Remote Workers & California Law: When Out-of-State Employers Get Pulled In

California applies its employment laws based on where the work is performed, not where the employer is headquartered. This means an employer based in Texas, New York, or anywhere else that has even one employee performing work in California is likely subject to California wage and hour laws, anti-discrimination protections, leave requirements, and expense reimbursement mandates for that employee.

This principle — sometimes called California's "place of work" doctrine — creates significant compliance obligations for remote-first companies, distributed teams, and any employer whose workforce has scattered geographically since the pandemic.

### The General Rule

If an employee performs work in California, California employment law applies to that work. The analysis is fact-specific, but the key triggers include:

• Employee lives in California and works remotely from California
• Employee is based in California, even if they travel to other states for work
• Employee relocated to California and continues working for an out-of-state employer
• Employer directs or assigns the employee to work from California

• Employee splits time between California and another state (allocation may be required)
• Employee temporarily works from California (e.g., visiting family for a few weeks)
• Employee is a digital nomad who works from California intermittently

### Key Case Law

• Sullivan v. Oracle Corp. (2011) 51 Cal.4th 1191: The California Supreme Court held that California overtime and anti-discrimination laws apply to work performed in California by non-residents. Out-of-state employees who traveled to California for work were entitled to California overtime for the days worked in the state.

• Ward v. United Airlines (2020) 9 Cal.5th 732: Confirmed that California Labor Code § 925 (which prohibits employers from requiring California employees to adjudicate claims outside California or under non-California law) applies to employees who are based in California, regardless of where the employer is headquartered.

### Practical Threshold

There is no bright-line rule for how many days of work in California trigger full compliance. However, the practical guidance is:

• Permanent California remote employees: Full California compliance required from day one.
• Frequent California work (e.g., monthly travel): Strong case for California law applying to work performed in California; overtime and wage statement rules almost certainly apply for California workdays.
• Occasional California work (e.g., a few days per year): Risk is lower but not zero, particularly for anti-discrimination and wage payment claims.

The safest approach: if you have an employee who regularly performs work in California, comply with California law for that employee.

Statute: Labor Code § 2802

This is often the first California law to catch out-of-state employers off guard. Labor Code § 2802 requires employers to reimburse employees for all necessary expenditures incurred in direct consequence of the discharge of their duties.

### What Must Be Reimbursed for Remote Workers

For employees working from home in California, § 2802 requires reimbursement of:

• Internet service — A reasonable portion of the employee's home internet bill attributable to work use
• Cell phone — If the employee uses a personal cell phone for work calls, texts, or data, a reasonable portion of the monthly bill
• Home office equipment — If the employer requires remote work and the employee must provide their own equipment (monitor, keyboard, desk, chair), the cost may be reimbursable
• Computer/laptop — If the employer does not provide one and the employee uses a personal device for work
• Office supplies — Paper, printer ink, pens, etc., if needed for work
• Electricity — Potentially a portion attributable to work use, though this is less commonly enforced
• Software and tools — If the employee must purchase or subscribe to software required for work

### How to Calculate Reimbursement

California law does not prescribe a specific formula. Common compliant approaches include:

1. Reasonable monthly stipend. Many employers provide a flat monthly stipend (commonly $50-$150/month) to cover internet, phone, and incidental expenses. The amount should be reasonable in relation to actual costs — a $25/month stipend when the employee's internet bill is $80/month is likely insufficient.

1. Actual expense reimbursement. Employees submit receipts or bills, and the employer reimburses the work-related portion. More precise but administratively burdensome.

1. Percentage-based reimbursement. The employer reimburses a defined percentage (e.g., 50%) of internet and phone bills based on estimated work use.

### Key Legal Principles

• The obligation is non-waivable. Employees cannot waive their right to expense reimbursement, even by agreement (Labor Code § 2804).
• Applies even if remote work is voluntary. If an employer permits (rather than requires) remote work, and the employee incurs expenses to perform their duties remotely, § 2802 still applies. The question is whether the expense was "necessary" for the performance of duties, not whether the employer mandated remote work.
• Penalties for non-compliance: Employees may recover the unreimbursed amounts plus interest, and in a class action or PAGA representative action, the penalties can multiply rapidly.

