How you choose to structure the relationship with your employees may help minimize your risk of litigation, or leave you vulnerable to opportunistic employees.
California is an "at-will" state. This means that, barring evidence to the contrary, an employment relationship is presumed to be at the will of both the employer and employee, and subject to termination by either party at any time, for any reason, with or without cause.
Judicial decisions and legislation have carved out exceptions to the at-will doctrine.
The Public Policy Exception: An employer may not fire an employee for any reason that violates a "well-established" public policy. Such public policies are contained in statutory provisions of the Fair Labor and Standards Act (FLSA), the Occupational Safety and Health Act (OSHA) and various similar state acts that prohibit terminations based on the employee's exercise of his or her rights under such acts.
For example, it is illegal to discharge an employee for such things as:
An employer violating public policy may face both contract and tort damages, including damages for pain and suffering, and, in extreme cases, punitive damages.
Implied Contract of Employment: Another judicially created exception to the at-will presumption is based on a finding that the parties' conduct created an implied contract limiting the employer's ability to terminate the employee. This particular exception is a potential powder keg for employers. Courts have determined that various factors can override the at-will presumption and restrict the employer to terminating only for "good cause." Such factors may include a combination of: