicating that state recreational marijuana laws do not impact drug testing programs.
• Wages, Salaries, and Other Compensation: California's minimum wage is $10.50 per hour for employers with less than 25 employees and $11 per hour for employers with more than 25. The state minimum wage will continue to increase until it reaches $15 per hour.
• Hours of Work and Recording Time Worked: The California Supreme Court ruled that a day of rest is guaranteed for each workweek, and employees cannot be required to remain "on-call" during rest periods.
• State Disability and Paid Family Leave: Employers with 20 or more employees must provide eligible employees with a total of 12 weeks of time off for baby bonding.
• Unemployment Insurance: All California employers are required to electronically report unemployment insurance information.
• Health and Retirement Benefits: Employers with 20 or more employees must provide up to 12 weeks of leave and continue health coverage during those leaves.
• Family Medical and Parental Leave: California's NPLA establishes a two-year mediation pilot program to mediate parental leave disputes. Employers with 20 or more employees must provide 12 weeks of unpaid, job-protected parental leave.
• Vacation, Paid Time Off, and Holidays: Employees must be allowed to accrue vacation or paid time off during the period of parental leave provided under the NPLA.
• Ensuring Workplace Safety: Employers must obtain safety data sheets for designated cleaning products and make them available to employees. California's Proposition 65 requires employers with 10 or more employees to warn individuals prior to their exposure to certain chemicals.
• Violence in the Workplace: A new law requires employers to provide immediate support from a nurse case manager in the event of an act of domestic terrorism, such as a mass workplace shooting. Healthcare employers must keep a "violent incident log" and establish a workplace violence prevention plan.
• Workers' Compensation: A new law changes when officers, directors, and working partners are excluded from an employer's worker's compensation policy.
• Employment Discrimination: A recent court decision held that a California employee could demonstrate discrimination by showing that the replacement employee was significantly younger and had inferior experience.

California's multistate employer registration

California's labour laws apply to work performed by non-California residents in California. Employers of non-California residents must abide by the California Labor Code when these non-resident employees perform work in California, even when they perform most of their work outside of California.

Multistate employer registration is covered under the federal Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (PRWORA). It applies to both new hires and rehires. Employers must report new hires to the state's designated agency. In California, this is the California New Employee Registry. All California employers are required to report information about new employees to this registry. This includes all businesses, state and local government employers, nonprofit organisations, and household employers, regardless of the number of employees.

Employers hiring in more than one state can choose to electronically report all newly hired employees to one state in which they have employees. Multistate employers who choose to file to one state must register with the federal Department of Health and Human Services' Office of Child Support Services as a multistate employer. The State of California encourages multistate employers to report California employees to the California New Employee Registry. Reporting to California's New Employee Registry will help employers reduce unemployment insurance costs by detecting and preventing unemployment insurance overpayments and fraud.

Employers must report seven pieces of data to the state and/or federal agency:

• Employee Social Security number (SSN)
• Employee date of hire or rehire (the date the employee first performs services for pay)
• Federal employer identification number (EIN)
• Employer information, including:

• California employer payroll tax account number
• Branch code (if applicable)
• Federal employer identification number
• Business name and address
• Contact person and phone number

Employee information, including:

• First name, middle initial, and last name
• Social Security number

Frequently asked questions