A California employment contract is a written agreement that replaces the state’s default at-will rule with terms the employer and employee negotiate, and under California law it must avoid several clauses that are routine elsewhere. Labor Code Section 2922 presumes any job with no fixed duration is at-will, so the contract’s job is to fix a term, require cause for termination, lock in pay and benefits, or add other protections neither side can change unilaterally.1California Legislative Information. California Code Labor Code 2922 – Termination of Employment What makes California different is the list of things the contract cannot do: it cannot bind the employee to a non-compete, cannot push disputes out of state, and cannot quietly strip rights the Labor Code protects.
What the Contract Actually Changes
Under the at-will default, either side can end the job at any time, with no notice and no reason. A written contract changes that in whatever ways the parties agree to. Common changes include setting a fixed term of one or two years, limiting termination to defined causes like poor performance or misconduct, requiring advance notice, and spelling out severance if the employer ends things early.
The contract does not have to override every piece of at-will employment to be worth having. A simple agreement guaranteeing a base salary for twelve months gives the employee a breach-of-contract claim if the employer fires them without cause inside that window. Section 2922 treats an employment for a “specified term” as a period greater than one month; anything shorter still falls under the at-will presumption unless a written agreement says otherwise.1California Legislative Information. California Code Labor Code 2922 – Termination of Employment
Core Terms the Contract Should Cover
Start with the basics: legal names of both parties, job title and duties, and work location. From there, a California contract needs to address several items that carry specific legal weight:
- Exempt or non-exempt classification, with the basis for it. California uses both state Wage Orders and the federal Fair Labor Standards Act to decide whether a job is exempt from overtime, and getting it wrong exposes the employer to back-pay claims.
- Compensation structure, including base salary or hourly rate, pay frequency, and any bonuses. California requires wages to be paid at least twice per calendar month, with specific deadlines tied to the pay period.2Department of Industrial Relations. Paydays, Pay Periods, and the Final Wages
- Term and termination provisions. Fixed period or indefinite, what counts as grounds for termination, and how much notice each side must give.
- Benefits: health insurance, retirement contributions, paid time off, and any equity or stock option grants with their vesting schedules.
California’s minimum wage is $16.90 per hour as of January 1, 2026, and certain cities and counties set higher local rates.3Department of Industrial Relations. California Minimum Wage MW-2026 No contract can set pay below the applicable minimum, and any clause that tries is unenforceable.
Overtime and Exempt Classification
California’s overtime rules go further than the federal standard. Non-exempt employees earn time-and-a-half after eight hours in a single day and double time after twelve. Weekly overtime applies after 40 hours, and employees who work seven consecutive days in a workweek earn overtime on that seventh day. The daily thresholds are the trap for employers used to the federal 40-hour weekly rule.
Exempt status depends on both salary and duties. The employee must earn at least twice the state minimum wage for full-time work and must primarily perform executive, administrative, or professional duties as defined by the applicable Wage Order.4Department of Industrial Relations. Exemptions From the Overtime Laws Misclassifying a non-exempt employee as exempt is one of the most expensive mistakes available in California: the liability stacks unpaid overtime, meal and rest break penalties, and waiting-time penalties if the employee has already left.
Commissions Need Their Own Written Agreement
If any portion of pay comes from commissions, California requires a separate written contract for that arrangement. Labor Code Section 2751 says the agreement must spell out how commissions are calculated and when they are paid, and the employer must give the employee a signed copy and get a signed receipt.5California Legislative Information. California Code Labor Code LAB 2751 Changes to the commission structure need to be put in writing and signed too; informal changes are where most disputes start.
The Separate Wage Notice at Hiring
Independent of the contract itself, California requires employers to hand every non-exempt employee a written wage notice at hiring. Labor Code Section 2810.5 requires the notice to include:
- Pay rate and basis (hourly, salary, piece rate, commission, or otherwise), with any applicable overtime rates.
- The regular payday.
- The employer’s legal name and any “doing business as” names.
- The employer’s physical address and phone, plus mailing address if different.
- The workers’ compensation carrier’s name, address, and phone.
- A statement that the employee may accrue and use paid sick leave and cannot be retaliated against for doing so.6California Legislative Information. California Code Labor Code 2810.5 – Obligations of Employer
The notice must be in whatever language the employer normally uses to communicate employment information to that worker. Leaving items blank or skipping the notice can draw administrative penalties. The Labor Commissioner’s DLSE Form NTE is the standard template.
Non-Competes Are Void
This is the single biggest difference for anyone coming from another state: non-compete agreements are void in California. Business and Professions Code Section 16600 declares any contract restraining someone from working in a lawful profession void to that extent, and courts read it broadly to cover every non-compete in an employment setting, no matter how narrowly drafted.7California Legislative Information. California Code Business and Professions Code 16600
Two recent laws sharpened the prohibition. SB 699, effective January 1, 2024, added Section 16600.5, which makes it a civil violation for an employer to enter into or attempt to enforce a void non-compete, including one signed in another state. Workers can sue for injunctive relief, actual damages, and attorney’s fees.8California Legislative Information. Senate Bill 699 AB 1076 added Section 16600.1 and required employers to send written notice by February 14, 2024, to current and former employees (employed after January 1, 2022) who had signed non-competes, telling them those clauses are void.9California Legislative Information. Assembly Bill 1076
The practical rule: do not put a non-compete in a California employment contract. Including one isn’t just unenforceable. It invites a lawsuit.
Out-of-State Forum and Choice-of-Law Clauses
Employers headquartered outside California sometimes try to route disputes through courts or arbitrators in another state, or apply another state’s law to the employment relationship. Labor Code Section 925 blocks both moves. An employer cannot require a California-based employee to resolve disputes outside the state or waive California law protections for claims arising here.10California Legislative Information. California Code Labor Code 925
If a contract contains one of these provisions, the employee can void it, the dispute defaults to California courts under California law, and the employer may be ordered to pay the employee’s attorney’s fees. The one carve-out: Section 925 does not apply if the employee was individually represented by their own lawyer in negotiating the clause.
Invention Assignment Has Limits
Many contracts include an invention-assignment clause requiring the employee to hand over rights to anything they create. California caps how far that reaches. Labor Code Section 2870 says an assignment clause cannot cover inventions the employee developed entirely on their own time without using the employer’s equipment, supplies, or trade secret information, as long as the invention does not relate to the employer’s current or anticipated business and did not result from work performed for the employer.11California Legislative Information. California Code Labor Code 2870 – Inventions Made by an Employee
A notice requirement rides along with that protection. Labor Code Section 2872 requires any contract containing an invention-assignment clause to include a written notification telling the employee that the assignment does not cover inventions qualifying under Section 2870.12California Legislative Information. California Code Labor Code LAB 2872 If you are an employee looking at a broad invention clause with no reference to Section 2870, flag that gap; the employer is supposed to include it.
Trade Secret Immunity Notice
Any employment contract that addresses trade secrets or confidential information must include a whistleblower immunity notice under the federal Defend Trade Secrets Act. The notice tells the employee they won’t face criminal or civil liability for disclosing trade secrets to a government official or attorney to report a suspected legal violation, or in a court filing made under seal. Skip the notice and the employer loses the ability to recover enhanced damages or attorney’s fees in any federal trade secret lawsuit against that employee.13Office of the Law Revision Counsel. 18 U.S. Code 1833 – Exceptions to Prohibitions
The notice does not have to appear word-for-word in the contract. An employer can satisfy the requirement by cross-referencing a separate policy that describes its reporting procedures for suspected legal violations. One way or another, the immunity language needs to reach the employee.
Limits on Arbitration Clauses
Mandatory arbitration provisions are common in California employment contracts and remain generally enforceable under the Federal Arbitration Act. Two limits matter.
The Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act gives employees who allege sexual harassment or assault the right to reject any pre-dispute arbitration agreement and take their claim to court instead. The choice belongs to the employee, and a court, not an arbitrator, decides whether the law applies to a particular dispute.14Office of the Law Revision Counsel. 9 USC 402 – No Validity or Enforceability
Separately, Labor Code Section 925 prevents employers from requiring California-based employees to arbitrate claims in another state.10California Legislative Information. California Code Labor Code 925 Any arbitration clause should specify a California venue to avoid being voided by the employee.
Severance Agreements at the End
When employment ends, a departing employee is often handed a severance agreement asking them to release legal claims in exchange for a payment. These agreements carry their own rules.
If the employee is 40 or older, the federal Older Workers Benefit Protection Act requires the employer to give them at least 21 days to review the agreement before signing, or 45 days if the severance is part of a group layoff. After signing, the employee has an additional seven-day window to revoke the agreement, and it is not enforceable until that period ends.15Office of the Law Revision Counsel. 29 USC 626 – Recordkeeping, Investigation, and Enforcement Pressuring the employee to sign faster, or skipping the waiting periods, can get the waiver thrown out entirely.
Confidentiality and non-disparagement clauses in severance agreements also face limits. The National Labor Relations Board has ruled that broad confidentiality or non-disparagement provisions in severance agreements offered to non-supervisory employees violate the NLRA if they restrict employees from discussing workplace conditions, cooperating with labor investigations, or helping coworkers with workplace issues. Narrowly drafted provisions protecting genuinely proprietary information are more defensible.
Signatures and Recordkeeping
California recognizes electronic signatures under the Uniform Electronic Transactions Act, so neither side needs to sign on paper for the contract to be valid.16California Legislative Information. California Code Civil Code 1633.1 – Uniform Electronic Transactions Act Whichever method is used, the employer should give the employee a complete copy of the signed agreement. If a dispute surfaces later and the employee doesn’t have a copy, the employer’s credibility suffers immediately.
California requires employers to keep personnel records for at least three years after termination of employment.17Department of Industrial Relations. Personnel Files and Records Federal rules add their own layer: the EEOC requires personnel records for one year from termination, and FLSA payroll records must be kept for at least three years.18U.S. Equal Employment Opportunity Commission. Recordkeeping Requirements California’s three-year rule is the more protective standard and the one most employers should treat as the baseline. If any legal charge or lawsuit is filed, all related records must be preserved until the matter is fully resolved, regardless of these retention periods.