If you thought the battle over California’s meal and rest break rules for commercial drivers was settled back in 2021, you were…mostly right. On June 4, 2026, the Ninth Circuit put the finishing touches on the preemption puzzle in People of the State of California ex rel. Becerra v. Federal Motor Carrier Safety Administration, No. 20-70706, denying California’s petition for review and confirming that the FMCSA’s preemption of the state’s meal and rest break (“MRB”) rules extends to drivers of passenger-carrying commercial motor vehicles — not just the property-hauling truckers covered by the earlier ruling.

A Quick Trip Down Memory Lane

You may be asking why this is important. To understand how we got here, we need to take a brief doctrinal road trip. Congress enacted the Motor Carrier Safety Act of 1984 to promote safe operation of commercial vehicles and empowered the Secretary of Transportation to prescribe safety regulations and preempt conflicting state laws. For years, the FMCSA declined to preempt California’s MRB rules, reasoning in 2008 that they were laws of “general applicability” — not regulations “on commercial motor vehicle safety.”

Then, in 2018, the agency changed course and determined that California’s MRB rules were regulations on commercial motor vehicle safety, and preempted them for property-carrying commercial motor vehicle drivers. Three years later, the Ninth Circuit upheld that determination in International Brotherhood of Teamsters, Local 2785 v. Federal Motor Carrier Safety Administration (“IBT”), applying  the “Chevron deference” standard —  a reference to Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., the now-defunct doctrine requiring courts to defer to reasonable agency interpretations of ambiguous statutes —  to conclude the agency’s interpretation was permissible.  

Just three years after IBT, in 2024 the Supreme Court famously overruled Chevron in Loper Bright Enterprises v. Raimondo, holding that courts must exercise independent judgment on questions of statutory meaning rather than deferring to agency readings. So without Chevron, where did the administrative interpretation stand? As the Ninth Circuit confirmed, Chevron is not the only driving force.

What the Court Held

The 2026 opinion, authored by Judge Holly Thomas, is remarkably straightforward. The State raised three arguments, and the court dispatched each one with ease.

• First, California argued that its MRB rules were beyond the FMCSA’s preemption authority because they are laws of general applicability. But the court held this was precluded by IBT, which remains binding authority post-Loper Bright.
• Second, California contended that the FMCSA couldn’t preempt break rules for passenger-carrying drivers because the agency hadn’t promulgated its own mid-shift break requirement for those drivers. The court disagreed: the federal hours-of-service regulations still “dictate how long a driver may remain on duty before a mandatory off-duty period,” sharing the same fatigue-management purpose as California’s rules.
• Third, California challenged the FMCSA’s burden-on-commerce finding as arbitrary and capricious. The court found the record adequately supported the agency’s conclusion that MRB compliance imposed “significant operational burden[s]” and that the “patchwork of requirements” for state break rules across 20-plus states burdened interstate operators.

The Petition was denied. Full stop. But what about Chevron, the doctrinal scaffolding that supported IBT in 2021? The Ninth Circuit did not even cite to Chevron or Loper Bright. Instead, the court reviewed the FMCSA’s determination under the Administrative Procedure Act’s arbitrary-and-capricious standard, which is “highly deferential, presuming the agency action to be valid and affirming the agency action if a reasonable basis exists for its decision.” In other words, the Court did not need Chevron to drive the point home, which is the nail in the coffin for the Chevron deference.

What This Means for Employers

The practical upshot is clear: California’s MRB rules are preempted for drivers of passenger-carrying commercial motor vehicles subject to federal HOS regulations. Many bus companies, charter operators, and other passenger carriers operating in California may be able to rely on the federal framework without navigating California’s more stringent requirements. Before making any changes, of course, employers should consult with experienced counsel to ensure their practices are fully compliant.

Drive safely, everyone!

The Hedge | Brutal Honesty Over Hype Since 2008

California’s minimum wage has been on a steady upward trajectory for a decade. The statewide minimum reached $16/hour in January 2024, with specific industry floors higher — fast food workers have a $20/hour minimum under AB 1228. Understanding where minimum wage is heading in California, and how to plan for it, is essential financial management for any employer of hourly workers.

