See http://business.ca.gov/StartaBusiness/AdministeringEmployees... for confirmation of what I said, in the way that I said it.

Your inhouse council is also correct. Should it come to a lawsuit, it is supposed to be decided in the way that I described. However there is a world of difference between winning the lawsuit, and not having one. The stronger the case that you have made to the ex-employee, the less likely it is that they will find a lawyer who is willing to represent them in a lawsuit.