The Hedge | Brutal Honesty Over Hype Since 2008

The Hedge’s June coverage has touched most of the major compliance categories every California business owner should have current. This post consolidates them into a single actionable mid-year checklist. Run through it now — before any compliance gap turns into a regulatory problem.

Entity and Formation Compliance

Federal Corporate Transparency Act: have you filed your beneficial ownership information with FinCEN? Deadline for pre-2024 entities was January 1, 2025. If you haven’t filed, do it today. California Secretary of State: is your Statement of Information current? LLCs and corporations must file every 1-2 years. DFPI license: if you’re in financial services, collections, or a regulated industry, is your DFPI license current and in good standing?

Employment Compliance

Paid sick leave policy: does it reflect the January 2024 increase to 5 days (40 hours)? Minimum wage: are you paying at least $16/hour statewide, and the applicable industry minimum if you’re in fast food or healthcare? Wage statements: do your pay stubs include all required information including sick leave balances? Worker classification: have you reviewed all contractor relationships against AB5’s ABC test in the past 12 months? Non-compete provisions: have you removed void non-compete clauses from your employment agreements?

Tax and Financial Compliance

California franchise tax: is the current year’s payment current? Pass-through entity tax election: have you evaluated whether the PTET election is beneficial for your current year? Estimated taxes: are quarterly payments calibrated to current-year income rather than prior-year safe harbor if income has grown significantly? CCPA/CPRA: if you’re approaching any of the three coverage thresholds, have you begun compliance planning?

HOA-Specific Compliance (Property Owners)

Annual disclosure review: have you reviewed the HOA’s annual disclosure package, particularly the reserve fund percent funded? Assessment currency: are your assessments current? A delinquency notice is worth addressing immediately before it becomes a lien. CC&R review: are you in compliance with current CC&R requirements, including any amendments adopted in the past year? Record this review — it demonstrates good faith if an enforcement issue arises later.

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 ongoing water scarcity challenges have produced new legislative requirements affecting HOA landscaping obligations and individual homeowner water conservation rights — requirements that intersect with HOA enforcement authority in ways that create specific legal protections for homeowners who choose drought-tolerant landscaping.

The Right to Drought-Tolerant Landscaping

California Civil Code Section 4736 prohibits HOA rules that require homeowners to use water-intensive landscaping or that prohibit drought-tolerant alternatives. Specifically, an HOA cannot enforce a rule or CC&R provision that effectively requires the use of turf grass in areas subject to state or local water restrictions, or that prohibits the replacement of turf with drought-tolerant plants, artificial turf meeting specified standards, or permeable hardscape. HOAs that have been enforcing maintenance standards requiring traditional grass lawns in drought-restricted areas may be acting contrary to California law.

The WELO Ordinance Landscape

California’s Model Water Efficient Landscape Ordinance (WELO) has been adopted with local modifications by most California cities and counties. WELO establishes maximum water budgets for new landscaping and requires water-efficient irrigation systems for new or renovated landscapes above certain square footages. HOA common area landscaping projects that trigger WELO must comply with its requirements, and HOAs that approve member landscaping projects should ensure those projects don’t violate applicable WELO requirements — because violations create liability for both the association and potentially the individual member.

The Practical Intersection with HOA Enforcement

If your HOA is trying to fine you for replacing traditional landscaping with drought-tolerant alternatives, or is requiring you to water your lawn during a water shortage emergency that prohibits outdoor watering, you have both Civil Code Section 4736 protection and in some circumstances local ordinance protection. Document the specific enforcement action, identify the specific legal authority prohibiting it, and raise the conflict in writing to the board before the IDR process. Many boards don’t know these protections exist and back down when confronted with the specific legal authority. The ones that don’t are candidates for the escalation pathway covered in earlier posts in this series.

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

June covered California business law fundamentals (PAGA reform, AB5, non-competes, minimum wage, commercial leases, capital raising) mixed with a substantial HOA compliance series (Davis-Stirling assessments, board authority, elections, solar and EV rights, insurance, and governance failures). July continues both threads with deeper dives and emerging topics.

July Business Topics

July will cover: the specific operational differences between managing a California business versus a Texas or Nevada business for entrepreneurs who are considering or have made the migration; advanced LLC operating agreement provisions that most California business owners don’t have but should; the California employment law checklist for businesses approaching 50 employees (where several additional obligations kick in); the business insurance landscape in California and the coverage gaps that create unexpected liability; and the specific financial metrics that California venture capitalists look at when evaluating early-stage companies — relevant whether or not you’re currently raising capital.

July HOA Topics

July’s HOA series will cover: the specific rights of condominium owners versus single-family homeowners in HOA communities; managing neighbor disputes that the association won’t address; the process for proposing and passing CC&R amendments from the member side; ADU rights in HOA communities (a rapidly evolving area); and the specific protections for senior residents in HOA communities under California and federal law.

