07 July 2017
Guest article: California’s got talent
John T. Hendricks, a resource of B P Collins, is the founder of Hendricks Law, P.C., a boutique law firm in San Francisco, California, where he practices business and employment law. In the second of a two-part article series, John provides tips for UK-based businesses that are considering scaling up, organizing or funding businesses in the United States. John is admitted as an Attorney and Counsellor at Law in California and is listed on the Roll of Solicitors of England and Wales.
The overseas company structure is established and funding is in place, so how do you build a talented team?
Businesses expanding into America must plan and lay critical groundwork before adding local workers. Cultural norms and complex employment laws vary substantially from what managers are accustomed to in Britain.
Foremost, three overlapping bodies of law apply: federal, state and local. Businesses operating across multiple locations can tailor employment policies to each jurisdiction, but for efficient administration, also should consider uniformly applying the most restrictive solution. Since California generally is regarded as the most restrictive or "employee-friendly" state, it provides the basis for this article and can serve as a general template for British businesses expanding anywhere across America.
Employment at will
Most American workers do not have employment contracts and do not expect them. Rather, like in other states, California Labor Code § 2922 presumes that their employment is at will. Businesses, absent good reasons to vary from the norm, prefer this arrangement. With employment at will, employers or employees may terminate employment at any time, with or without advance notice or cause, so long as the reason for termination is not otherwise unlawful.
Exceptions to at will employment typically arise where employees – oftentimes executives – sign written employment contracts that require cause for termination, or alternatively, where some act(s) by employers, usually unintentionally, overcome the presumption of employment at will. For businesses that do not follow professional advice, the latter situation is ripe with costly litigation.
Not all workers are employees, but businesses sometimes improperly try avoiding tax and other regulatory burdens by classifying them as independent contractors. The term "independent contractor" is not uniformly defined, but analysis under California Labor Code § 3357 begins with a rebuttable presumption that "person[s] rendering service for another" are employees and not contractors. To legitimately engage contractors where appropriate, businesses should analyse relevant facts on a case-by-case basis to overcome this presumption.
Even where businesses do not control work details, California finds that employer-employee relationships exist where businesses retain pervasive control, workers' duties are integral to operations, and the nature of work makes detailed control unnecessary. Penalties for misclassification are high; this area recently has been subject to increased government enforcement.
Surprising many, California's fundamental public policy prohibits non-competition agreements designed to prevent workers from leaving positions to work for competitors. California Business and Professions Code § 16600 provides that contracts restraining competition are to that extent void. California law is unusual in this respect. Thus if parties adopt another jurisdiction's governing law by contract, California courts may apply such choice of law to enforce other covenants, terms or conditions, but only to the extent that the chosen jurisdiction's law does not contradict California's fundamental public policy. Fortunately, other legal techniques help mitigate risks from departing employees.
Clients scaling up, organizing or funding businesses in the United States need services from a lawyer well versed in navigating these topics. John will be elaborating on this series in an interview with B P Collins' senior partner, Simon Deans, later this year. This will be covered in a future edition of Insight.