### Leading Case

Cochran v. Schwan's Home Service (2014) 228 Cal.App.4th 1137: Held that employers must reimburse employees for the reasonable percentage of their personal cell phone bills attributable to work use. Even when the employee has an unlimited plan and incurs no additional marginal cost, the employer must still reimburse a reasonable percentage because the employee is bearing a cost that benefits the employer.

### For Employees

• A California resident working remotely for an out-of-state employer will owe California state income tax on all income, regardless of where the employer is located
• A non-California resident who works remotely from California will generally owe California state income tax on income earned for work performed in California (Revenue and Taxation Code § 17951)

### For Employers

• Payroll tax obligations: An employer with an employee working in California must register with the Employment Development Department (EDD) and withhold California income tax, SDI contributions, and UI contributions
• Franchise Tax Board nexus: Having an employee working in California may create income tax nexus for the employer entity, potentially subjecting the company to California's franchise tax or income tax
• Local taxes: Some California cities (notably San Francisco) impose payroll taxes or gross receipts taxes that can be triggered by employees working within city limits

### Multi-State Allocation

• California generally taxes income based on the ratio of California workdays to total workdays (with various adjustments)
• Employers may need to allocate wages for withholding purposes based on where work is actually performed
• The employee may receive tax credits in their home state for taxes paid to California (or vice versa), but this depends on the other state's rules

### Practical Warning

• Back withholding obligations
• Penalties for failure to register and withhold
• SDI and UI contribution obligations (employee and employer portions)
• Potential personal liability for responsible officers

### Coverage Requirement

California workers' compensation law (Labor Code § 3200 et seq.) applies to injuries arising out of and in the course of employment — including injuries sustained while working from home.

### Home Office Injuries

• An injury sustained during work hours while performing work duties at home is generally covered by workers' compensation
• The key analysis: was the employee acting within the course and scope of employment at the time of the injury?
• Covered examples: Tripping over a computer cable during a work call, carpal tunnel syndrome from using a work computer, back injury from an inadequate home office chair used for work
• Likely not covered: Injury while doing laundry during a lunch break, injury from a personal activity that has no connection to work duties

### Employer Obligations

• Ensure workers' compensation insurance covers remote employees in California
• Some out-of-state workers' comp policies may not cover California employees — California has specific requirements for workers' comp carriers and the state does not participate in the interstate workers' comp compact
• Employers should verify with their carrier that their policy covers California-located employees, and if not, obtain separate California coverage

### California's Hostility to Choice-of-Law Clauses

Labor Code § 925 (effective January 1, 2017):

• Adjudicate claims arising in California in a forum outside California
• Apply the law of any state other than California to claims arising in California

If an employer includes such a provision, it is voidable by the employee, and the employer may be required to pay the employee's attorney's fees for enforcing this right.

### Practical Implications

• An out-of-state employer cannot hire a California remote employee and contractually specify that Texas law (or any non-California law) governs the employment relationship
• Employment agreements, offer letters, and arbitration agreements with California employees should specify California law and California venue (or at minimum, not specify a non-California forum/law)
• This applies even if the agreement was signed before the employee moved to California, if the employee now primarily works in California

### The Interstate Complexity

• Where the employee performs the majority of their work
• Where the employer directs the work to be performed
• Where the employment contract was formed
• The employee's state of residence
• The strength of each state's interest in applying its law

For California, the general tendency is expansive: California courts will apply California law whenever the employee performs work in California, even if the employee also performs work elsewhere.

### California Consumer Privacy Act (CCPA) and CPRA

The California Privacy Rights Act (CPRA), which amended the CCPA effective January 1, 2023, extends privacy rights to employee personal information collected by businesses.

### Employer Obligations

Employers that meet the CCPA threshold (annual gross revenue over $25 million, or buy/sell/share personal information of 100,000+ consumers/households, or derive 50%+ of revenue from selling personal information) must:

1. Notice at collection. Provide employees with a privacy notice at or before the point of collection that describes the categories of personal information collected, the purposes for collection, and whether the information is sold or shared.

