California Termination Laws

June 17th 2024

Terminating an employee in California, a state known for its strong employee protections, requires an in-depth understanding of state and federal laws that are designed to promote fairness and prevent discrimination. This guide serves as a comprehensive resource for employers in California, outlining the complexities of “at-will” employment and legal considerations for employers. It offers an overview of California’s specific termination laws and provides answers to common questions, helping employers make well-informed decisions regarding employee termination.

This Guide Covers

Legal Considerations for Termination in California
“At-Will” Employment in California
Lawful Termination in California
Legal Protections During Termination in California
Terminated Employee Benefits in California
Layoffs in California
Resignations in California
Legal Cases Related to Wrongful Termination in California

Legal Considerations for Termination in California

  • Laws Governing Employment Termination: Federal laws, such as the Americans with Disabilities Act and the Age Discrimination in Employment Act, provide a baseline for termination regulations across the US, but individual states, like California, implement their own stricter laws to protect employees upon termination. The California Fair Employment and Housing Act (FEHA) and the California Equal Pay Act are two such state laws affecting employment terminations in California. 
  • Company Policies: Companies typically establish policies regarding termination, which are detailed in company handbooks. These policies clarify permissible grounds for termination, the process that should be followed, and any disciplinary actions that may precede it. While these policies themselves are not laws, failure to follow them can result in legal challenges from the terminated employee. Employers must also ensure that company policies align with applicable state and federal laws. 
  • Proper Documentation: When terminating an employee in California, having comprehensive documentation of their tenure is absolutely crucial. This includes records such as performance evaluations, disciplinary actions, and any relevant correspondence. Lack of proper documentation can weaken an employer’s defense if the termination is challenged as being unjust or illegal.
  • Employment Contracts: Employment contracts may set specific terms for termination, especially for employees on fixed-term contracts. Violating these terms without a valid reason can result in breach of contract claims.
  • Working Conditions: In California, hostile working conditions that lead to an employee’s resignation might also be grounds for legal claims against an employer, and may qualify the employee for unemployment benefits.
  • “At-Will” Employment: “At-will” employment is a legal doctrine in California that allows either the employer or the employee to terminate the employment at any time, for any reason, or for no reason, provided that the termination does not violate established legal protections. This principle will be further detailed below.

“At-Will” Employment in California

What is “At-Will” Employment?

“At-will” employment refers to a common arrangement in most US states that allows either the employer or the employee to end their working relationship at any time, for any reason, or without any reason, provided it does not contravene the law.

Under California Labor Code 2922, employment in California is presumed to be “at-will” unless there is a contract or specific agreement in place. Despite common misconceptions among employees that job security is assured unless misconduct or poor performance occurs, the reality is that employers can legally dismiss employees without cause, or even impulsively on the spot. 

However, over time, the straightforward concept of “at-will” employment has been modified by exceptions arising from contracts, employment laws, or public policy. California courts may also recognize an implied employment contract based on an employer’s practices, communications, and industry standards, which can legally override the at-will presumption. Exceptions to “at-will” employment restrict an employer’s ability to terminate employees arbitrarily. These enforce fairness and prevent discrimination and retaliation in the workplace. 

What are the Exceptions to “At-Will” Employment in California?

In California, there are several exceptions to “at-will” employment, including:

  • Discrimination: California’s strict anti-discrimination laws, such as those outlined in the California Fair Employment and Housing Act (FEHA), hold employers accountable for discrimination. The FEHA protects individuals from termination on numerous grounds, including race, sex, gender (with specific attention to transgender individuals undergoing transitioning), age, and disability. These provisions are reinforced by federal laws, such as Title VII of the Civil Rights Act.
  • Violation of Public Policy: It is illegal to fire employees for reasons that violate societal norms and state or federal laws. Common examples include dismissing an employee for fulfilling jury duty, voting, refusing to commit illegal acts, or filing for workers’ compensation. In California, it has been determined that firing employees for reporting a company’s employment of undocumented workers, in violation of the Immigration Reform and Control Act (IRCA), constitutes wrongful termination. This is because terminating employees who report such violations directly conflicts with the act’s policy goals. The IRCA aims to protect documented workers from employment discrimination and competition with undocumented workers who may accept lower wages. Thus, terminations on these grounds are considered a violation of public policy. 
  • Retaliation: In California, employers are prohibited from retaliating against employees who engage in protected activities, such as filing discrimination complaints or participating in investigations into workplace discrimination. Protections against retaliation are designed to allow employees to assert their rights without the fear of losing their jobs.
  • Implied Contract: While employment in California is typically “at-will”, exceptions occur if there is an explicit or implied contract. For example, if an employer’s handbook specifies that employees can only be terminated for cause, this might be interpreted as creating an implied contract. Terminating an employee in breach of these contracts can lead to wrongful termination lawsuits, where the employee might recover damages for lost wages, emotional distress, and other benefits outlined in the contract.
  • Covenant of Good Faith and Fair Dealing: An employee might have a wrongful termination case against their employer if it can be proved that the dismissal was done in “bad faith”. The implied covenant of good faith and fair dealing requires both parties to act in a way that fulfills the intended purpose of the contract, rather than undermining it. For example, if an employer fires an employee to avoid paying benefits or unfairly evaluates their work performance, it can be seen as a breach of good faith.