The Hedge Commitment

The Hedge has published consistently since 2008 on the financial and legal landscape that actually affects entrepreneurs, property owners, and investors in California. No advertiser influence. No hype. No newsletter subscription required. Brutal honesty about how things actually work — because that’s what produces better financial outcomes. July continues the same standard.

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 litigation — whether you’re a homeowner suing the association or defending against the association’s enforcement action — is expensive, time-consuming, and emotionally exhausting. It is sometimes necessary. Understanding the realistic costs and outcomes of HOA litigation allows you to make clear-eyed decisions about when to fight and when to reach a negotiated resolution.

The True Cost of HOA Litigation

A contested HOA enforcement action in California superior court — a case involving a contested CC&R violation, an assessment dispute, or an architectural denial — typically costs $10,000-$40,000 in legal fees to litigate through trial, for each side. HOA cases rarely settle quickly because associations are spending member money (not their own) on defense, and boards sometimes have personal reasons for pursuing disputes that have nothing to do with the association’s genuine interests. Before committing to litigation, model the realistic cost versus the realistic outcome.

Attorney’s Fee Provisions Under Davis-Stirling

California Civil Code Section 5975 provides that in a civil action to enforce the governing documents, the prevailing party is entitled to reasonable attorney’s fees. This cuts both ways: a homeowner who wins an HOA enforcement action is entitled to their attorney’s fees from the association. An association that wins is entitled to fees from the homeowner. This fee-shifting provision is both an incentive to litigate meritorious claims and a serious deterrent to pursuing weak ones. Before filing HOA litigation, assess honestly whether your position is strong enough to prevail — because if it isn’t, you’re funding both sides of the case.

The Settlement Window

Most HOA disputes that are litigation-worthy are also settlement-worthy — if both parties can get past the emotional dynamics that often make HOA conflicts particularly intractable. The mandatory IDR and ADR requirements under Davis-Stirling exist precisely to create a settlement pathway before litigation. If you’ve exhausted IDR and ADR and are considering litigation, make one final written settlement demand that clearly articulates your legal position, the specific relief you’re seeking, and the realistic litigation costs both parties face if the dispute proceeds. A well-crafted settlement demand sometimes produces resolution that months of heated correspondence failed to achieve.

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

June closes with a consolidated reference of the significant California business law changes that have taken effect since January 2024 — the legislation and regulatory changes that should be on every California business owner’s compliance radar heading into the second half of 2026.

Labor Law Changes

Minimum wage: statewide to $16/hour January 2024; fast food sector minimum $20/hour under AB 1228; healthcare worker minimum wage phasing in under SB 525. Paid sick leave: increased from 3 to 5 days (40 hours) under SB 616, effective January 2024. PAGA reform: SB 92 and AB 2288 creating cure mechanisms and penalty caps for certain technical violations. Non-compete prohibition: SB 699 making non-compete agreements void regardless of where signed and creating private cause of action.

Privacy and Consumer Protection

CPRA enforcement: California Privacy Protection Agency actively enforcing CCPA/CPRA with publicized enforcement actions and ongoing rulemaking. Data broker registration: CPPA began enforcing new data broker registration requirements. Financial Privacy: DFPI expanding examination authority under the CCFPL to new categories of fintech businesses.

Business Formation and Governance

Corporate Transparency Act: beneficial ownership reporting to FinCEN required for most small businesses, with penalties now actively enforced after legal challenge resolution. DFPI licensing: Debt Collection Licensing Act in full enforcement mode; new categories of financial service providers subject to DFPI licensing. Securities: additional reporting requirements for certain pass-through entities and enhanced DFPI enforcement of private offering notice filing requirements.

HOA Law

SB 900 (2024): clarifying HOA solar panel approval timelines. AB 1572 (2024): restrictions on HOA water waste in connection with certain landscaping requirements. Ongoing Davis-Stirling amendments: the Legislature continues to add to and clarify Davis-Stirling annually — reviewing the current year’s amendments in September of each year (when they typically take effect) is standard practice for HOA-governed property owners.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The post TikTok Terminations: Conducting a Discharge That Can Withstand a Recording in 2026 appeared first on California Employment Law Report.

The Hedge | Brutal Honesty Over Hype Since 2008

HOA rental restrictions — rules limiting the percentage of units that can be rented, the minimum rental term, or the types of tenants allowed — have been increasingly scrutinized by California courts and the legislature as housing availability concerns have grown. Understanding what rental restrictions are currently enforceable, and what California law limits, is essential for both investor-owners and associations trying to manage their communities.

