At our recent masterclass, “Exiting with Confidence: Best Practices for Lawful Terminations and Litigation Prevention,” Anne McWilliams, Caylee Scott, and I went back to basics on one of the highest-risk moments in the employment relationship: the termination. We debated whether a back-to-basics topic would draw interest, but preparing for it reminded me why it is worth revisiting — the forms, the severance rules, and the practical landscape around terminations keep changing, and a process that was compliant a few years ago may not be today.

Two themes ran through the entire presentation. First, the obligations are immediate: the moment you end the relationship, the clock starts running on final pay and required notices. Second, treat the employee with respect. An employee will rarely like the decision in the moment, but an employee who is treated with dignity, paid everything owed on time, and handed a clean set of paperwork is far less likely to spend the drive home calling a plaintiff’s lawyer. Here are five key issues from the masterclass that every California employer should have dialed in:

1. Document the true reason for the termination — and do not sugarcoat it.

It sounds simple, but it is remarkable how often litigation arrives and there is no documentation of the reason for the termination. If the termination is for cause — performance, behavior, a policy violation — say so and document it that way. Do not take the easy route and call it a “layoff” to soften the conversation. That is the employee who sues, and now the company’s real defense is not documented anywhere, the paperwork says something different, and the shifting explanation becomes a credibility problem that a plaintiff’s lawyer will use to argue pretext.

Be concrete. “Bad attitude” in a file means nothing. Three documented instances where the employee talked back to a supervisor during coaching, called a coworker a name, or made an inappropriate comment in a meeting tells a story a jury can follow. If a written policy was violated, identify the specific policy, the key dates, and the prior coaching or discipline. And your handbook should be reviewed annually so the conduct you are terminating for is actually addressed in your policies — though keep in mind you do not need a written policy for every conceivable infraction to terminate for misconduct.

Before the termination is final, run a red-flag audit of the entire personnel file. Has the employee recently complained about wage and hour issues? Recently returned from a protected leave? This matters more than ever: California law now creates a rebuttable presumption of retaliation when an employer takes an adverse action within 90 days of an employee engaging in certain protected activity. The presumption can be rebutted — but what rebuts it is the contemporaneous documentation in your file. If the timing looks bad, that is exactly when to get advice of counsel before pulling the trigger. Also document who made the termination decision: if the same person who hired the employee is the one terminating them, the “same actor” inference can be a helpful defense.

2. Have the end-of-employment packet ready — four documents are critical.

Just as employers use a new-hire packet, we recommend building a standing end-of-employment packet, because California requires certain documents to be provided at termination.

First, the Notice to Employee as to Change in Relationship, required under the Unemployment Insurance Code. It applies to terminations, layoffs, and leaves of absence (not voluntary quits or promotions), and it must be given at the time of the termination. Critically, the reason listed on this form must match what you tell the employee and what is in the file — an inconsistency here creates a presumption against you in litigation.

Second, the EDD’s “For Your Benefit” pamphlet explaining California’s unemployment insurance programs. It runs over twenty pages, and you are permitted to email it to the employee rather than printing it every time — just think through your distribution method in advance.

Third, the applicable health coverage continuation notice — a federal COBRA notice for employers with 20 or more employees, or a Cal-COBRA notice for employers with 2 to 19 employees. Your health insurance carrier typically prepares these; you do not need to reinvent the wheel, but you do need to confirm they actually go out.

Fourth, the HIPP notice issued by the California Department of Health Care Services regarding the Health Insurance Premium Payment program — a state form, not to be confused with federal HIPAA. This is the one employers forget most often, so build it into the packet.

Beyond these documents, employers should consider other optional documents, such as: a termination letter clearly stating the reason for the separation, and a final-pay acknowledgment form itemizing everything included in the final check, which the employee signs to confirm timely payment. If the employee refuses to sign, do not force the issue — give them the documents and the final pay anyway, and note on your copy that it was presented and the employee declined to sign.

3. Final pay is due immediately — and “final wages” means more than you think.

The timing rules are simple, but they are the most common compliance failure we see. For a termination or layoff, all final wages are due immediately, at the time and place of termination. For an employee who quits with at least 72 hours’ notice, final pay is due on the last day; with less notice, within 72 hours of the notice of quitting.

Final wages include everything owed and calculable at separation: earned regular and overtime wages, all accrued but unused vacation and vested PTO (which California treats as earned wages), commissions and bonuses to the extent they can be calculated, and unreimbursed business expenses. Accrued paid sick leave is not paid out at separation — but remember it must be reinstated if the employee is rehired within a year. If a commission or bonus has not yet vested and cannot be calculated, advise the employee in writing that it will be paid when calculable.

The penalty for getting the timing wrong is severe: waiting time penalties of one full day’s wages for each day the final check is late, up to 30 days. For an employee earning $200 per day, a check that is 20 days late generates a $4,000 penalty — and untimely final pay is a favorite add-on claim in class and PAGA actions precisely because it is so easy to prove. A few practical traps from the masterclass: a direct deposit authorization signed at hire is not valid for the final check — you need a fresh written authorization to direct deposit final wages. If the employee asks you to mail the check, get that authorization in writing with the address; the check is then deemed paid on the date of mailing. And do not forget the reporting time pay trap — if you bring an employee in for a scheduled shift and terminate them at the start of it, you owe reporting time pay (generally half the scheduled shift, no less than two and no more than four hours). The cleanest approach for an hourly employee: prepare the final check the day before and simply pay for the full final day, rather than trying to predict exactly when the meeting will end.

4. Conduct the meeting the “Moneyball” way — and assume you are being recorded.

We opened the masterclass with the viral video of an employee who, knowing her termination was coming, recorded the meeting and posted it online — what I have been calling “TikTok terminations.” California is a two-party consent state, so recording a confidential conversation without everyone’s consent is unlawful and likely inadmissible — but that will not keep the clip off the internet. The practical rule: conduct every termination meeting, especially remote ones, as though it will be played back later. Be professional, be consistent, and never say anything you would not want a jury or the internet to hear. (And a note on a question we get more and more: should the employer record the meeting itself, with everyone’s consent? My thinking has shifted — much like police body cameras, your own accurate recording can protect you if your process is done right.)

The most damaging moment in that video was the answer to “why am I being let go?” The company representatives did not have the reason ready and offered to circle back later with data. Do not let that happen. Have the reason locked down before the meeting, state it, and stick to it. This is where the Moneyball approach comes in: in the movie, Billy Beane teaches his young assistant how to cut players — keep it direct, deliver the decision, avoid over-explaining and over-apologizing, and do not get drawn into a debate. The decision has been made; the meeting is to deliver it, not to relitigate it. That said, do not swing to the other extreme and be robotic about it — this is a hard, human moment, and handling it with dignity is one of the most cost-effective forms of litigation prevention there is. Have a second management witness present who takes notes, so the person delivering the news can stay engaged with the employee. And train for it: role-play these meetings with your managers before they ever have to conduct one, using videos like the one we reviewed as training material. How would your manager answer “why am I being let go?” Find out in a practice session, not in a recorded meeting.

5. Get the severance agreement right, keep the right records, and work from a checklist.

Severance is not required under California law, but when you pay an employee anything beyond what is owed in final wages — whether to mitigate risk on a difficult termination or to recognize a long-term employee in a layoff — get a release of claims in exchange. A properly drafted release covers all claims, known and unknown, through the date of signing, and it is worth obtaining even for a modest payment. There is no set formula for the amount; one to two weeks of pay is common for hourly employees, but it varies with tenure and risk.