1. Right to know. Employees can request information about what personal information the employer has collected about them, the sources, the purposes, and the third parties with whom it has been shared.

1. Right to delete. Employees can request deletion of their personal information, subject to specific exceptions (e.g., information needed for legal compliance, to complete a transaction, or for certain internal uses).

1. Right to correct. Employees can request correction of inaccurate personal information.

1. Right to limit use of sensitive personal information. Employees can direct the employer to limit use of sensitive information (SSN, financial account numbers, precise geolocation, racial/ethnic origin, etc.) to purposes necessary for performing services or providing goods.

1. No retaliation. Employers cannot retaliate against employees for exercising their CCPA/CPRA rights.

### Remote Work-Specific Privacy Concerns

For remote employees, additional privacy considerations arise:

• Monitoring software: If the employer deploys monitoring software (keystroke loggers, screenshot capture, activity tracking), the employer must disclose this in its privacy notice and comply with California's prohibition on secret monitoring (Penal Code § 632 — California is a two-party consent state for recording communications)
• Location tracking: GPS or IP-based location tracking of remote employees constitutes collection of personal information (and potentially sensitive personal information under CPRA)
• Personal device data: If the employer implements a bring-your-own-device (BYOD) policy, any personal information collected from the employee's device is subject to CCPA/CPRA obligations
• Video surveillance: Always-on camera requirements during remote work raise significant privacy concerns under both CCPA/CPRA and common law privacy torts

### Cal/OSHA Obligations

California's Occupational Safety and Health Act (Labor Code § 6300 et seq.) and regulations administered by Cal/OSHA apply to all places of employment, which can include home offices.

### Repetitive Motion Injury Standard (8 CCR § 5110)

Cal/OSHA's ergonomic standard requires employers to minimize repetitive motion injuries (RMIs) by:

1. Evaluating job tasks for RMI risk when injuries are reported
2. Implementing controls to reduce identified exposures
3. Training employees on RMI prevention

### Home Office Application

While Cal/OSHA enforcement of ergonomic standards in home offices has historically been limited, employers should:

• Provide ergonomic guidelines to remote employees
• Offer ergonomic equipment (keyboard, mouse, monitor riser, chair) or reimbursement for ergonomic equipment under Labor Code § 2802
• Respond to reported ergonomic issues or injuries in the home office
• Include home office ergonomics in their Injury and Illness Prevention Program (IIPP), which is required of all California employers (Labor Code § 6401.7)

### Practical Approach

• Provide a home office setup stipend ($500-$1,500) for ergonomic equipment
• Distribute an ergonomic self-assessment checklist for the employee to complete
• Offer a virtual ergonomic assessment through a third-party vendor
• Document that these resources were offered — this helps establish the employer's good-faith compliance

### Overtime and Timekeeping

California's overtime laws (Labor Code § 510) apply based on where the work is performed. For non-exempt California remote employees:

• Daily overtime: Over 8 hours in a workday = 1.5x; over 12 hours = 2x
• Weekly overtime: Over 40 hours in a workweek = 1.5x
• Seventh-day overtime: Working all 7 days of a workweek triggers overtime on the 7th day

The challenge for remote workers: tracking actual hours worked when the employee controls their own schedule. Employers must implement a reliable timekeeping system and cannot rely on the honor system if the employer benefits from unrecorded overtime.

### Meal and Rest Breaks

California's meal and rest break requirements (Labor Code § 512; IWC Wage Orders) apply to non-exempt remote employees:

• Meal break: 30-minute unpaid meal period before the end of the 5th hour of work; second meal period before the end of the 10th hour
• Rest breaks: 10-minute paid rest period for every 4 hours worked (or major fraction thereof)
• Penalty: 1 hour of pay at the regular rate for each day a meal or rest break is missed

Employers must have a system that allows remote employees to record meal and rest breaks and that flags missed breaks.

### Wage Statements (Labor Code § 226)

• Gross wages earned
• Total hours worked (for non-exempt employees)
• All deductions
• Net wages
• Applicable hourly rates and corresponding hours worked at each rate
• The name and address of the legal entity that is the employer
• All applicable pay period dates

Wage statement violations carry penalties of $50 for the first violation and $100 for subsequent violations per employee per pay period, up to $4,000 (Labor Code § 226(e)).