Rental Caps Under Davis-Stirling

Associations can limit the percentage of units that may be rented at any time — commonly 25% or 35% caps are found in California CC&Rs. These rental caps are generally enforceable against owners who purchase after the cap is established. California Civil Code Section 4741 added limitations: associations cannot prohibit rental of a separate interest outright; cannot impose a rental cap below 25% of the total units in the development; and cannot apply a rental cap to owners who purchased before the cap was established. An association trying to apply a new rental cap to existing owners who were renting before the cap was adopted has a legal problem.

Minimum Lease Term Restrictions

Associations can require minimum lease terms — typically 30 days to 12 months — as CC&R provisions or board rules. These are generally enforceable. The short-term rental (Airbnb/VRBO) restrictions discussed in an earlier post represent the most aggressive version of minimum lease term enforcement, and are generally upheld when properly adopted. For owners who want to rent at all, the key question is whether the minimum lease term provision in your CC&Rs was properly adopted and whether it applies to your situation.

Fair Housing Limitations on Tenant Screening Rules

HOA rules that affect tenant selection — requiring board approval of tenants, subjecting prospective tenants to criminal background checks, or imposing additional requirements on tenants — must comply with fair housing law. Rules that screen out tenants based on protected characteristics (national origin, source of income, familial status) violate California’s FEHA. Association-level tenant screening that produces discriminatory patterns — even without discriminatory intent — creates fair housing liability for both the association and potentially the individual board members who adopted and enforced the policy.

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

Most California business owners have no succession plan. The business that took decades to build has no documented answer to: what happens if the owner becomes incapacitated? What happens at death? Who is authorized to operate the business, access its bank accounts, and honor its contracts when the owner is not available? The absence of planning doesn’t prevent these events — it just ensures they’re handled badly when they occur.

The Entity Documents: The First Line of Defense

For LLC owners, the operating agreement should address: who manages the company if the member or manager becomes incapacitated or dies; the procedures for transferring membership interests; buyout rights and valuation mechanisms if a member wants to exit or dies; and the continuity of the entity through ownership transitions. For corporations, the bylaws and shareholder agreements should address analogous issues. These documents are the succession plan’s foundation — without them, state default rules govern, and state default rules were not written for your specific business situation.

The Power of Attorney and Healthcare Directive

A durable power of attorney for financial matters — naming an agent to act on your behalf if you become incapacitated — can include the authority to manage business operations, sign contracts, and operate bank accounts. Without this document, a business owner’s incapacity can paralyze the business while family members seek a court-appointed conservator — a process that takes months and costs tens of thousands of dollars. A well-drafted durable financial power of attorney is the most immediate protection against the operational disruption of unexpected incapacity.

The Buy-Sell Agreement for Multi-Owner Businesses

For businesses with multiple owners, a buy-sell agreement — specifying what happens when an owner dies, becomes disabled, divorces, or wants to exit — is not optional if you want to control the outcome. Without a buy-sell agreement, a deceased owner’s interest may pass to heirs who have no interest in or qualifications to operate the business. A buy-sell agreement establishes: the triggering events, the valuation methodology for the departing owner’s interest, the funding mechanism (typically life insurance for death scenarios), and the payment terms. The time to draft this agreement is now — before any triggering event makes it contentious.

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

Dysfunctional HOA boards — boards that mismanage association funds, ignore Davis-Stirling requirements, award contracts to board members’ companies, or simply refuse to fulfill their governance obligations — are unfortunately common in California. Understanding the mechanisms for removing board members and replacing dysfunctional boards is essential knowledge for homeowners in communities where governance has broken down.

The Member Recall Right

California Civil Code Section 5100 et seq. gives members the right to remove board members before the expiration of their terms through a recall vote. The process requires a petition signed by at least 5% of members (or the number specified in the governing documents, if higher) requesting a special member meeting to vote on recall. The recall vote uses the same secret ballot process required for regular elections. A director recalled by majority vote of members is removed from the board, and the remaining board members can appoint a replacement or call a special election depending on the governing documents’ provisions.

Grounds for Seeking Recall

While California law doesn’t require “cause” for a board member recall — members can vote to remove a board member for any reason or no stated reason — the most common situations that motivate recall efforts are: financial mismanagement or suspected misappropriation; systematic violation of Davis-Stirling requirements; board member conflict of interest (awarding contracts to their own businesses); failure to maintain common areas despite adequate reserves; and personal conduct toward members that violates the board’s duty of good faith. Document specific instances of the problematic conduct before beginning a recall effort — the documentation makes the case to fellow members who need to support the petition.

Organizing a Successful Recall

Recall efforts succeed when: the organizing members communicate specific, documented concerns rather than general dissatisfaction; the effort is broad-based rather than driven by one or two dissatisfied homeowners; members are given clear information about what specifically the recall seeks to address and what governance changes would follow; and the organizing group identifies replacement candidates who have the time and commitment to serve effectively. A recall that removes a dysfunctional board but replaces it with unprepared members who repeat the same mistakes accomplishes little. The goal is better governance, not just change.

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