Employment Under Contract in California

Not all employees have “at-will” employment status in California. Importantly, the concepts of “employment under contract” and “at-will employment agreement” represent different legal agreements. While “at-will” employment allows either the employer or the employee to terminate employment at any time for almost any reason, an employment contract restricts this flexibility by defining specific grounds for termination or setting a fixed term of employment.

In California, an employer might ask you to sign an “at-will” employment agreement, but this is not the same as an employment contract. “At-will” employment agreements, which are common in California, merely affirm the employer’s right to terminate employment at will and do not offer the employee the same termination protections. California employers may only terminate employment under contract before the end of the fixed-term under certain circumstances, such as if the employee willfully breaches their duties, habitually neglects their responsibilities, or is consistently unable to perform at work. 

Explore our comprehensive guide to firing employees in California for further information.

Lawful Termination in California

Legal Grounds for Termination in California

While some termination decisions may appear unfair, they aren’t always illegal. Nonetheless, terminations without fair and legitimate reasons may be vulnerable if contested through a wrongful termination claim. In California, acceptable legal reasons for termination include:

  • Misconduct: Actions like theft, fraud, or violence that harm the company or breach ethical standards justify dismissal.
  • Performance Issues: Termination is warranted if an employee consistently fails to meet performance standards or productivity goals despite receiving feedback and opportunities for improvement.
  • Failure to Pass Drug Test: In California, employers can legally require drug tests, as long as they comply with privacy and anti-discrimination laws. Firing someone for failing a drug test is legal, unless the drugs are prescribed for a medical condition. Disabled employees’ rights to reasonable accommodations are provided under the California Fair Employment and Housing Act (FEHA). However, the law does not require employers to accommodate the medicinal use of cannabis during work hours or on the employer’s property. California employers are allowed to enforce a drug-free workplace, though they must ensure their policies are fair, clear, and consistently applied. 
  • Redundancy: Job eliminations due to economic downturns, organizational restructuring, or strategic changes are legally sound reasons for dismissal.
  • Lateness or Absenteeism: Frequent tardiness or absenteeism that adversely affects job performance or operational efficiency can lead to termination.
  • Violation of Company Policy: Dismissal may occur if an employee does not comply with company policies related to confidentiality, technology use, or professional conduct.
  • Failure to Pass Probation: During probationary periods, employees must demonstrate their suitability for the role. Failing to meet these standards can result in termination.
  • End of Contract: Employees with temporary or fixed-term contracts can be dismissed when their contracts conclude and are not extended.

How Do I File a Wrongful Termination Claim in California?

In California, former employees who face retaliation or discrimination can file a complaint with the Labor Commissioner’s Office, which lists relevant California laws. Discrimination complaints related to factors such as race, age, or sexual orientation should be directed to the Department of Fair Employment and Housing. 

Complaints must be filed within one year of the retaliatory act, but there are exceptions, such as a 90-day period for daycare licensing violation complaints and a two to three-year window for Equal Pay Act claims, depending on if the violation was willful. If deadlines are missed, filing a private lawsuit might still be an option. Importantly, the Labor Commissioner’s Office protects all workers regardless of immigration status and does not require a Social Security number or photo ID for filing complaints.

