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Artificial intelligence has quietly become part of how work gets done. Employees are using it to draft emails, summarize documents, build spreadsheets, and answer customer questions — often without anyone in management deciding that should happen. For employers, the question is no longer whether AI is in the workplace. It is whether it is being used on the company’s terms, with the right guardrails in place.

California has also moved quickly. New regulations now govern how employers can use AI in employment decisions, and existing confidentiality and privacy obligations apply to AI just as they apply to everything else. A clear, written AI policy is the most practical way to encourage productive use while managing the risks. Here are five reasons every California employer should have one.

1. New California regulations now govern AI in employment decisions

Effective October 1, 2025, the California Civil Rights Council adopted regulations under the Fair Employment and Housing Act (FEHA) addressing “automated-decision systems” (ADS) — broadly, any computational tool that makes or helps make employment decisions. (2 Cal. Code Regs., tit. 2, §§ 11008.1 et seq.)

The regulations confirm that using an AI tool to assist with hiring, screening, scheduling, evaluations, promotion, or discipline can violate California law if it produces discriminatory results — whether intentionally or through disparate impact — based on protected characteristics. Three points stand out for employers: the rules require retaining ADS-related data for at least four years; liability extends to the employer even when the tool comes from a third-party vendor; and bias testing of a tool is treated as relevant evidence supporting an employer’s defense, while the absence of testing can be used against you. A policy requiring meaningful human review before AI drives any employment decision is the necessary first step.

2. AI can compromise confidential information and trade secrets

This is the risk that catches most employers off guard. Many AI tools store the information users submit, process it on outside servers, and may use it to train the underlying model. When an employee pastes pricing, recipes, formulas, supplier terms, or business strategy into a public AI tool, the company can lose control of that information.

That creates two problems. Information generally qualifies for trade secret protection only if the company takes reasonable steps to keep it secret, and disclosing it to a public AI tool can be treated as a failure to do so. Separately, most employers owe confidentiality obligations to their own customers, guests, and vendors under contracts and nondisclosure agreements — and disclosing that information to an AI tool can breach those agreements. A policy that prohibits entering confidential information into any AI tool without approval draws the line before the leak happens.

3. Employee and customer privacy obligations still apply

Feeding personal information about employees, customers, or guests into an AI tool implicates California’s privacy laws, including the CCPA and CPRA. The fact that the information is being handed to software rather than a person does not change the obligation to protect it. A policy should make clear that personal information does not go into an AI tool unless the specific use has been approved and the tool meets the company’s security and privacy requirements.

4. Accuracy and accountability cannot be outsourced

AI tools produce confident, polished output that is sometimes inaccurate, incomplete, or entirely fabricated. The employer inherits those errors — in internal work product, in customer communications, and, in some well-publicized cases, in documents filed with courts and agencies. “The AI said so” is not a defense.

A good policy makes employees responsible for verifying anything they rely on and treats AI output as a first draft rather than a final answer. That single expectation, communicated clearly and in writing, prevents a great deal of avoidable trouble.

5. Your employees are already using it

The most important reason may be the simplest. Employees are already using AI at work whether or not their employer has authorized it — often through personal accounts on personal devices. A 2025 Cybernews survey of more than 1,000 U.S. employees found that 59% use AI tools their employer never approved, and that 75% of those workers admit to sharing potentially sensitive information — including employee data, customer details, and internal documents — with those tools. This “shadow AI” is the real status quo. Without leaning into AI, providing safe AI tools for employees to use, and developing an AI policy, employers have no notice of what tools are in use, no monitoring, and no documented expectation that company AI activity is tracked and stored like other technology.

A policy does not stop employees from using AI. It channels behavior that is already happening into approved tools, with clear rules, monitoring, and a stated lack of any expectation of privacy when using company systems. That is far better than learning about a problem after the fact.

A practical next step

An AI policy does not need to be long or complicated to be effective. It should encourage employees to use approved tools, prohibit putting confidential information into AI without approval, require human review of AI-assisted employment decisions, and make clear that company AI use is monitored. We have prepared a model AI use policy and a one-page employee quick guide that our clients are using to put these protections in place. If you would like to discuss adopting a policy for your business — or you are already using AI in any part of your hiring or HR process and want to assess your exposure under the new FEHA regulations — we are happy to help.

The post Five Reasons Every California Employer Needs an AI Policy appeared first on California Employment Law Report.

The Hedge | Brutal Honesty Over Hype Since 2008

California’s tax filing and payment obligations are numerous, multi-agency, and have specific deadlines that don’t align neatly with federal tax deadlines. Missing a California tax deadline triggers automatic penalties and interest that compound quickly. Understanding the California tax calendar — and building compliance deadlines into your business operations system — is foundational for any California business owner.

Quarterly Estimated Tax Payments

California individual income tax, including tax on pass-through business income reported on the owner’s personal return, is paid through quarterly estimated tax payments. California’s estimated tax payment schedule differs from the federal schedule: California estimates are due April 15 (40% of annual liability), June 15 (0%), September 15 (60%), and January 15 of the following year (0%). The absence of a second-quarter California payment and the larger percentage allocations to Q1 and Q3 catch many taxpayers off guard. Underpayment of California estimated taxes triggers an underpayment penalty even if the final return is filed and paid on time.

LLC Franchise Tax Payments

California LLCs must pay the $800 minimum franchise tax annually. For established LLCs, the franchise tax is due by the 15th day of the 4th month of the taxable year — April 15 for calendar-year LLCs. New LLCs face a specific payment schedule for their first two years that can require accelerated payments. The additional gross receipts-based LLC fee is also due by April 15. Failure to pay franchise tax on time results in a 5% per month late payment penalty (up to 25%) plus interest.

Payroll Tax Deposits and Returns

California payroll taxes — UI, ETT, SDI, and state income tax withholding — must be deposited and reported on a schedule determined by the employer’s payroll tax deposit frequency, which is assigned by the EDD based on prior year liability. Most California employers with regular payroll are required to deposit payroll taxes either semi-weekly or monthly, and must file quarterly DE 9 and DE 9C returns. Payroll tax deposits that are late by even one day trigger automatic penalties. Build payroll tax calendar compliance into your payroll processing system — don’t rely on remembering manually.

Sales Tax Filings

California sales tax (collected through the California Department of Tax and Fee Administration, CDTFA) is reported and remitted on a quarterly basis for most small businesses. Higher-volume businesses may have monthly filing requirements. Sales tax returns and payments are due the last day of the month following the close of the filing period. California’s sales tax rules for what is taxable, which exemptions apply, and how to source transactions for nexus purposes are complex enough that most California businesses with meaningful sales tax exposure benefit from dedicated sales tax software or a sales tax consultant.

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

California has more licensed attorneys than any other state — roughly 200,000 active Bar members — and the quality, expertise, and value for money vary enormously. For entrepreneurs who need legal help building and operating their California business, choosing the right attorney is one of the highest-leverage decisions you’ll make. Choosing the wrong one is expensive in ways that are visible (wasted fees) and invisible (bad advice that costs more than the fees to fix).

The Specialist Imperative

General practice attorneys are appropriate for simple, routine matters. For California business formation, employment law compliance, commercial contracts, and exit transactions, you need specialists. California business law is sufficiently complex — RULLCA operating agreements, PAGA compliance, AB5 contractor classification, CCPA requirements, commercial lease negotiation — that a generalist who doesn’t practice these areas daily will not provide the level of analysis your situation requires. The extra cost of a specialist is almost always justified by the quality of the advice and the avoidance of mistakes that generalists make.

How to Find Specialists

The California State Bar’s website (calbar.ca.gov) allows you to search attorneys by county, practice area, and discipline history. Check discipline history — any public discipline record is a disqualifying factor regardless of the attorney’s other qualifications. Referrals from other entrepreneurs who have used an attorney for the specific type of work you need are the most reliable source. Ask specifically about their recent California experience in your area — an attorney who says they handle employment law but whose California PAGA experience is limited is a specialist in name only.

Evaluating the Engagement

Before retaining any California attorney, get clarity on the following: billing rate and billing practices (California allows hourly billing, flat-fee arrangements, and contingency; know which applies and what minimum billing increments are used), retainer amount and replenishment policy, estimated scope and cost for the specific matter, whether you’ll work primarily with the partner you’re hiring or primarily with associates at lower billing rates, and turnaround time expectations for routine communications. California attorneys are required to provide a written fee agreement for most engagements — read it before signing.

The Value-Quality Spectrum

California legal fees for business work range from approximately $250/hour for junior associates at small firms to $750–$1,200+/hour for experienced partners at major firms. The right choice is not automatically the cheapest or the most expensive — it’s the attorney whose expertise is appropriate for your matter at a cost that is proportional to the value at stake. A $500/hour specialist who drafts your operating agreement correctly in three hours is better value than a $200/hour generalist who takes ten hours and produces something that requires fixing later. For major transactions or significant litigation, experienced specialist counsel at higher rates typically produces better outcomes net of fees than less experienced counsel at lower rates. For routine formation and contract work, competent mid-tier specialists at $350–$500/hour provide excellent value. Match the attorney to the matter.

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 normalization of remote work has created a specific California tax compliance trap that many out-of-state employers discover too late: hiring a single California-based remote employee can create California tax nexus for an out-of-state company — triggering franchise tax registration and payment obligations, payroll tax withholding and reporting requirements, and potential income tax liability — all for a company that intended to have no California presence at all.

How One Employee Creates California Nexus

California’s “doing business in California” standard is triggered when an out-of-state company has employees working in California, regardless of whether the company has offices, property, or other physical presence in the state. A remote employee who works from their California home is, from the FTB’s perspective, conducting the company’s business in California. This creates California franchise tax registration and payment obligations for the employer — including the $800 minimum franchise tax — plus EDD payroll tax registration and withholding obligations, and potentially income tax obligations depending on the nature of the California-source income generated.

The Payroll Tax Obligations

An out-of-state employer with a California remote employee must register with California’s Employment Development Department (EDD) and withhold California state income tax from the employee’s wages, make California SDI (State Disability Insurance) deductions, pay California UI (Unemployment Insurance) employer taxes, and file quarterly California payroll tax returns. These obligations exist from the employee’s first day of work in California — there is no grace period. Employers who discover months or years later that they should have been withholding California taxes face retroactive obligations plus penalties and interest.

The Workers’ Compensation Obligation

California requires all employers with California employees to carry California workers’ compensation insurance — even if the employer is incorporated in another state and the employee is the only California worker. The employer must obtain a California workers’ compensation policy and comply with California’s workers’ compensation reporting and claims handling requirements. Failure to maintain California workers’ compensation coverage is a criminal offense in California, not just a civil compliance failure.

What Out-of-State Employers Should Do

Before hiring a California remote employee, any out-of-state employer should: register with the California Secretary of State as a foreign entity doing business in California, register with the EDD for payroll tax purposes, obtain California workers’ compensation insurance, consult with a California employment law attorney about California-specific employment law obligations that apply to the California employee even if the company’s employment policies are based on another state’s law. The one-time setup cost of California compliance is manageable. The retroactive penalty and interest cost of discovering non-compliance after years of ignoring these obligations is not.

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 Tax Cuts and Jobs Act of 2017 created Qualified Opportunity Zones — a federal tax incentive program designed to drive investment into economically distressed communities by offering capital gains deferral and, in some cases, permanent exclusion for investments held long enough. California has numerous designated Opportunity Zones, and the program offers a federally driven tax benefit that California entrepreneurs with capital gains can access regardless of California’s own tax treatment. There’s an important California complication, but the program is still worth understanding.

How Qualified Opportunity Zones Work

The federal QOZ program allows taxpayers who realize capital gains to defer those gains by reinvesting them into a Qualified Opportunity Fund (QOF) within 180 days of the sale. The deferred gain is not recognized until the earlier of the date the QOF investment is sold or December 31, 2026. If the QOF investment is held for at least 10 years, any appreciation on the QOF investment itself — above and beyond the deferred original gain — is excluded from federal income tax permanently.

The mechanics: you sell a business or investment and realize a $1 million capital gain. You invest that $1 million in a Qualified Opportunity Fund within 180 days. The original $1 million gain is deferred until 2026. If the QOF investment grows to $3 million over 10 years, you pay federal capital gains tax on the original $1 million gain (recognized in 2026) but owe zero federal tax on the $2 million in QOF appreciation. The long-term capital gains benefit on the appreciation can be substantial for significant investments held for a decade.

The California Complication

Here is the important caveat for California entrepreneurs: California does not conform to the federal QOZ program. California taxes capital gains from QOF investments in the same year they are recognized under California law — it does not defer the gain or exclude QOF appreciation from California income. This means a California resident investing in a QOZ receives the federal deferral and exclusion benefits while still owing California income tax on the original gain in the year of the QOF sale and on the QOF appreciation in the year of the QOF sale.

For California residents, the QOZ program provides federal tax benefits only — not California tax benefits. Whether the federal benefit justifies the investment decision depends on the size of the gain, the investment quality of the specific QOF, and the investor’s overall tax situation. For California residents with large capital gains, establishing residency in a no-income-tax state before the QOZ investment may allow capture of both federal and state tax benefits — subject to genuine residency requirements.