The Current Landscape

Statewide: $16/hour as of January 1, 2024, indexed to inflation with automatic annual adjustments. Fast food (limited service restaurants): $20/hour under AB 1228, with a Fast Food Council authorized to increase it further annually up to 3.5% or CPI, whichever is greater. Healthcare workers: SB 525 phases in a $25/hour minimum for healthcare workers, with implementation dates varying by employer type. Many cities and counties exceed the statewide floor: San Francisco is at $18.67/hour, Los Angeles City is at $17.28/hour, and several other localities are higher than the state minimum.

The Planning Horizon

The indexing provisions in California’s minimum wage law mean the floor will continue rising automatically with inflation. The healthcare worker minimum will reach $25/hour statewide by 2028 at current implementation schedules. Industry-specific floors — if the fast food council model extends to other sectors — could produce sector-specific minimums well above the statewide floor. For any business whose economics depend on hourly labor costs, a five-year labor cost model should include realistic minimum wage trajectories as a base assumption rather than holding current wages constant.

The Structural Response

Businesses that survive California’s minimum wage trajectory typically do so through one of three strategies: automation of tasks currently performed by minimum wage workers, price increases passed to consumers, or geographic reallocation of labor-intensive operations to lower-cost states. The third option — which is increasingly common for businesses with operational flexibility — is simply relocating the parts of the business that depend on minimum wage labor to states where that labor costs less. California’s minimum wage advantage for workers is simultaneously a cost disadvantage for employers that compounds annually.

The Hedge has been cutting through financial and business noise since 2008. Brutal honesty over hype — always.

The Hedge | Brutal Honesty Over Hype Since 2008

HOA board meetings are where the decisions that affect your property and your monthly costs are made. California law gives members specific rights to notice, access, and participation in those meetings — rights that many boards fail to honor and that many homeowners don’t know they have. Understanding your meeting rights is the foundation of meaningful participation in your association’s governance.

Open Meeting Requirements

California Civil Code Section 4900 et seq. requires that HOA board meetings be open to all members, with limited exceptions for executive sessions covering specific topics (litigation, personnel matters, member disciplinary hearings, contract negotiations). The board cannot hold its regular business meetings in executive session — decisions about assessments, contracts, maintenance projects, and rule enforcement must be made in open sessions where members can observe.

Notice Requirements

Members must receive at least 4 days’ advance notice of any board meeting, delivered by first-class mail, email (if member has consented to electronic delivery), or posting in a conspicuous place in the common area. Emergency board meetings can be called with less notice, but the emergency must be genuine and the issues discussed must be limited to the emergency. A board that regularly holds meetings without proper advance notice is violating Davis-Stirling — and decisions made at improperly noticed meetings are challengeable.

The Member Comment Right

Members have the right to speak at open board meetings on any agenda item before the board votes. The board can establish reasonable time limits (typically 2-3 minutes per speaker per item) but cannot simply prohibit member comment. If your board regularly conducts meetings without allowing member comment, that is a Davis-Stirling violation. You can raise it in writing to the board, through IDR, or — if the board continues to violate meeting requirements — through a civil action. The ability to speak at meetings is meaningless only if you don’t exercise it.

The Hedge has been cutting through financial and business noise since 2008. Brutal honesty over hype — always.

The Hedge | Brutal Honesty Over Hype Since 2008

The California Employment Development Department administers unemployment insurance, state disability insurance, paid family leave, and employer payroll tax collection. It is also one of the most aggressive state agencies in California’s regulatory landscape, with audit authority that reaches back three years and assessment powers that can produce devastating financial consequences for small employers who make — or are alleged to have made — payroll tax errors.

The EDD Audit Trigger

EDD audits are triggered by several common situations: a former contractor files for unemployment insurance and the EDD determines they were actually an employee (triggering a reclassification audit of all similar arrangements); a disgruntled former worker reports payroll issues; routine random audit selection; or a mismatch between payroll reported to the EDD and tax filings. Worker classification audits are particularly feared because the EDD looks at all similar workers across the audit period, not just the one who filed for unemployment.