Legal Protections During Termination in California

California’s employment laws regulate not only the reasons for which an employee can be terminated but also outline the specific procedures that must be followed during the termination process. Key protections for employees include:

  • Payment of Final Wages: Under California’s wage payment laws, employees are entitled to receive their final wages immediately upon termination or resignation. This includes all earned wages, unused accrued vacation time (as it’s considered earned wages), and any owed bonuses or commissions, though some time may be allowed for calculations. Unused sick time is not considered earned wages and reimbursements follow normal schedules. If an employee provides at least 72 hours’ notice before resigning, they must receive their final paycheck on their last working day; without such notice, employers have 72 hours to provide the paycheck, which can also be mailed.
  • Notice Requirements: Companies with at least 75 employees must provide a 50-day advance notice for mass layoffs, relocations over 100 miles, or plant closures. Notices must be given to both affected workers and local government officials, as per the California Worker Adjustment and Retraining Notification (WARN) Act.
  • Non-Compete Agreements: There is a strict ban on non-compete agreements in California. Aside from some very narrow exceptions, non-compete agreements are unenforceable, even if they are signed outside of California. This allows employees to leave their current positions and immediately start working in similar roles within the same industry or start their own business in the same field. 
  • Contractual Protections: Employees who have specific employment contracts or are covered under collective bargaining agreements often have additional protections. These may define the conditions under which termination is permissible and the procedures to be followed during termination.

Terminated Employee Benefits in California

After termination, California employees are entitled to the following benefits under certain conditions:

  • COBRA Health Coverage: The Consolidated Omnibus Budget Reconciliation Act allows employees to continue their health insurance for up to 18 months post-termination (or 36 months under specific conditions). For employers with 20 or more employees, COBRA coverage is mandatory following certain “qualifying events” like job loss (except in cases of gross misconduct) or reduced work hours.
  • Unemployment Compensation: This provides temporary financial assistance to workers who lose their jobs through no fault of their own. To receive unemployment compensation, individuals must have worked in California during the past 12 months or longer and be actively seeking work. 
  • Severance Pay: In California, a severance package typically includes items like a lump sum payment, continued health insurance, ongoing payments, and outplacement services. While neither California state law nor federal law mandates severance pay upon termination, employers must honor any severance commitments detailed in the employee handbook, layoff notices, or employment contracts. Failing to provide agreed-upon severance constitutes a breach of contract.

Layoffs in California

In California, employers conducting layoffs must adhere to certain regulations to ensure fairness and compliance with legal standards:

  • Objective Business Criteria: Employers are required to use clear, objective criteria to decide which employees will be laid off. Factors might include seniority, job performance, and the necessity of specific roles to the business operations. 
  • Worker Adjustment and Retraining Notification (WARN) Act: The federal WARN Act mandates that employers with 100 or more employees provide a minimum of 60 days’ notice before conducting mass layoffs or plant closings.
  • Anti-Discrimination: Layoff procedures must comply with state and federal anti-discrimination laws, such as the California Fair Employment and Housing Act (FEHA) and Title VII of the Civil Rights Act.
  • Contractual Obligations: Employers must consider any existing employment contracts that specify the conditions of severance, notice periods, and other entitlements of laid-off employees.

Resignations in California

Resigning is the act of quitting one’s job or position. This decision can stem from various personal or professional reasons, such as accepting a new job opportunity, relocating, retiring, or other personal life changes. However, resignations can also be classed as involuntary under certain circumstances. For example, if an employee is pressured into resigning, this can question the validity of the resignation. Whether a resignation is voluntary or involuntary impacts the entitlements an employee may receive after quitting.

Voluntary Resignations

When employees initiate a resignation, several legal responsibilities apply to both them and their employers in California:

  • Employment Contracts and Agreements: If an employment contract is in effect, it may outline specific requirements related to resignations, such as notice periods or the duration of employment (before an employee may resign). 
  • Final Paycheck: Employees who resign in California must be paid their final paycheck upon separation, but only if they provide at least 72 hours’ notice. If they do not give notice, they are to be paid within 72 hours of their resignation. 
  • Unemployment Benefits: Employees who resign voluntarily typically do not qualify for unemployment benefits unless they demonstrate that they resigned for a “good cause” linked to workplace conditions or substantial changes in their employment terms.
  • Notice Periods: In California, there is generally no legal requirement for employees to provide notice before quitting a job, due to the state’s “at-will” employment law outlined in California Labor Code 2922. However, specific employment contracts or employee handbooks may require notice. Moreover, while not legally required, some companies may interpret an unexplained absence of three days as an employee quitting.

Involuntary Resignations

Involuntary resignation, or constructive discharge, happens when an employee is forced to resign due to actions by the employer that make the working environment intolerable.

In California, a constructive discharge claim requires proving that intolerable working conditions imposed by an employer forced an employee to resign, essentially treating the resignation as an employer-initiated termination. This might involve proving the employer’s intentional creation of a hostile work environment that violated legal standards or employment contracts, thus justifying a wrongful termination claim.

For a successful claim, evidence must show that the employer knowingly allowed intolerable conditions, and any reasonable person in the same situation would have resigned. Signs of constructive dismissal include severe and repeated verbal harassment, demotion without cause, unreasonable changes to job responsibilities or hours, and endangering an employee’s safety.

To establish constructive discharge, the employee must document these conditions, demonstrate the employer’s awareness and failure to remedy the situation, and show that resignation was the only reasonable recourse. Merely unpleasant conditions are not sufficient; there must be a breach of California law.

Legal Cases Related to Wrongful Termination in California

1. Former AutoZone Employee Awarded $185 Million in Pregnancy Discrimination Case

In November 2014, a San Diego jury awarded Rosario Juarez, a former AutoZone employee, nearly $185 million in damages for gender and pregnancy discrimination. Initially a Parts Sales Manager, Juarez reported to HR that AutoZone favoured men over women in promotions and pay. The jury supported her claims that she was demoted and later fired due to her pregnancy, awarding her the record-breaking sum for lost earnings and emotional distress.

Key Lessons Learned From This Case:

  • The substantial verdict showcases that juries take discrimination cases very seriously, particularly those involving pregnancy.
  • Wrongful termination claims in California can lead to substantial punitive damages. Juarez chose to file her case under California’s Fair Housing and Employment Act rather than federal law because California law does not impose caps on damages for punitive and emotional distress. 

2. Jury Awards $6M in Punitive Damages to Former VP of Alki David Productions (ADP) for Reporting Unsafe Work Conditions

In June 2023, the California appeals court upheld a $7 million damages award to Karl Zirpel in a whistleblower retaliation case against Alki David Productions (ADP). The jury had previously found that ADP wrongfully terminated Zirpel after he reported safety concerns about a theater renovation project. Despite city inspectors citing multiple code violations and declaring the theater unsafe, ADP instructed Zirpel to continue work. When Zirpel refused and planned to report the issues to a fire inspector, ADP’s principal, Alki David, fired him in a hostile manner, using homophobic slurs.

Zirpel sued for whistleblower retaliation under California Labor Code sections 232.5 and 1102.5, leading to a jury award of $7,068,717 in damages (consisting of $368,717 in economic damages, $700,000 in non-economic damages, and $6 million in punitive damages). The appeals court confirmed the punitive damages, citing David’s reprehensible behavior and disregard for safety, supporting the substantial punitive award.

Key Lessons Learned From This Case: 

  • The law protects employees who disclose illegal activities or safety violations. Employers can face severe financial penalties for retaliating against employees who engage in protected activities, such as whistleblowing.
  • Reports of misconduct or unsafe work conditions should be taken seriously and investigated thoroughly. 

3. FedEx Faces $61 Million Penalty for Discrimination Against Arab-American Drivers

In a landmark verdict, a California Superior Court jury awarded two Lebanese-American FedEx Ground/Home Delivery drivers, Edgar Rizkallah and Kamil Issa, a total of $61 million for enduring severe racism discrimination and harassment. The drivers were awarded $11 million in emotional distress damages and an additional $50 million in punitive damages after proving continuous racial abuse and a hostile work environment caused by the company and a specific terminal manager. The abusive language included slurs such as “Arabs,” “camel jockeys,” and “terrorists.” Despite the harassment, both drivers are still employed by the company.

Key Lessons Learned From This Case: 

  • Failure to address and correct harassment and discrimination can lead to significant legal and financial consequences.
  • Proper training and preventative measures against harassment are necessary to prevent legal cases and unethical behavior. 

Learn more about California Labor Laws through our detailed guide.

Important Cautionary Note

This content is provided for informational purposes only. While we make every effort to ensure the accuracy of the information presented, we cannot guarantee that it is free of errors or omissions. Users are advised to independently verify any critical information and should not solely rely on the content provided.