The Investment Caveat

QOZ tax benefits are only valuable if the underlying investment generates real economic returns. Investing in a low-quality QOF solely for the tax benefit produces a tax-advantaged bad investment. The best QOZ strategy combines genuine investment merit with the tax benefit — finding Opportunity Zone properties or businesses in markets with real appreciation potential, not just Opportunity Zone designation.

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

California is an at-will employment state — which means employers can terminate employees for any reason or no reason, and employees can quit for any reason or no reason, absent a contract saying otherwise. This sounds like broad employer flexibility. In practice, California’s at-will employment is heavily qualified by an extensive body of statutory and common law protections that limit when terminations are truly “at will” and create substantial liability for terminations that violate those protections.

What At-Will Employment Actually Means

California’s at-will employment presumption means that without a written or oral contract establishing a specific term of employment or a “for cause” termination requirement, an employer can terminate an employee without advance notice, without severance, and without explanation. This remains substantially true. Employers are not required to provide notice before termination (absent WARN Act applicability for mass layoffs), are not required to pay severance unless contractually obligated, and are not required to give a reason for termination.

The Exceptions That Matter

The at-will presumption is qualified by a substantial list of exceptions that create termination liability: Protected class discrimination — terminations motivated by race, sex, age, disability, national origin, religion, sexual orientation, gender identity, pregnancy, or other protected characteristics violate the California Fair Employment and Housing Act and create liability for compensatory damages, punitive damages, and attorney’s fees. Retaliation — terminations in response to protected activity (filing a wage claim, reporting a workplace safety violation, taking protected leave, making a harassment complaint, whistleblowing) are prohibited retaliation. Public policy violations — termination for reasons that violate California’s fundamental public policy, even outside the enumerated statutory protections. Implied contract — employer handbooks, personnel policies, or verbal statements that imply employees will be treated in specific ways or terminated only for cause can create implied contracts that limit at-will employment. Covenant of good faith and fair dealing — California’s implied covenant applies to employment contracts, and certain bad-faith terminations can breach it.

The Documentation Imperative

For California employers, the practical consequence of these limitations is that every termination requires careful documentation that demonstrates the termination was not motivated by a protected characteristic, was not retaliatory, and complied with any applicable contractual obligations. This documentation — performance reviews, disciplinary notices, attendance records, written warnings — is what stands between the employer and liability in a wrongful termination claim. Creating this documentation only after a termination decision is made is generally insufficient. The documentation must pre-date the termination and must be contemporaneous with the performance issues it addresses. Build California-compliant documentation practices into your HR operations before your first performance issue arises.

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

This series has focused heavily on the decision of whether to build in California — for good reason, since that decision has compounding financial consequences that are easier to avoid than to escape. But the reality is that many of our readers are already in California, already building businesses here, and aren’t going anywhere. For you, the relevant question isn’t “should I be in California” but “given that I’m in California, how do I optimize my situation?” This post is for that reader.

Accept the Cost Structure and Build It Into Your Model

The first step is psychological as much as financial: stop thinking of California’s cost premium as an aberration or a temporary problem that will resolve itself, and start treating it as a permanent structural feature of your operating environment. The $800 franchise tax, the 13.3% top income tax rate, the PAGA exposure, the workers’ compensation premium — these are not going away. They are the cost of doing business in California, and your financial model should reflect them accurately rather than optimistically.

Companies that model California’s cost structure accurately make better decisions about pricing, hiring, and capital allocation. Companies that assume California is temporarily expensive and will normalize to national averages are routinely surprised by the persistence of the premium. Build the California cost into your baseline and stop waiting for it to get better.

Invest in Compliance Upfront

California’s regulatory environment is expensive to violate and relatively affordable to comply with. The cost of proper employment practices — accurate wage statements, compliant meal and rest break policies, proper contractor classification under AB5, CCPA compliance for businesses above the thresholds — is a fraction of the cost of PAGA litigation, Franchise Tax Board penalties, or CCPA enforcement. Invest in compliance upfront. Get a California employment attorney to audit your practices annually. Use a California CPA who specifically understands the franchise tax, LLC fee structure, and S-corp election timing. Build compliance into your operating budget as a fixed cost, not as a variable expense you defer until something goes wrong.