The drafting rules keep changing, which is why your template needs regular updating. For employees 40 and older, releasing a federal age claim requires giving the employee 21 days to consider the agreement and 7 days after signing to revoke — which means do not pay the severance until the revocation period expires, and explain that timing to the employee up front. Separately, California now requires giving employees at least five business days to consider a severance agreement and written notice of their right to consult an attorney. An old template can leave you having paid the money without a valid release.

Finally, records and process. Keep payroll records for at least four years — the Labor Code requires less, but wage claims can reach back four years, and never rely solely on a payroll vendor to store them; download and maintain your own copies, because switching vendors can mean losing access precisely when a lawsuit needs them. Personnel files should likewise now be kept for at least four years after separation. Establish a strict reference protocol — verify dates of employment and job title, nothing more, through one designated person — to avoid defamation and privacy claims. And put all of it on a written termination checklist: reason documented, red-flag audit done, final pay calculated (including vacation, commissions, and any reporting time pay), required notices assembled, property return and system access handled. A termination is an emotional, high-pressure event for everyone in the room, including the manager conducting it. A checklist built in advance is what keeps a hard conversation from becoming an expensive one.

Terminations will never be easy, but they can be clean. Document the honest reason, hand over the required paperwork, pay everything owed on time, deliver the decision directly and with dignity, and paper the exit properly. Do those five things consistently and you have turned one of the riskiest events in the workplace into one of your best-defended ones.

This week Anne McWilliams and I presented our masterclass on the mid-year PAGA and class action update for California employers, and I want to share some of the data we covered because it surprised even me. When the Legislature reformed PAGA in June 2024, many of us expected the volume and value of these cases to come down. The data we are tracking through Scaled Comp — which now includes over 6,000 settlements pulled from public filings and court records — shows that has not happened yet. If anything, 2026 is shaping up to be the biggest year on record. Here are five takeaways from the first half of 2026 that every California employer should understand:

1. PAGA and class action settlements totaled $1.3 billion in the first six months of 2026.

That is not a typo. Across the roughly 1,400 to 1,500 settlements we tracked in the first half of the year, employers paid out approximately $1.3 billion — averaging about $219 million per month, and that figure is likely to grow because June’s numbers are still filling in as the LWDA continues posting settlement documents. I knew the number would be large, but when I first pulled it I double-checked it because I did not expect it to be that large. And the filings are not slowing down: PAGA notices filed with the LWDA are averaging about 849 per month, which puts 2026 on pace to exceed 10,000 notices and potentially become the biggest year yet for PAGA filings — two years after the reform that was supposed to slow this litigation down. For most companies operating in California, this is likely the single biggest source of exposure on the employment law front.

2. Smaller employers are now squarely in the crosshairs.

This was one of the most eye-opening findings in the data: 44% of the settlements in 2026 cover fewer than 200 employees, with the largest concentration of cases involving employers with 50 to 200 employees. The conventional wisdom that plaintiffs’ firms only chase large companies is out of date. The larger employers have increasingly dialed in their compliance — using software to track time records and limit violations — so plaintiffs’ firms have been moving down-market to smaller employers who often have fewer compliance systems in place. And geography is no protection either: while these cases have historically been centered in Los Angeles, San Francisco, and San Diego, we are seeing them expand well beyond the major metropolitan areas, aided by remote court appearances that make it easy to litigate in any jurisdiction. If you have 100 employees — or fewer — in California, do not assume you are not a target.

3. Most settlements are not the blockbusters that make headlines.

The million-dollar and five-million-dollar settlements get the press, but they are not representative. About half of the settlements in the first half of 2026 came in under $500,000, and the most common range is $100,000 to $500,000. Simple math on the totals (roughly $1.3 billion across roughly 1,400 to 1,500 settlements) produces an average near $900,000, but that average is skewed upward by a handful of very large cases — the typical case settles for far less. When we analyze these cases for clients, the total settlement amount actually tells you very little. The metrics that matter are the dollars per workweek for class claims and dollars per pay period for PAGA claims — that is how you compare apples to apples, and it is how your defense counsel should be benchmarking any settlement discussion. This data exists, and your attorney should be using it rather than relying on gut feel about what these cases “usually” settle for.

4. It takes about two years from PAGA notice to settlement.

On average, roughly two years pass between the filing of the PAGA notice with the LWDA and the filing of the settlement documents — and that figure has held remarkably consistent. This has two important implications. First, it means the effects of the June 2024 reform are only now beginning to show up in the settlement data, because the post-reform cases are just starting to reach resolution. Second, and more practically: time is money in these cases. Every additional month of litigation adds pay periods and workweeks to the potential exposure. If there is any realistic chance a case will settle, employers should push for early mediation — and start that process early, because mediator availability can run many months out. Cutting off the accrual of pay periods early should translate directly into a lower settlement. If early settlement is not realistic, then commit to litigating and building your defenses — but make that strategic decision deliberately, not by default.

5. Five plaintiffs’ firms account for roughly 40% of all settlements.

The PAGA landscape is remarkably concentrated. The five most active plaintiffs’ firms are responsible for about 40% of the settlements in 2026 — and slightly over 40% of the settlement dollars. These are highly specialized, volume-driven practices focused almost exclusively on wage and hour claims, and the concentration has only increased since the 2024 reform. This matters for employers in two ways. First, knowing the track record of the firm on the other side — what they settle for, what arguments they make, and how they run their cases — is valuable intelligence that should shape your defense strategy before you ever walk into a mediation. Second, these firms typically send cookie-cutter PAGA notices that list nearly every Labor Code provision without specifying what the employer actually did wrong — an issue the proposed LWDA regulations working their way through the process this year may finally address.

The bottom line: the 2024 reform did not end PAGA litigation, but it did fundamentally change how employers can defend these cases. The penalty caps — 15% if you took all reasonable steps before receiving a PAGA notice, 30% if you take them within 60 days after — are powerful tools, but the burden is on the employer to prove those steps with documentation. Regular payroll and time-record audits, compliant written policies, supervisor training, and corrective action are the four pillars, and they need to be documented, recurring practices — not a one-time event. With $1.3 billion on the table in just six months, taking those steps now is the best investment a California employer can make.

The slides from the masterclass are available upon request, and we publish a monthly report on PAGA and class action settlement trends through Scaled Comp for those who want to follow the data.

Back in February, we covered the five key provisions of the sweeping PAGA regulations proposed by California’s Labor and Workforce Development Agency (LWDA). Five months later, those regulations are still not final—but they are moving, and this week the state signaled it has no intention of backing down. At a gathering of employment lawyers on July 23, a state workforce official publicly defended the proposal, describing the trend of vague, boilerplate PAGA notices the rules are meant to curb as “depressing.” That defense came even as attorneys on both the plaintiff and defense sides have raised pointed questions about the proposed rules. Here are five things every California employer should understand about where the PAGA rulemaking stands today and what to do while the state finishes the job.

1. The Rules Are Not Final—but the Direction Is Set

The LWDA issued its formal notice of proposed rulemaking on February 6, 2026, opening a public comment period that closed on March 23, followed by a public hearing on April 9. Since then, the agency has been reviewing the comments it received and working toward a final rule “at a time to be determined.” In other words, nothing is binding yet.

What changed this week is tone. Rather than signaling openness to scaling the proposal back in response to criticism, a state official used a public forum to make the affirmative case for it—framing the flood of inadequate, cookie-cutter PAGA notices as a real problem the regulations are designed to solve. For employers, the practical read is that these rules are far more likely to be finalized in something close to their current form than to quietly disappear. This is a good moment to get ready, not to wait and see.