What EDD Assessments Cover

A successful EDD reclassification assessment covers: unpaid unemployment insurance taxes for the reclassified workers for the audit period (typically three years), plus interest; unpaid SDI contributions; unpaid Employment Training Tax; and penalties that can equal 10-25% of the unpaid taxes depending on the nature of the violation. For a small business that has been using a pool of independent contractors for several years, a reclassification assessment can easily reach six figures — an amount that can exceed the company’s available cash.

Prevention Is the Only Real Strategy

EDD audits cannot be prevented through compliance with federal classification standards alone — California’s AB5 ABC test is more restrictive. The only real prevention strategy is: classify workers correctly under California’s rules from the beginning, maintain documentation supporting the classification for every contractor relationship, implement a written independent contractor agreement that addresses all relevant factors, and review your contractor relationships annually against current AB5 standards. The cost of prevention is always less than the cost of an EDD assessment.

The Hedge has been cutting through financial and business noise since 2008. Brutal honesty over hype — always.

The Hedge | Brutal Honesty Over Hype Since 2008

Every California HOA is required to maintain a reserve fund — a dedicated pool of money for future major repair and replacement of common area components. Reserve fund adequacy is one of the most important factors in evaluating any HOA community as a place to buy, and for current owners, understanding your association’s reserve status is essential financial knowledge.

The Reserve Study Requirement

California Civil Code Section 5550 requires HOAs to conduct a reserve study at least every three years — a professional assessment of all major common area components (roofs, elevators, pools, pavement, fencing, plumbing, etc.), their estimated useful lives and remaining useful lives, and the cost to repair or replace each at the end of its life. Based on this study, the HOA calculates how much money should be in reserves to fund anticipated future expenses. The reserve study must be updated annually, even in years without a full site inspection.

What “Percent Funded” Means

Reserve fund adequacy is expressed as a “percent funded” figure — the ratio of current reserve fund balance to the amount that should be in reserves based on the component depreciation schedule. A percent funded of 100% means the association has exactly the right amount in reserves. Below 70% is generally considered underfunded, creating meaningful risk of special assessments when major repairs are needed. Below 30% is severely underfunded — a strong warning signal for both current owners and prospective buyers.

The Buyer and Seller Implications

California law requires disclosure of the association’s reserve fund status in any sale of a unit within an HOA. Before purchasing in an HOA community, review the reserve study and the percent funded figure. An association that is severely underfunded is a liability — when the roof needs replacement or the elevator fails, the cost falls on current owners through special assessments. For entrepreneurs evaluating commercial space in HOA-governed properties, the same analysis applies. The reserve fund is the HOA’s financial health indicator.

The Hedge has been cutting through financial and business noise since 2008. Brutal honesty over hype — always.

The Hedge | Brutal Honesty Over Hype Since 2008

The LLC vs. S-corporation question is one of the most frequently asked and most frequently over-simplified questions in small business formation. The honest answer depends on specific revenue levels, owner compensation structures, and state tax exposure — and the California-specific analysis produces different conclusions than the federal analysis alone. Here is the framework for making the right choice.

The Self-Employment Tax Arbitrage

The primary financial reason to elect S-corporation status over single-member LLC taxation is self-employment tax savings. LLC members who are active in their business pay self-employment tax (15.3% on the first $168,600, 2.9% above that) on their entire net business income. S-corporation shareholders pay self-employment taxes only on their W-2 wages — not on distributions. An active business owner with $200,000 in net income can save approximately $10,000-$15,000 annually in self-employment taxes by electing S-corporation status and paying themselves a reasonable but below-profit salary.

The California Complication

California’s S-corporation tax structure adds a layer that the federal analysis doesn’t account for. California imposes a 1.5% franchise tax on S-corporation net income (minimum $800) in addition to the federal S-corporation treatment. California does not conform to the federal S-corporation election in every respect. For California-specific analysis, the S-corp advantage must be calculated net of this additional California franchise tax burden. At lower income levels — below approximately $80,000 in net income — the administrative cost of maintaining S-corporation status (payroll, separate tax filings) often exceeds the self-employment tax savings, even without the California complication.

