But that's exactly what OP is complaining about, they didn't register their business. If you have any presence in a state, including employees that are residents and working there, you should be on notice that you need to 1) tell the state that you're doing business in their state by registering your business (simply paying your employee is doing business!), 2) file a tax return from income derived in that state, and 3) adhere to the laws (including employment laws) of the state. That someone started a business and didn't know this is itself surprising because it implies that they didn't ever talk to an accountant or a lawyer but somehow had the wherewithal to hire an employee as a W2 employee.
Imagine the opposite: you set up your business out of state and employ California residents but don't follow any of their labor laws. You underpay them. You don't take out the appropriate amount of state taxes. You don't report their income to the state. You don't give them overtime pay. How is this not just a glaring problem?
Imagine the opposite: you set up your business out of state and employ California residents but don't follow any of their labor laws. You underpay them. You don't take out the appropriate amount of state taxes. You don't report their income to the state. You don't give them overtime pay. How is this not just a glaring problem?