2. The Heart of the Reform Is Forcing PAGA Notices to Say Something Real

The single biggest theme running through both the regulations and the state’s public defense of them is notice specificity. Today, many PAGA notices are template documents that recite a list of Labor Code sections with little factual detail tying the alleged violations to the actual workplace. The proposed rules would require notices to be submitted on an LWDA form with fillable fields and to include genuine factual specificity—background about the aggrieved employee’s employment and the specific facts and theories supporting each alleged violation. The person signing the notice would also have to certify that the claims have legal and evidentiary support.

For employers, this cuts in your favor: a notice that must actually articulate what went wrong is a notice you can evaluate, and in some cases defeat, far more effectively than a generic laundry list. But it also raises the stakes on your own records. When a notice makes specific factual allegations, your ability to respond—and to show the allegation is wrong—depends on having the timekeeping data, pay records, and written policies to prove it. The more detailed the accusation, the more detailed your defense needs to be.

3. The Cure Process Is Getting Clearer—Especially for Smaller Employers

One of the more employer-friendly features of the 2024 PAGA reform was an expanded ability to “cure” certain violations and limit exposure. The proposed regulations put procedural meat on those bones. For employers with fewer than 100 employees, the rules spell out what a cure statement must contain, how to prepare for the cure conference, and how the LWDA will evaluate whether a cure is sufficient. Equally important, the regulations confirm that cure-related communications are treated as protected settlement discussions under Evidence Code section 1152—meaning your good-faith effort to fix a problem through the cure process cannot later be paraded in front of a jury as an admission.

That protection matters because it removes a real disincentive to participating. If you are a smaller employer, this is the provision worth understanding in detail now, because a well-executed cure can be one of the most cost-effective off-ramps available. Knowing the process before a notice arrives—rather than scrambling to learn it inside a tight statutory deadline—is a meaningful advantage.

4. Settlements Will Take Longer and Draw More Scrutiny

If your company is heading toward resolving a PAGA claim, plan for a slower, more paperwork-heavy path. The proposed rules require settling parties to submit additional materials to the LWDA and, notably, to notify other employees who have filed PAGA notices against the same employer so they can weigh in before approval. The agency would also get at least 45 days to review a proposed settlement. Each of these steps is defensible on its own terms—the state wants to make sure it is not blessing a deal that shortchanges workers or lets a bad actor buy a cheap release—but stacked together they mean added time and added friction.

The practical takeaway for employers is to build these timelines into your expectations from the outset. A settlement you assume will close in a certain window may need extra runway to account for the LWDA’s review period and the additional notice requirements. Factor that into both your litigation budget and any business decisions—financing, transactions, reserves—that depend on knowing when a matter will actually be resolved.

5. What to Do Now: Document Your “Reasonable Steps” Before a Notice Ever Arrives

The through-line connecting all of the above is that the value of good compliance records is going up. The 2024 reform gave courts the ability to significantly reduce penalties for employers who took “reasonable steps” to comply with the Labor Code before receiving a notice—and the regulatory push toward more specific, better-substantiated notices only sharpens the importance of being able to prove what you did. That proof is not something you can create after a notice lands; it has to exist beforehand.

Use this window while the rules are still being finalized to get your house in order. Audit your wage-and-hour practices—meal and rest break policies, overtime and regular-rate calculations, timekeeping, pay stub accuracy, and final pay procedures. Just as important, document the compliance work itself: written policies, training records, internal audits, and the corrective actions you took when you found a problem. If a specific PAGA notice arrives, the employer who can respond with organized records and a paper trail of reasonable steps is in a dramatically stronger position than the one starting from scratch. Regardless of exactly when—or in what final form—these regulations take effect, that preparation pays off today.

The Bottom Line

The PAGA regulations are not final, but this week’s public defense of them by a state official is a strong signal that they are coming, and largely intact. The core of the reform—demanding that PAGA notices actually state a real, factually supported claim—is good news for employers who keep their houses in order. The clearer cure process, the added settlement scrutiny, and the premium on documented compliance all point in the same direction: the employers who fare best under the new rules will be the ones who prepare now, while the rules are still taking shape, rather than after a notice is already in hand.

Join Us: Mid-Year PAGA Update — What California Employers Need to Know Now

Join Zaller Law Group on Wednesday, July 29, 2026 at 10:00 AM Pacific for our masterclass, “Mid-Year PAGA Update: What California Employers Need to Know Now”—a practical, data-driven session, featuring insights from the Scaled Comp wage-and-hour compliance platform, on the latest developments since the 2024 reforms, the LWDA’s proposed regulations, and how to build a “reasonable steps” compliance program before claims arise. Register here.

There is a persistent myth in business that bigger is better—that the way to handle a harder problem is to throw more people at it. If a five-person team is good, a fifty-person team must be ten times better. Most executives who have actually run a growing company know this isn’t quite how it works. Somewhere along the way, adding people stops making the work faster or better and starts making it slower, more diluted, and—if you run a California workforce—more legally exposed.

That last part is the one employers underestimate. The way you structure and scale a team doesn’t just affect productivity; it quietly reshapes your wage-and-hour risk, because California liability is built on multiplication. A single misclassification or a sloppy meal-break practice isn’t one problem—it’s one problem times every employee it touches, across every pay period. Here are five lessons about organizational structure, and what each one means for the legal exposure sitting inside your headcount.

1. Price’s Law: Your Risk Scales Faster Than Your Productive Core

The physicist Derek de Solla Price observed something uncomfortable about how work gets distributed, and Jordan Peterson has since popularized it as “Price’s Law”: in any organization, roughly half the work is done by the square root of the number of people. In a company of 10, about 3 people carry half the load. In a company of 100, it’s only 10. In a company of 10,000, it’s about 100. As you grow, the productive core grows by a square root—far slower than the payroll.

Here is the part that matters for an employer. Productivity scales with the square root of your headcount, but liability scales linearly with the headcount itself. Every employee you add is another person who must be correctly classified as exempt or non-exempt, another set of timekeeping records, another meal and rest period to get right, another wage statement that has to comply with Labor Code section 226. Under PAGA and California’s class mechanisms, a single defective practice becomes a per-employee, per-pay-period penalty. So growth quietly widens the gap between the value your organization produces and the exposure it carries. The takeaway isn’t “don’t grow”—it’s that scale has a hidden legal tax, and it comes due precisely when you’ve added people faster than you’ve tightened your compliance systems.

2. Coordination Cost Is Where Compliance Drifts

Every person you add to a team doesn’t just add capacity—they add connections. Two people have one line of communication between them; five people have ten; ten people have forty-five. The relationships that have to be maintained grow roughly with the square of the team size, which is why a company that ran cleanly with one location can feel like herding cats with twelve.

Compliance lives in exactly the places that coordination cost erodes. When you had one manager, meal-break practices, off-the-clock rules, and overtime approvals lived in one head and were applied one way. Add ten managers across five locations and you now have ten people understanding meal and rest break rules and timing, how to handle a termination, and how to respond to a complaint. Practices drift, no one intends it, and the drift is invisible until a demand letter makes it visible all at once. Small, tightly-coordinated teams stay compliant partly because everyone can hold the same rules in the same room; large, loosely-coordinated ones develop a dozen slightly different versions of the same policy, and in California, “slightly different” is where the penalties live.

3. Founder Mode: Distance From the Details Is How Liability Builds

In his now-famous essay “Founder Mode,” Paul Graham described a realization Brian Chesky had while scaling Airbnb. Chesky had followed the standard advice—hire good people and give them room to do their jobs—and watched it damage the company. The conventional playbook, he found, was written for professional managers, not for the people who actually understand the work.