### Step 1: Register with California Agencies

• Employment Development Department (EDD): Register for California payroll tax withholding (income tax, SDI, UI)
• Franchise Tax Board: Determine whether the employee creates income/franchise tax nexus
• Secretary of State: If not already registered, consider whether you need to register as a foreign entity doing business in California
• Workers' compensation: Obtain a California-compliant workers' compensation policy

### Step 2: Update Employment Agreements

• Remove or revise any choice-of-law clause that specifies non-California law (Labor Code § 925)
• Remove any non-compete provisions (void under Bus. & Prof. Code § 16600)
• Add California-required provisions: at-will disclaimer (if applicable), arbitration agreement (if used, ensure it complies with California's unconscionability doctrine), and acknowledgment of California-specific policies

### Step 3: Implement California-Compliant Policies

• California-compliant meal and rest break policy (for non-exempt employees)
• Expense reimbursement policy covering internet, phone, and home office costs
• Paid sick leave policy meeting California's 5-day/40-hour minimum (and any applicable city ordinance)
• Anti-harassment policy compliant with FEHA
• Sexual harassment training (2 hours for supervisors, 1 hour for others, every 2 years)
• Pay transparency practices (salary ranges in postings if 15+ employees)

### Step 4: Establish Expense Reimbursement

• Set a reasonable monthly stipend or reimbursement process for internet, phone, and office supplies
• Document the policy and ensure employees know how to submit reimbursement requests
• Budget $75-$150/month per California remote employee as a baseline

### Step 5: Comply with California Posting Requirements

• California requires various workplace posters (wage orders, anti-discrimination, workers' comp, etc.)
• For remote employees, these can be provided electronically — emailed or posted on a company intranet where the employee can access them
• Required posters include: IWC Wage Order for the applicable industry, CRD FEHA poster, paid sick leave notice, workers' comp notice, and several others

### 1. Assuming Out-of-State Incorporation Means California Law Doesn't Apply It does. California law applies based on where work is performed, not where the company is incorporated or headquartered.

### 2. Failing to Reimburse Expenses Because "Remote Work Was the Employee's Choice" Labor Code § 2802 applies whether remote work is employer-mandated or employer-permitted. If the employee incurs expenses performing their job, reimbursement is required.

### 3. Using a Standard Employment Agreement with Non-California Choice-of-Law Labor Code § 925 makes non-California choice-of-law provisions voidable. This creates litigation exposure and attorney's fee liability.

### 4. Not Registering for California Payroll Taxes Failing to withhold California income tax and SDI creates liability for the employer, the employee (who may face an unexpected state tax bill), and potentially the company's officers.

### 5. Applying the Home State's Overtime Rules California's daily overtime threshold (8 hours) is more protective than the federal weekly-only standard. Out-of-state employers accustomed to FLSA's 40-hour weekly threshold must apply California's daily standard for California employees.

1. Identify every employee performing work in California. This includes employees who relocated during the pandemic and may not have formally notified HR. Survey your workforce to identify anyone working from California — even part-time. Each person triggers a compliance analysis.

1. Implement expense reimbursement immediately. If you have California remote employees and no reimbursement policy, you are currently violating Labor Code § 2802. Establish a monthly stipend of at least $75-$100 for internet and phone, with a process for additional expense claims. Backpay for previously unreimbursed expenses may also be owed.

1. Verify your workers' compensation coverage. Contact your workers' comp carrier and confirm that your policy covers employees located in California. If it does not, obtain a California endorsement or a separate California policy. Operating without proper coverage is a criminal misdemeanor in California (Labor Code § 3700.5).

1. Register with EDD if you haven't already. If you have been paying a California remote employee without withholding California income tax, SDI, and UI contributions, register with EDD and begin withholding immediately. Consult a payroll provider or CPA to address back-withholding obligations and potential penalties.

1. Audit your employment agreements for California compliance. Review any agreement signed by a California employee for non-compete clauses (void), non-California choice-of-law provisions (voidable under § 925), and non-California forum selection clauses (voidable under § 925). Revise non-compliant provisions and consider issuing amended agreements.