Employment Contracts

California regulates several common employment contract terms by statute, including commission agreements (Cal. Lab. Code §275), non-compete provisions (Cal. Bus. & Prof. Code §16600), and arbitration agreements (Armendariz/Ramirez).

This HR background often proves relevant to commission, arbitration, and confidentiality provision review, where small drafting variations frequently determine enforceability.

California Employment Contracts — Employee Rights

California regulates several common employment contract terms by statute and by case law. Among the most important: commission-pay arrangements must be in a written contract that includes the method of computation and payment (Cal. Lab. Code §2751); non-compete clauses are generally void under Cal. Bus. & Prof. Code §16600 and §16600.5; and mandatory arbitration agreements are subject to procedural and substantive unconscionability review (Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, as refined by Ramirez v. Charter Communications, Inc. (2024) 16 Cal.5th 478).

Common Contract Issues

The contract issues we see most often include unclear or unfavorable commission and bonus terms (commonly including ambiguous clawback provisions); arbitration agreements with one-sided fee, discovery, or limitations-period provisions that may be substantively unconscionable; severance agreements with overbroad release language or non-disparagement clauses; and confidentiality or NDA provisions that conflict with California’s protections for harassment-related disclosures (Cal. Code Civ. Proc. §1001). Whether any particular provision is enforceable is fact-specific. The most recent California Supreme Court guidance on arbitration unconscionability comes from Fuentes v. Empire Nissan, Inc. (2026) 19 Cal.5th 93, which clarifies three points: (1) a contract’s format (small font, illegibility) is procedural unconscionability only — it does not affect substantive unconscionability, which concerns the fairness of the terms themselves; (2) there is no presumption favoring arbitration when interpreting an arbitration agreement — the contract is interpreted under ordinary contract principles; (3) when a high degree of procedural unconscionability is present, the court must closely scrutinize the substantive terms, and ambiguous provisions are construed against the drafter (typically the employer). Whether a particular arbitration agreement satisfies the Armendariz/Ramirez framework as refined by Fuentes — and whether any unconscionability finding survives FAA preemption challenges in the specific context — requires fact-specific analysis by counsel.

At-Will Employment and Its Limits

California presumes that employment is at will: absent a contract stating otherwise, either the employer or the employee may end the relationship at any time, with or without cause. That presumption has real limits. An employer cannot invoke at-will status to terminate an employee for a reason that violates public policy — for example, retaliating against an employee for refusing to break the law or for exercising a protected legal right. And an implied contract, created by things like an employee handbook, length of service, or supervisor assurances, can override the at-will presumption entirely.

Cal. Lab. Code §2922 (at-will presumption); Tameny v. Atlantic Richfield Co. (1980) 27 Cal.3d 167 (public policy exception); Foley v. Interactive Data Corp. (1988) 47 Cal.3d 654 (implied contract exception).

Breach of an Employment Contract

An employment contract does not have to be in writing to be enforceable. California recognizes implied-in-fact contracts, formed through an employer’s own words, conduct, policies, or established practice, that can create an enforceable promise not to terminate an employee except for good cause, even where the employee has no signed agreement. When an employer breaches that kind of promise, or breaches an express written contract, the employee may have a claim for damages tied to the terms of the contract itself.

Foley v. Interactive Data Corp. (1988) 47 Cal.3d 654.

Fixed-Term Employment Agreements

A fixed-term agreement sets a specific end date or defined project length for the employment relationship. Once that term is set, California law limits how the employer can end it early: absent a contrary agreement, the employer may terminate a fixed-term employee before the term ends only for willful breach of duty, habitual neglect of duty, or continued incapacity to perform the job. Ending a fixed-term agreement early without one of those grounds can expose the employer to a breach of contract claim for the remaining value of the term.

Cal. Lab. Code §2924.

When to Contact Us

If you have been asked to sign an offer letter, severance agreement, or arbitration agreement, contact Michael Trust Law, APC for a 30-minute conversation before signing.

Initial contact does not create an attorney-client relationship — see Disclaimers.

Cal. Lab. Code §2751 (commission contracts); Cal. Bus. & Prof. Code §16600; Cal. Code Civ. Proc. §1001 (harassment-disclosure protection); Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83; Ramirez v. Charter Communications, Inc. (2024) 16 Cal.5th 478; Fuentes v. Empire Nissan, Inc. (2026) 19 Cal.5th 93

Frequently Asked Questions