Graham draws the distinction as “manager mode” versus “founder mode.” In manager mode, leaders operate only through their direct reports and stay deliberately distant from the details, treating the organization like a set of black boxes. Information gets filtered and softened at every layer, until the person nominally in charge is making decisions based on a version of reality that has passed through a long game of telephone.

That distance is not just an efficiency problem for an employer—it is the exact mechanism by which serious wage-and-hour liability accumulates. Leadership assumes HR “has it handled.” HR assumes the timekeeping system is configured correctly. Location managers assume their rounding practice is fine because no one has said otherwise. No one at the top actually knows whether the company’s meal-break premiums are being paid until the exposure is already years deep and quantified in a plaintiff’s spreadsheet. Founder mode—the owner or executive who stays close enough to the details to ask “show me how we actually pay overtime” before there’s a lawsuit—is not micromanagement. In California employment compliance, it is one of the cheapest forms of insurance available.

4. Elite Selection Beats Mass Mobilization—Including in Your Choice of Counsel

Special forces are not just a smaller version of a regular army. They are selected for a demanding standard, trained deeply for a specific mission, and trusted to operate with initiative. You do not send a large conventional force to do the work of a small specialized one, and vice versa—the two are built for different problems.

Complicated, high-stakes work rewards depth over breadth: people who have seen the specific problem many times and developed genuine mastery of it, rather than generalists who touch it occasionally. This is worth keeping in mind not only when you build your own team, but when you choose who defends it. California employment law is its own dense, fast-moving specialty—PAGA amendments, evolving meal-and-rest doctrine, wage-statement technicalities, the arbitration landscape—and a firm that practices it every day will recognize the patterns that matter before they become expensive, in a way a generalist handling the occasional employment matter simply cannot. When you’re evaluating counsel for a bet-the-company wage-and-hour claim, depth in the specific domain is the variable that most reliably predicts the outcome.

5. Ownership That Can’t Be Diffused

There is a well-documented phenomenon in group psychology: as a group gets larger, each individual’s sense of personal responsibility shrinks. Psychologists call it social loafing or diffusion of responsibility—when everyone is responsible, no one is. It shows up inside your own company, where a compliance gap that is “everyone’s job” turns out to be no one’s, and it shows up in how legal matters get handled, where a file passed down a chain to whoever is available never gets the ownership a serious problem demands.

On a small, focused team, ownership is unavoidable—there is nowhere to hide and no one to defer to, and the work gets done with the care of someone whose name is on it. That principle is worth applying in both directions: assign clear, named ownership of your compliance function so it doesn’t dissolve into the org chart, and when you retain counsel, make sure a senior person actually owns your matter rather than supervising it from a distance. The through-line of everything above is the same—on complicated, high-stakes employment problems, a small team that stays close to the details and is personally accountable for the outcome consistently beats a large one that doesn’t.

The Bottom Line

The instinct to solve hard problems by scaling up is understandable, but for a California employer it carries a specific and underappreciated cost: liability multiplies with headcount even as productivity lags behind it, and it accumulates fastest in exactly the gaps that growth creates—inconsistent practices across managers, and leadership too distant from the details to see the exposure forming. Managing that risk is less about adding people and more about staying close, keeping practices consistent, and putting clear ownership on both your compliance function and the counsel who defends it. On the problems that can genuinely hurt your business, small, focused, and accountable wins.

If your company is facing a claim under California’s Private Attorneys General Act (PAGA), most cases end not with a trial but with a negotiated settlement. Understanding where the settlement dollars actually go—and what a judge will scrutinize before signing off—helps you evaluate any proposed deal with clear eyes. Here are five things every California business executive should understand about how a PAGA settlement is structured and approved.

1. Attorneys’ Fees Come Off the Top of the Fund

PAGA is a fee-shifting statute. Under Labor Code section 2699, a prevailing employee is entitled to recover reasonable attorneys’ fees and costs, and that reality drives how settlements are built. In practice, plaintiffs’ counsel typically request roughly one-third (about 33%) of the gross settlement amount as their fee, and it is paid from the total settlement fund before employees receive their individual shares. The court does not simply approve whatever the parties agree to. A judge must independently find the requested fee reasonable. For employers, the practical takeaway is that the fee award is a major component of your total exposure, and it is negotiable as part of the overall settlement value.

2. Cy Pres: You Can Often Choose Where Unclaimed Money Goes

Even after checks are mailed, some employees inevitably fail to cash them or can’t be located. The question of what happens to that leftover money is answered through a doctrine called cy pres. Rather than letting the funds revert to the employer—which courts and the LWDA generally disfavor—the unclaimed portion of the employee distribution can be directed to a designated nonprofit organization.

Here is where employers have meaningful input: the cy pres recipient is negotiated and written into the settlement agreement, so you can often propose a nonprofit your company supports or believes in. The choice isn’t unlimited—the recipient must be a qualifying nonprofit, and California courts frequently expect an organization that provides civil legal services to those in need or otherwise bears a reasonable connection (“nexus”) to wage-and-hour issues. The judge must ultimately approve the designation. But within those guardrails, naming a charity you favor is a legitimate and common part of the negotiation.

3. Administration Costs Are a Real, Separate Line Item

PAGA settlements are almost always handled by a third-party settlement administrator rather than by the employer’s HR department. The administrator calculates each employee’s individual share, mails notices and checks, manages tax withholding and reporting (a portion of penalties is treated as wages), fields employee questions, and tracks uncashed checks. These services cost money—commonly anywhere from several thousand dollars to $25,000 or more depending on the size of the workforce and complexity of the class. Like attorneys’ fees, administration costs are paid out of the gross settlement fund and must be disclosed to and approved by the court. When you evaluate a proposed settlement, be sure you understand this line item, because it reduces the amount reaching employees and is part of the total number your company is funding.

4. The Named Plaintiff Usually Receives an Enhancement Payment

The employee who steps forward to file the case—the named plaintiff or “PAGA representative”—typically receives an enhancement (also called a service award or incentive payment) on top of their ordinary individual share. This payment compensates them for the time they spent, the risks they took on, and their willingness to put their name on the lawsuit. Enhancement awards commonly fall in the range of $5,000 to $10,000, though the amount varies with the facts.

Employers should know that courts scrutinize these payments and will not rubber-stamp an excessive figure. A judge wants to be sure the named plaintiff isn’t being paid a premium to accept a deal that shortchanges the broader group of aggrieved employees. In some cases courts have reduced or questioned enhancement requests. From the employer’s side, this is simply another negotiated component of the settlement—and one the court independently reviews for reasonableness.

5. Court Approval Is Mandatory—and the State Gets a Say

Unlike an ordinary civil dispute, a PAGA claim cannot be settled privately with a handshake and a release. Because a PAGA action is brought on behalf of the state, the settlement must be approved by the court, and the parties must submit the proposed agreement to the Labor and Workforce Development Agency (LWDA) at the same time it is submitted to the judge. The LWDA has the right to review and object.

The judge evaluates whether the settlement is fair, reasonable, adequate, and consistent with the purposes of PAGA—namely, encouraging employers to correct violations and deterring future ones. A critical mechanical point: the recovered civil penalties are split with the state. For PAGA notices filed on or after June 19, 2024, 65% goes to the LWDA and 35% goes to the aggrieved employees. (For older cases filed before that date, the split is the prior 75% / 25%.) This allocation, along with the fees, costs, enhancement, and cy pres terms discussed above, is exactly what the court reviews before granting approval.

The Bottom Line

A PAGA settlement is far more structured than a typical business dispute: attorneys’ fees, administration costs, a plaintiff enhancement, and the state’s statutory share all come out of the fund, and a judge must independently bless the whole package. But employers are not passive bystanders in the process—from negotiating the fee and enhancement figures to choosing the charity that receives unclaimed funds, there are meaningful levers to pull. Understanding these five elements puts you in a stronger position to evaluate any settlement proposal that crosses your desk.

