June 3, 2026

The Hedge | Brutal Honesty Over Hype Since 2008

HOA boards in California have significant authority — but that authority has specific statutory limits that most homeowners don’t know and most board members don’t fully understand. A board that exceeds its authority creates liability for the association and grounds for legal challenge by affected members. Understanding where the lines are drawn is practical self-defense for any California homeowner.

What Boards Can Do

Under Davis-Stirling, HOA boards have authority to: enforce CC&Rs and association rules, levy assessments within limits established by the governing documents, manage common area maintenance and repair, adopt reasonable rules governing use of common areas, enter into contracts on the association’s behalf, and pursue enforcement action against members who violate governing documents. These are substantial powers that courts generally support when exercised in good faith within the governing documents.

What Boards Cannot Do Without Member Vote

Davis-Stirling requires member approval for: special assessments exceeding 5% of the association’s annual budget; emergency rules that would significantly alter member use rights; amendments to the CC&Rs or bylaws; decisions to spend more than 5% of the annual budget on a single discretionary item (in most associations); and certain significant contracts. A board that takes these actions without the required member vote has acted outside its authority — the action is voidable and the board members may have personal liability for breach of fiduciary duty.

The Business Judgment Rule

California courts apply the “business judgment rule” to HOA board decisions — deferring to board decisions that were made in good faith, after reasonable inquiry, and in the association’s best interest. This rule protects boards from personal liability for reasonable decisions even if those decisions turn out badly. It does not protect boards that acted in bad faith, with a conflict of interest, or without adequate information. If you believe your board has made a decision with a conflict of interest — awarding a contract to a board member’s company, for example — that falls outside the business judgment rule’s protection.

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

AB5, which took effect January 1, 2020, was supposed to clarify California’s contractor classification rules. Three years of litigation, legislative amendment, and enforcement action have produced a landscape that is in some ways clearer and in other ways more complicated than the original statute suggested. Here is an honest assessment of where things stand in 2026.

The Core ABC Test Is Intact

The fundamental three-part ABC test for contractor classification remains the law for most California workers. Part B — the requirement that the worker perform work “outside the usual course of the hiring entity’s business” — remains the most restrictive element and the one that has generated the most litigation. Courts have generally interpreted Part B strictly, consistent with the original legislative intent. A software company cannot classify software developers as independent contractors. A marketing agency cannot classify copywriters as independent contractors. The B prong means what it says.

The Exemption Landscape

AB5’s exemptions have been litigated extensively. Professional services exemptions — for licensed professionals including doctors, dentists, architects, engineers, accountants, and others — require both parties to meet multiple conditions. The business-to-business exemption requires the contractor to operate an independently established business with multiple clients. Courts have interpreted these exemptions narrowly, and many relationships that business owners assumed were safely exempt have been found not to meet the exemption requirements on specific facts.

The Multi-State Solution

The practical response of many California businesses to AB5 has been geographic: locate operations requiring flexible contractor workforces in states with more permissive classification rules, while maintaining California presence for sales, leadership, and client-facing functions. Texas uses the common law control test, which is substantially more permissive than California’s ABC test. For operations where contractor flexibility is operationally important, this geographic arbitrage continues to be a legitimate structural response to a law that California shows no signs of repealing.

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