The Crossover Point

For most California small businesses, the LLC-to-S-corp election makes economic sense at approximately $80,000-$100,000 in annual net business income after deducting a reasonable owner salary. Below that threshold, the administrative costs and California S-corp franchise tax generally outweigh the self-employment tax savings. Above that threshold, the analysis typically favors S-corp election, with the savings growing proportionally as income increases. Calculate your specific crossover point with a CPA who understands both federal and California tax structures before making the election.

The Hedge has been cutting through financial and business noise since 2008. Brutal honesty over hype — always.

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.

The post How to Conduct a Termination in California to Reduce Liability appeared first on California Employment Law Report.

The Hedge | Brutal Honesty Over Hype Since 2008

When an HOA wants to fine a homeowner for a CC&R violation or take other disciplinary action, California law requires a specific due process procedure before any fine can be levied. Boards that skip these procedures — which is common — create legally defective fines that homeowners have the right to refuse. Understanding the required process protects you from paying fines that weren’t properly levied.

The Pre-Hearing Notice Requirement

California Civil Code Section 5855 requires that before the board can impose a monetary penalty on a member, the board must provide written notice of the alleged violation and the member’s right to attend a hearing before the board. The notice must be provided at least 10 days before the scheduled hearing. The notice must specify the date, time, and place of the hearing. A fine levied without providing this notice and opportunity to be heard is procedurally defective — the member can challenge it through the association’s internal dispute resolution process or in court.

The Hearing Rights

At the enforcement hearing, you have the right to: present your position and evidence; bring witnesses or documents supporting your defense; and receive a written decision from the board specifying the board’s findings and the basis for any fine imposed. The board’s decision must be issued in writing. A fine imposed at a hearing where you were denied the opportunity to speak, or where the board failed to issue a written decision, is procedurally defective.

Disputing Improper Fines

If you believe a fine was improperly levied — either because proper notice wasn’t given, the hearing wasn’t conducted properly, or the underlying violation notice was deficient — request internal dispute resolution (IDR) with the HOA within 30 days of the fine being levied. California Civil Code Section 5900 requires associations to offer IDR. If IDR fails, you can demand alternative dispute resolution (ADR) through a neutral mediator or arbitrator. The HOA must participate in ADR before filing a civil lawsuit to collect unpaid fines. Use these procedural requirements as leverage in every dispute.

The Hedge has been cutting through financial and business noise since 2008. Brutal honesty over hype — always.

The Hedge | Brutal Honesty Over Hype Since 2008

Workers’ compensation insurance is mandatory for California employers with any employees — one of the most basic compliance requirements in the state. It’s also one of the most expensive, with California rates consistently ranking among the highest in the nation. Understanding what drives California’s workers’ comp costs, and how to manage them, is practical financial management for any California employer.

Why California Workers’ Comp Rates Are High

California’s workers’ compensation system is expensive for several compounding reasons. Benefit levels are among the highest in the country — California’s permanent disability and temporary disability benefit rates exceed those of most other states. The claims litigation environment is aggressive — California has a disproportionate share of disputed workers’ comp claims that go to litigation. Medical cost multipliers in California exceed national averages. And the regulatory structure, administered by the Department of Industrial Relations, imposes compliance costs on employers that add to base premium costs.

Experience Modification Factor

Your workers’ comp premium is heavily influenced by your experience modification factor (EMod or X-Mod) — a multiplier based on your actual claims history relative to industry average expectations. An EMod of 1.0 is average. An EMod above 1.0 means your claims history is worse than average and your premium is higher than the base rate. An EMod below 1.0 means your safety record is better than average and you pay less than the base rate. For small employers, a single significant claim can dramatically affect the EMod for three years — the lookback period used in the calculation.

The Cost-Reduction Strategies That Actually Work

The strategies that meaningfully reduce California workers’ comp costs over time are: implementing a genuine safety program that reduces injury frequency, establishing a return-to-work program that gets injured employees back to modified duty quickly (reducing temporary disability claims), using a professional employer organization (PEO) whose pooled risk reduces individual employer EMods, and auditing your job classification codes to ensure employees are classified correctly (misclassification in high-rate categories is surprisingly common). Premium audit preparation — ensuring your payroll records are organized for the annual audit — also prevents premium overstatements.

The Hedge has been cutting through financial and business noise since 2008. Brutal honesty over hype — always.