Ten years ago, I started writing a post every Fourth of July about the things I’m thankful for. I’ve published it every year since 2015, and I can’t quite believe this year marks a decade of the tradition — and that it lands on a milestone for the country, too: this Fourth is America’s 250th.

A quarter-millennium ago, 56 men signed their names to a document and risked everything on an idea. Writing this post every year has become one of my favorite ways to step back from all of the work deadlines and think about why any of this work is possible in the first place. This year, that feels especially worth doing. This remains one of my favorite holidays, and hopefully I’ll be able to keep publishing this post for many years to come.

Five things I’m thankful for this Fourth of July:

1. The great risk and sacrifice our Founding Fathers took to establish the country.

When I learned about the Founding Fathers in high school history class, I didn’t have any real perspective on the risks they took in establishing the country. Only now — with a business, a family, and something to lose — do I understand what it meant. By all means, they were the establishment, the elite of American society, and if anyone had an interest in preserving the status quo, it was them. Instead, they risked their lives (their own and their families’) and their fortunes on an idea, and those sacrifices built the foundation we all benefit from today.

2. The freedom to speak my mind and to practice (or not practice) any religion I choose.

It is a remarkable thing to be able to freely speak your mind and believe whatever you want — and just as remarkable to be free to practice, or not practice, any religion you choose. We live in a tolerant society, and it is even better when the government is not telling you how to live your life. It is worth remembering that across the sweep of history, this freedom is the exception, not the rule.

3. A country that still attracts creative, productive people.

Creative and productive people want to practice their trade where the government will largely leave them alone and protect the gains they earn from their hard work (see item #5 below). The U.S. provides that environment, and it is why so many people come here to build a business or practice their trade. Talented people go where they are left alone to build and allowed to keep what they earn — and it is worth recognizing how lucky we are that this is still one of those places.

4. The right to pursue any profession — and nearly unlimited free resources to learn it.

No one dictates what you must become after high school or college. Everyone is free to pursue their interest, and the market — not your pedigree — decides the value of the effort. With almost any information freely available on the Internet, anyone can learn almost any skill, and like no other time in human history, individuals have an almost free way to sell their services or products to the world. In your mid-40s and want to make a career change? Perfect — and you don’t even need to go back to school, because the information is all out there. Didn’t finish college and are 20 years old with a big idea? Perfect. Venture capitalists don’t care about your pedigree; they only care whether you work hard and don’t give up.

5. Our legal system.

Yes, it sounds trite. And no, I don’t think our legal system is perfect by any means — but it is the best yet built in the history of mankind, and it is the foundation under everything above. Because people can reasonably predict the outcomes of their actions — that property lawfully obtained can be kept, that a breached contract carries repercussions — it creates an environment that rewards hard work and attracts the best talent from around the world. That is a large part of why the U.S. has led in ideas and new businesses. But the fact that the system is established does not mean our work is done. Fairness, reasonableness, and freedom from corruption have to be defended, not assumed. Two hundred fifty years in, that’s still the assignment.

To everyone reading — I hope you get to set the work aside for a bit and spend the day with the people you love.

Happy 250th, and Happy Fourth of July.

It has become common now for employees to post their terminations on social media.  In a recent video, an employee, tipped off that her remote sales role was about to be cut, quietly hit record and pushed back on the two HR representatives delivering the news — neither of whom she had ever met. She posted the recording online, and it has been viewed by millions. It is worth watching these videos, not to judge the people in it — a termination is a hard, human moment, and there is no single right way to do it — but because it captures, in real time, where remote and recorded terminations create new risk for California employers.

Here are five takeaways for conducting a termination in 2026, when you should assume the conversation may end up on someone’s phone.

1. Assume the meeting is being recorded — and act accordingly.

A few years ago this was a fringe concern. Today, an employee who knows a termination is coming will often prepare a recording, and the technology in everyone’s pocket makes it effortless. California is a two-party (all-party) consent state: under Penal Code section 632, it is a crime to record a confidential communication without the consent of every participant, and a communication is “confidential” when a party has an objectively reasonable expectation it is not being overheard or recorded. A recording made without that consent is generally inadmissible in court under section 632(d) — but admissibility is cold comfort once the clip is on social media. The practical lesson is simple: conduct every termination as though it will be played back later. Be professional, be consistent, and never say anything in the room you would not want a jury, or the internet, to hear.

There is a wrinkle worth noting. If the employer consents to a recording, it is hard for that employer to later complain that the employee recorded the same conversation. That raises a question we now get regularly: should the employer record the termination? My own thinking has shifted. A few years ago I would have said no. But if the employee is likely to record it anyway, there is an argument for having your own complete, accurate record — much like the body-camera evolution in law enforcement, where officers came to see the camera as protection precisely because they were doing things correctly. Reasonable practitioners disagree on this; some attorneys prefer never to have a recording of a termination meeting in existence at all. If you go the recording route, get genuine consent from everyone on the call and make sure your people are trained to perform well on tape.

2. Lock the reason down before the meeting — and do not argue it in the room.

The single most damaging moment in the video was the answer to “Why am I getting let go?” The representatives did not have a crisp, documented reason ready and instead offered to “circle back” with data they almost certainly will never send. That is the worst of both worlds: it signals the reason was not thought through, and it makes a promise the company will not keep. California is an at-will state, so an employer generally need not have a reason at all — but the moment you give one, it must be accurate, documented, and consistent everywhere it appears, including on the Notice to Employee as to Change in Relationship. Do not label a performance termination a “layoff” to soften the blow, and do not say “performance” when you mean the whole department is being cut; an inconsistency between what you say and what you wrote becomes a credibility problem if the employee later claims the real reason was illegal. Once you have stated the reason, stick to it. This is the “Moneyball” approach to terminations — deliver it directly, do not over-explain, and do not get drawn into debating whether the employee really underperformed. A measured “We understand you may not agree, but the decision has been made and we are moving forward” closes the loop without opening an argument.

3. Run the pre-termination red-flag audit — and respect the 90-day window.

Before any termination is final, review the entire personnel file looking for recent protected activity: wage complaints, a return from protected leave, a safety report, a whistleblower disclosure. This is no longer just good hygiene. Under SB 497 (the Equal Pay and Anti-Retaliation Protection Act), effective January 1, 2024, California law now creates a rebuttable presumption of retaliation when an employer takes an adverse action — including discharge — within 90 days of an employee engaging in activity protected under Labor Code sections 98.6, 1102.5, or 1197.5. The presumption shifts the early burden to the employer, but it is rebuttable: the way you overcome it is with a legitimate, well-documented, non-retaliatory reason that predates the protected activity. So if a termination falls inside that window, slow down, document the business reason thoroughly, and consider getting a second set of eyes from counsel. It also helps to note who is making the call — when the same person who hired the employee is the one firing them, the same-actor inference can cut in the employer’s favor.

4. Think through who is in the room — and avoid singling people out.

Two strangers delivering a termination to an employee who has never met either of them added confusion and emotion to an already difficult moment, and left no one on the call who could speak credibly to the employee’s actual performance. Having two company representatives present is good practice — one to deliver, one to witness and take notes. But at least one of them should be someone who knows the employee, ideally the direct supervisor who can stand behind the stated reason. Relatedly, when a termination is really part of a broader reduction, doing them one employee at a time creates two problems: it makes each person feel personally singled out for “performance” when the real driver was a headcount decision, and it lets word spread so the next person is tipped off and arrives ready to record. Where a whole group or department is going, handle it as a coordinated group action. None of this means remote terminations are off-limits — nothing in California law requires an in-person discharge, and remote separations are a permanent part of the landscape — but the remoteness makes deliberate planning about who delivers the message more important, not less.