Use California’s Advantages Actively

If you’re paying California’s premium, use California’s advantages deliberately. The venture capital ecosystem is real — if your business can credibly pitch institutional investors, be in those rooms. The UC system’s technology transfer and research partnerships are underutilized by many California companies — if you’re in a field with university research relevance, pursue those relationships. California’s brand as a leading-edge business environment has genuine commercial value in certain markets — if your customers value California provenance, leverage it explicitly in your marketing and positioning.

Consider Partial Migration

The all-or-nothing framing of “California vs. everywhere else” understates the options available to California businesses. Many companies have reduced their California cost exposure through partial operational migration — maintaining a California headquarters for leadership, sales, and investor relations while locating engineering, customer support, and operations teams in lower-cost states. This hybrid approach captures some of California’s advantages while reducing exposure to its highest-cost labor and real estate markets. It’s not free — multistate compliance adds administrative complexity — but for companies above a certain scale, the cost savings from distributing operations often exceed the compliance overhead.

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

A client recently received a demand letter from a self-described “self-litigant” sitting in Florida who claimed the client violated CA pay transparency rules for failing to include a salary range in a job posting, In this particular case, the job actually was not a remote position and I think the “self-litigant” likely lacks standing since they were unlikely to apply for a CA-based job and this was clearly an attempted shakedown. However, a quick perusal of LinkedIn postings uncovered a plethora of remote jobs that lacked a salary range.

If you currently employ even one CA-based employee and your posting says “remote anywhere in the United States,” assume California’s pay‑transparency rule applies, unless you truly exclude California applicants. California’s Labor Commissioner (DLSE) interprets the law to require that a pay scale be included in a job ad if the position may be filled in California “either in‑person or remotely.” For employers with 15 or more employees, the pay scale (a good‑faith salary or hourly range) must appear in the posting itself, including postings made by third parties.

What has to be in the posting?

“Pay scale” means the salary or hourly wage range the employer reasonably expects to pay for the position. You may list a single set rate if that is what you will pay (for example, a fixed hourly rate), but the information must be in the text of the posting—links or QR codes alone are not sufficient. Commission or piece‑rate structures must be disclosed as a range when they are part of the pay.

What about multi‑state remote ads?

A single national posting often has to satisfy multiple transparency laws (e.g., California, Colorado, Washington, New York City). Many employers choose to disclose one compliant range that meets the strictest jurisdiction likely to apply, then add a short note about location‑based pay differentials if applicable. California’s Labor Commissioner provides a complaint process and form for postings that omit required ranges—another reason to standardize compliance in national ads.

Practical steps for HR and TA teams

• Build the range into the posting template for any role that could be performed from California, including fully remote roles. Use a good‑faith range in effect at the time of posting.
• Align recruiter and vendor workflows: when a third party posts on your behalf, give them the pay scale and require it be shown in the ad.
• Keep documentation supporting how you set the range (e.g., leveling, geographic differentials, commission plans) and retain required wage and classification records.
• If you intend not to hire in California, say so clearly in the posting. Note that excluding California won’t avoid other states’ transparency rules and may create separate recruiting and employee‑relations considerations.

For employers with 15+ employees and at least one current California employee, a remote‑eligible job “anywhere in the U.S.” generally requires a posted pay range. Put the range in the ad itself, and ensure vendor alignment for maximum compliance.

The Hedge | Brutal Honesty Over Hype Since 2008

California has one of the strongest anti-non-compete law regimes in the country — a fact that has significant implications for both employers trying to protect their businesses and employees considering their options. Understanding California’s non-compete landscape is essential for any California business that employs people with access to valuable proprietary information, customer relationships, or technical knowledge.

California’s Non-Compete Prohibition

California Business and Professions Code Section 16600 voids any contract that restrains a person from engaging in a lawful profession, trade, or business of any kind. This provision has been interpreted by California courts to invalidate virtually all non-compete agreements for employees — regardless of how narrowly drafted, how reasonable in scope, or how substantial the consideration paid. Unlike most states that allow reasonable non-compete agreements, California allows essentially none for employees. An employee who leaves a California employer and joins a direct competitor is, in almost all circumstances, legally free to do so regardless of any non-compete clause in their employment agreement.

What This Means for California Employers

California employers cannot legally prevent former employees from competing. This limitation affects hiring decisions, compensation structures, and information protection strategies in significant ways. Employers who rely on non-competes to protect customer relationships, technical knowledge, and competitive advantage in most other states must find alternative protection mechanisms in California: strong confidentiality agreements, trade secret protections under the California Uniform Trade Secrets Act, customer non-solicitation agreements (which California courts have treated with more variability than non-competes), and employee non-solicitation agreements (which have also faced California judicial scrutiny).

