In California, computer professionals paid under ~$85k are required to be non-exempt (hourly) and should be paid overtime [1]
[1]: http://www.shrm.org/templatestools/hrqa/pages/california-min...
[1]: http://www.shrm.org/templatestools/hrqa/pages/california-min...
http://webcache.googleusercontent.com/search?q=cache:XSpG9Y8...
EDIT: So there's this little gem in there:
> However, the above exemption does not apply to an employee if any of the following apply:
...
> The employee is a writer engaged in writing material, including box labels, product descriptions, documentation, promotional material, setup and installation instructions, and other similar written information, either for print or for onscreen media or who writes or provides content material intended to be read by customers, subscribers or visitors to computer-related media such as the Internet or CD-ROMs.
So if you're a frontend dev who isn't spoon-fed 100% of the copy you put up on the site, it's apparently illegal for you to be paid below $84k if you work more than 12 hours in a day without getting overtime? IANAL, but there's no other exemption for co-founders and other early employees, then I'd venture to say that 99% of startups have broken this law...
However, if it is discovered that a "contractor" is an employee everywhere but on paper, then the employer can still be liable for labor law violations. IIRC part of the test is "Can they choose their own hours? Do they use their own tools or are they provided/maintained by the employer? Does the employer dictate how they must do their work, or only specify deliverables?"