5. Do not let “remote” or “emotional” derail the final-pay and notice mechanics.

A remote or out-of-state employer still owes immediate final pay at termination under Labor Code section 201, and a late final check still triggers waiting-time penalties under section 203 of up to 30 days’ wages. Remote logistics introduce specific traps. To pay a final check by direct deposit you need a new, separate written authorization for the final wages — the one signed at hire will not carry the day, and if the deposit does not land until the next day you have arguably paid late. To mail the check, get written authorization that includes the mailing address; the payment is then deemed made on the date mailed. And the required separation documents still have to go out regardless of distance: the change-in-relationship notice, the EDD’s unemployment benefits pamphlet, the COBRA or Cal-COBRA notice, and the state DHCS (HIPP) notice. One more reminder that surfaces constantly: if you bring an employee in for a scheduled shift and terminate immediately, you can owe reporting-time pay even though little or no work was performed — let the employee work at least half the shift first, or build the reporting-time amount into the final check. For the full mechanics of final pay, required notices, and severance releases, see our prior post on conducting California terminations here.

The throughline of the video — and of every termination — is that respect and preparation are the best risk management you have. Treat the employee with dignity, have the reason and the paperwork ready before you walk in, and assume someone is watching. Happy employees rarely sue, and employees who feel heard rarely do either; even one who disagrees with the decision will often, with a little time, understand that it was handled fairly. Done that way, a termination stops being your most dangerous moment and becomes one of your better-defended ones.

Most California employers think about their time and attendance records in only one context: the day a plaintiff’s lawyer subpoenas them. By then, the records are working against you — every late meal punch, every missing premium, every off-the-clock minute becomes a line item in someone else’s damages model. But the same data that creates exposure when you ignore it becomes one of your strongest defensive and operational assets when you actually use it. The difference between the two is simply whether you are reading your records on an ongoing basis or seeing them for the first time in discovery.

Here are five ways California employers can put their time records to work proactively.

1. Your records are the proof that you took the “reasonable steps” that cap PAGA penalties.

The 2024 PAGA reforms gave employers a defense that did not exist before: an employer that has taken “all reasonable steps” to comply with the Labor Code before receiving a PAGA notice caps its civil penalties at 15% of the amount otherwise recoverable, and an employer that takes those steps within 60 days after the notice caps them at 30%. Against a default exposure of $100 per pay period, per aggrieved employee (and up to $200 for subsequent violations), that cap is the difference between a seven-figure case and a five- or six-figure one. The statute expressly lists conducting periodic payroll audits and acting on the results as a reasonable step — and a payroll audit is only as good as the records behind it. The same is true of premium payments. Under Donohue v. AMN Services, LLC (2021), time records showing missed, short, or late meal periods create a rebuttable presumption that a compliant meal period was not provided. You rebut that presumption by showing you paid the one-hour premium — and your records are what prove you paid it, and when. Records you actually work with are the evidentiary backbone of the entire reasonable-steps defense. (For more on recording and reporting these issues, see our recent update on electronic timekeeping and pay stub compliance.) This is the primary reason I co-founded Scaled Comp – a software platform to help lawyers and employers analyze time records in an efficient process to decrease liability.

2. Your records tell you which managers understand the rules — before one gap becomes a systemic problem.

Aggregate compliance numbers hide more than they reveal. When you look at the underlying records, a cluster of late meal breaks at one store, or a manager whose location never records a single break premium, usually is not a workforce-wide problem — it is a training problem with a single supervisor. Catching that pattern in a monthly review lets you correct it with coaching and documentation while it is still small. This matters for two reasons. First, training supervisors on Labor Code and Wage Order requirements and taking appropriate corrective action with supervisors who fail to follow the law are both expressly named reasonable steps under the reformed PAGA — so the very act of identifying and correcting the manager builds your defense. Second, an issue you catch and fix in March is a handful of premium payments; the same issue discovered in litigation two years later is a class period.

3. Attendance and tardiness patterns are early intelligence on performance and risk.

Your time records are a performance-management tool, not just a compliance record. Chronic tardiness, employees performing work before they clock in, and punches that drift outside scheduled shifts are all visible in the data — if someone is looking. Two patterns deserve particular attention. Off-the-clock work, where an employee is regularly in the building and working before the clock-in punch, must be paid and addressed promptly, because an employee cannot waive the right to be paid or the right to minimum wage. And identical punch times day after day are a red flag: real human start times vary by a few minutes, and records showing everyone clocking in at exactly 8:00:00 every day invite the argument that the time was not actually recorded as worked. When you spot these patterns, pay what is owed, document the issue, and apply consistent discipline. That record of paying employees and correcting problems as you learn of them is exactly what demonstrates a policy with teeth — and it supports legitimate, well-documented employment decisions if performance ultimately becomes a separation issue. (See our recent post on termination best practices to reduce liability.)

4. Location-level data isolates your real exposure and tells you where to look first.

Running wage-and-hour compliance across a portfolio of locations is a fundamentally different challenge than running one — your exposure compounds with every site you add, and you cannot be everywhere at once. Records that can be sliced by location and ranked by issue type let you see at a glance where your biggest exposure sits, instead of working through site-by-site reports one at a time. If three of your twenty locations account for most of your missed-break premiums, that is where your audit time, your retraining, and your management attention belong. The goal is to drive your violation rate down to the point — generally a couple of percent or less — where the reasonable-steps defense is genuinely available and your residual exposure is simply not large.

5. The same data forecasts and prevents tomorrow’s violations — at the scheduling stage.

Everything above reads the records after the work happens. The highest-value use turns them around to look forward. California’s overtime structure alone is a forecasting problem: daily overtime after 8 hours, double time after 12, weekly overtime after 40, and overtime (then double time) on the seventh consecutive day in a workweek. Layer on split-shift premiums and reporting-time pay, and a schedule that looks fine on paper can carry premium obligations no one priced in. Historical records show you which shift patterns trigger these costs, so you can flag them while the schedule is still a draft — before it is published, when changing it is free — rather than discovering the overtime on the back end. That is both a compliance control and a budgeting tool: you are managing labor cost and legal exposure in the same moment, rather than reconciling both after payroll has already run. (Split-shift premiums and reporting-time pay each carry enough nuance to deserve their own treatment, and I will take them up in a future column.)

The throughline is simple: records you look at only in litigation are a liability, and records you work with every month are an asset. The cost of building that habit is modest, and in 2026 the technology to automate most of this by using software like Scaled Comp is very accessible for most employers. The cost of not building it tends to show up all at once, years later, in a demand letter.

California employers know the rule by heart: non-competition agreements are void in this state. Business and Professions Code section 16600 has been on the books for over a century, and the Legislature doubled down in 2024 with SB 699 and AB 1076, making it unlawful even to attempt to enforce a non-compete and requiring employers to send notices to employees who had signed them. The conventional wisdom that follows is that when a competitor raids your workforce — or when your star branch manager walks out the door with your team and your customers — there is nothing you can do about it.

Readers of this blog know that the conventional wisdom is wrong. As I wrote last June in “Noncompetition Agreements Remain Unenforceable in California — But Employers Still Have Tools to Protect Company Assets”, the end of the non-compete did not leave California employers defenseless: the Labor Code’s duty of loyalty (sections 2860 and 2863), interference claims, and other statutory and common law remedies remain available to protect company assets. A new published Court of Appeal decision now shows just how much force those tools carry.

