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Operating a business in California without a working understanding of California’s distinctive legal framework is operating blind. California’s business law is different from most other states in specific, consequential ways — ways that affect your contracts, your liability exposure, your employment relationships, and your ability to enforce your rights. This primer covers the concepts every California entrepreneur should understand before they need them.
California Contract Law Basics
California contracts are governed primarily by the California Civil Code and the Uniform Commercial Code as adopted in California. California law implies a covenant of good faith and fair dealing in every contract — meaning parties are expected to deal honestly and not undermine the other party’s reasonable expectations under the contract. California’s implied covenant has been interpreted to create liability in some cases where the express contract terms were followed but the conduct violated reasonable expectations. This is broader than the implied covenant in many other states and can affect how California contracts are interpreted and enforced.
California law also includes specific consumer protection provisions that affect contracts with California consumers: the California Consumer Legal Remedies Act (CLRA) prohibits unfair and deceptive practices in consumer transactions, with a private right of action and mandatory attorney’s fees. Business-to-consumer contracts that include provisions violating the CLRA are voidable. Review any consumer-facing contract with California-specific legal counsel before deploying it to California customers.
Business Tort Liability in California
California business tort law includes several doctrines that create liability exposure unique to California or more developed in California than elsewhere. Intentional interference with contractual relations — deliberately inducing another party to breach its contract with a third party — is actionable in California with both compensatory and punitive damages available. Intentional interference with prospective economic advantage — interfering with a business relationship that hasn’t yet resulted in a contract — is also actionable. Unfair competition under California’s Unfair Competition Law (Business and Professions Code Section 17200) prohibits “any unlawful, unfair or fraudulent business act or practice” — a broad standard that has been applied to a wide range of business conduct well beyond traditional antitrust concerns.
Arbitration Agreements in California
California courts have been historically skeptical of mandatory arbitration agreements in consumer and employment contracts, finding many of them unconscionable under California’s unconscionability doctrine even where federal arbitration law would preempt state restrictions. The interplay between the Federal Arbitration Act, which broadly preempts state law restrictions on arbitration, and California courts’ ongoing scrutiny of arbitration agreement terms creates a complex landscape for California businesses that want to use arbitration to manage litigation risk. Get California-specific legal review of any arbitration agreement before deploying it to California employees or consumers.
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