Trade Secret Protection as the Alternative

California’s Uniform Trade Secrets Act provides the strongest available protection for California employers whose competitive advantage depends on proprietary information. A trade secret is information that derives independent economic value from being not generally known or readily ascertainable, and is subject to reasonable efforts to maintain its secrecy. California courts will enjoin and award damages for misappropriation of trade secrets — and unlike non-compete enforcement (which California courts will not do), trade secret enforcement is robust. The key: trade secret protection requires actual, documented efforts to maintain secrecy — confidentiality agreements, access controls, employee training, marking of confidential documents, and consistent enforcement. Employers who treat information as confidential without implementing real secrecy measures find their trade secret claims weak when they try to enforce them.

The Employee Advantage — And Its Limits

For California employees, the non-compete prohibition is a significant workplace freedom that doesn’t exist in most other states. California employees can freely move to competitors, start competing businesses, and use general skills and knowledge acquired in employment — as long as they don’t take actual trade secrets. This freedom is one of the reasons California’s technology ecosystem has been so innovative: engineers, designers, and business people who develop ideas can act on them without non-compete restrictions. The limit is real: taking actual trade secrets, confidential customer lists, proprietary technical information, or protected intellectual property crosses from protected competition into misappropriation. The line between general skills and specific trade secrets is drawn by courts case by case — and the litigation costs of having that line drawn can be substantial even when you ultimately prevail.

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

California’s regulatory and litigation environment is often discussed exclusively as a burden for businesses — the compliance costs, the PAGA exposure, the CEQA delays. But California also has one genuinely entrepreneur-friendly litigation tool that most business owners don’t know about: the anti-SLAPP statute, which provides a powerful early defense against meritless lawsuits filed to silence or intimidate businesses.

What SLAPP Suits Are

SLAPP stands for Strategic Lawsuit Against Public Participation. SLAPP suits are lawsuits filed not with a genuine expectation of winning on the merits, but as a strategic weapon to impose litigation costs on a target — a competitor, a critic, a journalist, a community activist — and thereby discourage the speech or conduct that prompted the lawsuit. The typical SLAPP suit involves a defamation claim against a customer review, a tortious interference claim against competitive speech, or a business disparagement claim against a competitor’s comparative advertising.

California’s Anti-SLAPP Statute (CCP §425.16)

California Code of Civil Procedure Section 425.16 provides a special motion to strike that can be filed early in litigation — typically within 60 days of service — against any claim that arises from protected activity (speech or petitioning activity in connection with a public issue). If the motion is granted, the plaintiff’s claim is dismissed and the defendant is entitled to recover attorney’s fees from the plaintiff. The threat of mandatory fee-shifting on a lost anti-SLAPP motion is a powerful deterrent against frivolous SLAPP suits.

For California businesses that face meritless defamation claims over customer reviews, competitive disparagement claims over comparative advertising, or interference claims over competitive conduct that involves protected speech, the anti-SLAPP motion is an effective and often underutilized early defense tool. The motion must be carefully evaluated — it triggers a stay of discovery and shifts the burden to the plaintiff to demonstrate a probability of success — but for the right case, it can dispose of a meritless lawsuit early and recover the defendant’s attorney’s fees.

The Entrepreneur Application

California entrepreneurs are most likely to encounter anti-SLAPP situations in three contexts. First, online reviews: a competitor or disgruntled former employee posts a negative review on Yelp, Google, or Glassdoor. You threaten or file a defamation claim. The reviewer asserts anti-SLAPP protection — and if the review concerns a matter of public interest and you can’t demonstrate a probability of winning a defamation claim, you face fee-shifting liability. Second, competitive speech: your company makes comparative claims about a competitor’s product. The competitor sues for business disparagement. Your anti-SLAPP motion challenges whether the claim arises from protected speech. Third, regulatory petitioning: a competitor uses a CEQA petition to delay your project. You sue the competitor for abuse of process. The competitor asserts anti-SLAPP protection for their petitioning activity.

Understanding anti-SLAPP before you make litigation decisions — both offensively and defensively — saves money and avoids mistakes. California’s litigation environment is genuinely complex, and the anti-SLAPP statute is one of its genuine entrepreneur-friendly features.

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