In Guild Mortgage Company LLC v. CrossCountry Mortgage LLC (4th Dist., Div. One, May 27, 2026, D085036/D085273), the court made clear that while California protects employee mobility after the employment ends, employees owe their employer an undivided duty of loyalty while they are still employed — and managers entrusted with running the business may owe full fiduciary duties on top of that. A competitor that helps employees breach those duties can be liable for aiding and abetting the breach. Here are five takeaways from the decision for this Friday’s Five.

1. The facts: a branch “gutted” from the inside

Guild and CrossCountry (CCM) are rival nationwide residential mortgage lenders. According to Guild’s complaint, over an 18-month period CCM induced and conspired with several of Guild’s branch employees — including the branch manager, a senior loan officer, and the branch operations manager — to gut the branch by recruiting their Guild colleagues to come work for CCM, diverting Guild’s customers to CCM, and converting Guild’s pipeline of active loan applications to CCM. Critically, all of this allegedly occurred while those employees were still employed, and being paid, by Guild. The conspirators also allegedly accessed Guild’s computer systems without authorization and copied confidential customer financial information, loan-level data, and employee compensation information.

The result was a mass resignation of virtually all of the dozens of employees at the branch. Guild first arbitrated against the three ringleaders and won — the arbitrator ordered the branch manager alone to pay over $10.6 million. Guild then sued CCM. The trial court sustained CCM’s demurrers and dismissed the entire case, concluding the employees owed Guild no actionable tort duty and that the remaining claims were displaced by California’s Uniform Trade Secrets Act (CUTSA). The Court of Appeal reversed across the board.

2. Every employee owes a duty of loyalty — not just executives

The centerpiece of the decision is its reaffirmation that “an employee, while employed, owes undivided loyalty to his employer.” The court grounded this in longstanding case law (Huong Que, Inc. v. Luu (2007); Fowler v. Varian Associates, Inc. (1987); Stokes v. Dole Nut Co. (1995)) and in Labor Code section 2863, which requires an employee who has business of his own similar to that entrusted to him by his employer to “always give the preference to the business of the employer.”

The court drew the line that matters for employers and employees alike: California law permits an employee to seek other employment and even to make some preparations to compete before resigning — but it “does not authorize an employee to transfer his loyalty to a competitor.” Recruiting your coworkers for a competitor, steering customers away, and moving the company’s active business pipeline to a rival while still drawing a paycheck crosses that line.

Significantly, the court declined to follow AMN Healthcare, Inc. v. Aya Healthcare Services, Inc. (2018), which some defendants have read to mean that an employee’s obligations to an employer sound only in contract, not tort. The Guild Mortgage court held that AMN never considered the contrary authority or Labor Code section 2863, and that disloyalty of this kind violates a social policy meriting tort remedies. This is a meaningful clarification: the duty of loyalty exists by operation of law, with tort remedies attached, whether or not the employee signed anything.

3. Fiduciary duty turns on function, not title

CCM argued that the branch manager could not owe fiduciary duties because he was “merely a branch manager,” not a corporate officer. The court rejected the argument, relying on GAB Business Services, Inc. v. Lindsey & Newsom Claim Services, Inc. (2000): an officer or manager who participates in the management of the company and exercises some discretionary authority is a fiduciary as a matter of law, while a purely “nominal” officer with no management authority is not. As GAB put it, the test “is not control; it is, instead, merely participation in management” — a low threshold.

The Guild Mortgage court distilled the principle into a sentence every employer should remember: what matters is not the title, “but rather the levels of trust, confidence, and discretion reposed by the employer.” Guild had entrusted its branch manager with stewardship of a sizable branch, supervision of dozens of employees, and safeguarding sensitive customer financial information. That was enough to plead a fiduciary relationship — and a competitor that knowingly assists a fiduciary’s betrayal can be liable for aiding and abetting the breach.

4. CUTSA does not swallow the case

The trial court had dismissed Guild’s interference claims and its claim under Penal Code section 502 (the Comprehensive Computer Data Access and Fraud Act, or CCDAFA) on the theory that CUTSA displaced them. The Court of Appeal disagreed on both fronts, and these holdings are important for any employer litigating employee-raiding cases.

First, on the interference claims, the court applied the “gravamen” test: courts look at the gist of the complaint to determine whether a claim is really just a repackaged trade secret claim. Here, the heart of Guild’s case was not the taking of confidential information — it was a coordinated scheme to sabotage a branch by appropriating its personnel, customers, and business pipeline while the key players were still on Guild’s payroll. The data theft was in aid of that scheme, not the scheme itself. Claims with that independent factual basis survive.

Second, in a holding of first impression in the published California case law, the court held that CUTSA does not displace civil claims under the CCDAFA at all. The two statutes target different social ills — CUTSA protects intellectual property; the CCDAFA protects the integrity of computer systems and data. The court found it implausible that the Legislature created (and later expanded) the section 502 civil remedy only to have it swallowed by CUTSA, enacted in the same month in 1984. For employers, this confirms that unauthorized access to company systems by departing employees supports a standalone statutory claim with its own remedies, regardless of whether the information taken qualifies as a trade secret.

5. Practical steps for employers — on both sides of the raid

For employers worried about being the target of a raid:

  • Ensure your employment agreements with managers and key employees include enforceable provisions — duties of confidentiality, agreements not to solicit or divert clients and employees during employment, and acknowledgments of the trust and discretion placed in managerial roles (the Guild employees had exactly these provisions, and they supported the interference-with-contract claim).
  • Maintain and enforce computer access policies, since unauthorized access and copying is what triggers CCDAFA liability.
  • Monitor for the warning signs — unusual data downloads, coordinated resignations, customers suddenly moving to a competitor — and act quickly, because Guild’s prompt arbitration against the individual employees produced a substantial award before the case against the competitor was even decided.

For employers doing the hiring: this decision is equally a warning. Recruiting from a competitor is lawful — California protects employee mobility, and nothing in Guild Mortgage changes that. But there is a difference between hiring a competitor’s employees after they resign and enlisting a competitor’s current employees to recruit their colleagues, divert customers, and move business while still on the competitor’s payroll. Aiding and abetting a breach of the duty of loyalty or fiduciary duty exposes the new employer to the full range of tort remedies, including potential punitive damages. Train your recruiters and managers on where that line sits, and document that candidates are not bringing data, customer lists, or active business with them.

The lesson of Guild Mortgage is that California’s hostility to non-competes was never a license for disloyalty. The non-compete ban governs what employees may do after they leave; the duty of loyalty governs what they may do before they leave. Employers should make sure their agreements, policies, and litigation strategies account for both.

Terminating an employee is one of the hardest things a business does, and it is almost certainly the most legally scrutinized decision you will make in the workplace. It is also one of the few decisions that triggers immediate legal obligations — the clock starts running the moment you end the relationship. Yet how to actually conduct a termination is not taught in any management class.

The good news is that a termination handled the right way is not just a risk to survive — it is an opportunity to reduce your liability. The same disgruntled employee who walks out feeling blindsided and shorted is the one who calls a plaintiff’s firm on the drive home. The employee who is treated with respect, paid everything owed on the spot, and given a clean process to point back to is a much harder case for that firm to build. Here are five things to get right.

1. Document the true reason for the termination — and do not sugarcoat it

    If the termination is for cause, say so and document it as for cause. Do not take the easy route and tell the employee they were “laid off” or that it was a “reorganization” when the real reason was poor performance, theft, or a policy violation. It feels kinder in the moment, and it avoids an awkward conversation, but it sets a trap for the company.

    Here is why. If that employee later sues — for discrimination, retaliation, or wrongful termination — and the company has to explain in litigation that the real reason was performance, you have handed the plaintiff a credibility problem. The story changed. A shifting explanation for a termination is exactly the kind of evidence a plaintiff’s lawyer uses to argue the stated reason was pretext for an unlawful one. Juries notice when the reason on the separation paperwork does not match the reason the company gives under oath.

    Document performance as you actually see it, contemporaneously, and make sure the reason you give the employee, the reason in the file, and the reason you would give a jury are all the same reason. Consistency is your friend here.

    2. Have the final paycheck — and everything else owed — ready before the meeting

    This is the issue that did not get enough attention a few years ago and now drives a meaningful share of termination claims. Under Labor Code section 201, when you terminate or lay off an employee, all final wages are due immediately, at the time of discharge — not on the next payday, not at the end of the week, not “once payroll runs.” (If an employee quits without notice, you have 72 hours; with at least 72 hours’ notice, it is due on the last day.)

    “Final wages” is broader than people assume. It includes regular and overtime wages, and all accrued, unused vacation or PTO, which California treats as earned wages that cannot be forfeited. It also includes earned commissions and non-discretionary bonuses to the extent they can be calculated.

    Miss the deadline and you are exposed to waiting time penalties under Labor Code section 203: the employee’s full daily wage rate for every day the final pay is late, up to 30 days. For a single mid-level employee that can run into thousands of dollars on its own — and these penalties are a favorite add-on claim because they are easy to prove and separate from the underlying wages. The one escape valve is a genuine good-faith dispute about whether the wages were actually owed; a payroll-processing delay or “we needed a few more days” is not a defense.

    A practical, easily missed trap that ties into scheduling: if you bring an employee in for a scheduled shift and then terminate them early in that shift, you may owe reporting time pay on top of everything else — generally half the scheduled shift (no less than two and no more than four hours) at the regular rate. If you are going to terminate someone who is scheduled to work, either handle it before the shift or let them work at least half of it. Better yet, build the final-pay calculation before the employee ever walks into the room. Planned terminations should never produce a late or short final check.

    3. Conduct the termination meeting with respect

    There is nothing scientific about this one, but after years of defending these cases I am a firm believer in good bedside manner. Most employees will not enjoy being terminated, but they will usually understand the decision if they were given honest performance feedback along the way and were treated like an adult during the meeting itself.

    The employees who sue are very often not the ones with the strongest legal claim — they are the ones who felt humiliated, ambushed, or disrespected on the way out. Keep the meeting brief, factual, and private. Have a second management witness present. Do not argue, debate, or pile on; the decision is made, and the meeting is to deliver it, not to relitigate it. Tell them what comes next — final pay, benefits continuation, return of property — so they leave with information rather than a grievance.

    Dignity is cheap, and it is one of the most cost-effective forms of litigation prevention available to an employer.

    4. If you offer severance, get the release right under current California law

    Paying severance can cost money in the short term, but in exchange for that payment you should obtain a release of claims — and a properly drafted release can save enormous time and money down the road. The catch is that the rules for what a California severance agreement can and cannot say have changed significantly, and an agreement built off an old template may be unenforceable or expose you to new claims.

    A few of the current requirements and limits to keep in mind:

    • SB 331 (the “Silenced No More Act”). For agreements signed on or after January 1, 2022, you must give the employee at least five business days to consider the severance agreement (they may sign sooner if they choose), and you must advise them in writing of their right to consult an attorney. The agreement cannot prevent the employee from disclosing factual information about unlawful acts in the workplace such as harassment, discrimination, or retaliation, and any non-disparagement provision tied to a FEHA release must include specific carve-out language preserving the employee’s right to discuss unlawful conduct. You can still keep the severance amount confidential and protect genuine trade secrets.
    • No “no-rehire” clauses. Under AB 749, settlement and severance agreements may not contain provisions barring the employee from future employment with the company or its affiliates.
    • Non-competes are void — and you may owe notice. California’s prohibition on non-competes was strengthened by SB 699 and AB 1076 (effective January 1, 2024), which also created a private right of action and required employers to send individualized written notice to current and certain former employees that any non-compete provisions are void. Do not paper a severance agreement with restrictive covenants that California will not enforce; doing so can itself be treated as unfair competition.
    • Older workers (age 40+). If you want a valid release of age claims under the federal ADEA/OWBPA, you still need the separate consideration period (generally 21 days, or 45 days in a group layoff) and a 7-day revocation window. These run alongside, not instead of, the SB 331 timeline.

    The takeaway: a release is still one of the best tools you have, but only if it is current. Have counsel review your template — not every few years, but on the cadence California’s legislature actually moves, which is essentially every year.

    5. Keep the right records — and work from a checklist

    Most of what protects you in litigation is built before the lawsuit ever arrives, in the form of records you can actually put your hands on. Retention guidelines worth following:

    • Payroll and time records: keep at least four years on a rolling basis. The Labor Code requires shorter periods, but wage claims (including unfair competition claims under the UCL) can reach back four years, so four years is the practical floor.
    • Personnel files: at least three years after termination, and longer is advisable given the longer statutes of limitations on many employment claims.
    • Paid sick leave records: at least the statutory period, and keep in mind accrued, unused sick time may need to be reinstated if you rehire within a year.
    • If litigation is anticipated: preserve everything and suspend routine destruction until the matter resolves.

    Then build a checklist and use it every single time. Termination is exactly the kind of high-pressure, emotionally charged event where it is easy to forget a step, and a checklist forces you to think the process through when there is no pressure — final pay calculated, accrued vacation included, benefits/COBRA information ready, property return arranged, access and credentials disabled, separation documents prepared and compliant, and the reason documented consistently. A checklist also lets you confirm your managers are following both the legal requirements and your own internal process.

    One additional 2026 note if you are doing anything larger than a one-off termination: the California WARN Act now requires expanded content in mass-layoff, relocation, and termination notices issued on or after January 1, 2026 (SB 617) — including information about workforce development board coordination and the CalFresh food assistance program. If you are contemplating a reduction in force, loop in counsel early; the 60-day notice obligation and the new notice content are easy to get wrong and costly when you do.

    A termination will never be pleasant. But the difference between a termination that becomes a six-figure problem and one that quietly closes the file usually comes down to the things in this list: an honest, consistent reason; a final check that is correct and on time; a respectful conversation; a release that complies with current law; and records you can actually find. Do those five things and you have turned one of your riskiest decisions into one of your better-defended ones.

    Join Our Upcoming Masterclass

    Terminating California Employees — Exiting with Confidence: Best Practices for Lawful Terminations and Litigation Prevention

    Tuesday, June 17, 2026, 10:00 AM PT

    A termination is one of the highest-risk decisions a California employer makes — and often the first thing a plaintiff’s attorney scrutinizes when a claim comes in. Performance issues, misconduct, protected leave, final pay deadlines, and severance terms all have to be weighed before the decision is final, and a misstep on any one of them can turn a routine separation into a wrongful termination, discrimination, or retaliation claim.

    Join Anthony Zaller and Anne McWilliams for a practical Masterclass designed to help California employers make sound, defensible termination decisions while minimizing litigation exposure. Attendees will leave with actionable guidance on documentation, pre-termination risk assessments, separation and final pay requirements, and severance and release agreements.

    In this session, you will learn how to:

    • Identify the legal risks that should be assessed before a termination decision is final
    • Build documentation that supports and defends the decision
    • Conduct a termination meeting that reduces conflict and exposure
    • Use severance and release agreements effectively
    • Meet California’s final pay and separation requirements
    • Reduce the risk of wrongful termination, discrimination, and retaliation claims

    Register here.