California Employment Law Update for 2026

California Employment Law Update for 2026
A Guide for Employers
Prepared by: Zaller Law Group, PC
Date: December 2025

Table of Contents

Executive Summary
Key 2026 Changes at a Glance
Top 10 Moves for Q1 2026
How to Use this Guide
I.       Workplace Know Your Rights Act (SB 294)
II.      Ban on Stay-or-Pay Agreements (SB 692)
III.     Enhanced Cal-Warn Requirements (SB 617)
IV.     Pay Transparency Expansion (SB 642)
V.      2026 Compliance Calendar & Critical Deadlines
VI.     Other Critical Considerations for 2026
VII.    Conclusion & Strategic Next Steps

Executive Summary

California employers enter 2026 facing one of the most complex compliance environments in recent memory. New statutes and regulations change how you:

• Communicate rights and obligations to employees
• Draft and enforce employment agreements
• Post jobs and set pay ranges
• Manage layoffs, closures, and relocations
• Track time, pay employees, and administer tips
• Use AI and automated tools in hiring and workforce management
• Defend against PAGA and Equal Pay Act claims

This white paper is designed for CEOs, HR leaders, in-house counsel, and operations executives who need to turn legal changes into concrete, prioritized action.

Key 2026 Changes at a Glance

Workplace Know Your Rights Act (SB 294)

• Annual standalone “Know Your Rights” notice to all employees starting February 1, 2026
• Emergency contact designation requirement by March 30, 2026
• Labor Commissioner educational videos by July 1, 2026

Ban on Stay-or-Pay Agreements (AB 692) – effective January 1, 2026

• Training repayment and “stay-or-pay” provisions largely outlawed, with narrow exceptions for certain educational/credential programs and apprenticeships

Enhanced Cal-WARN Requirements (SB 617) – effective January 1, 2026

• New required content in layoff/closure notices, including workforce development coordination and CalFresh information

Pay Transparency Expansion (SB 642) – effective January 1, 2026

• “Pay scale” now means a good faith estimate of what you actually expect to pay
• Equal Pay Act exposure expanded to all forms of compensation with a potential six-year recovery period

Wage & Hour / Minimum Wage Changes – effective January 1, 2026

• State minimum wage increases to $16.90/hour (all employer sizes) (up from $16.50 in 2025)
• Exempt salary threshold rises to $70,304 (and $83,200 for covered fast-food employers)
• Ongoing local minimum wage and industry-specific increases

PAGA, Arbitration, and AI

• PAGA filings remain high despite 2024 reforms; structured audits are now essential to qualify for the 15% penalty cap
• Arbitration agreements still valuable, but only if executed with robust audit trails and separate, defensible processes
• AI and automated decision-making tools in employment are regulated; employers remain responsible for discriminatory outcomes

This guide includes checklists, action plans, and a 2026 compliance calendar to help you prioritize and operationalize these changes.

HOW TO USE THIS GUIDE

Different readers will care about different pieces. Use this as a roadmap:

CEOs, Owners, CFOs

• Read the Executive Summary, Top 10 Moves for Q1 2026, and Conclusion & Strategic Next Steps.
• Skim Sections I–IV to understand your highest-risk areas.

HR Leaders / In-House Counsel

• Focus on Sections I–IV (new laws), Section V (calendar & deadlines), and Section VI (other critical risks, especially PAGA, arbitration, and AI).
• Use checklists and action plans as implementation tools.

Operations & Field Management

• Focus on Know Your Rights (Section I), Stay-or-Pay (Section II), Minimum Wage & Exempt Thresholds, Tips, and Local Wage Issues (Section VI.H–I), and PAGA Compliance (Section VI.G).

TOP 10 MOVES FOR Q1 2026

Quick-Start Checklist for California Employers

Update Minimum Wages & Exempt Salaries (by January 1, 2026)

• Implement the $16.90/hour statewide minimum wage (plus any higher local rates).
• Audit exempt employees and raise salaries to at least $70,304 (or $83,200 for covered fast-food exempt employees), or reclassify them as non-exempt.

Remove Stay-or-Pay and Training Repayment Provisions (by January 1, 2026)

• Scrub offer letters, training agreements, relocation packages, and executive contracts for any repayment obligations tied to continued employment.
• Only rely on narrow statutory exceptions after legal review.

Bring All Job Postings into “Good Faith Estimate” Compliance (January 2026)

• Replace broad theoretical ranges with realistic hiring ranges (e.g., “$75,000–$85,000” instead of “$40,000–$120,000”).
• Train recruiters and hiring managers on SB 642’s pay scale standard.

Launch or Refresh Your Pay Equity Audit (Q1 2026)

• Under attorney–client privilege, analyze all forms of compensation (base, bonuses, equity, allowances, certain benefits) across genders.
• Correct unjustified disparities and document legitimate factors (seniority, performance, location, etc.).

Prepare and Plan Distribution of the Know Your Rights Notice (January–February)

• Download the Labor Commissioner template after January 1, 2026.
• Plan your February 1 distribution to all existing employees and integrate into new hire packets.
• Set up electronic tracking to maintain at least three years of proof of delivery.

Implement Emergency Contact Designation Process (February–March)

• Create a form or digital workflow for employees to designate an emergency contact.
• Ensure secure storage, update options, and clear procedures for use when an employee is arrested or detained at work.

Upgrade Arbitration Agreement Execution & Audit Trails (Q1 2026)

• Move to handwritten-style e-signatures (stylus/finger/mouse) backed by robust IP/timestamp/email audit logs.
• Use standalone agreements with translations and clear explanations.
• Document manager meetings and signing logistics, especially for higher-risk roles.

Build a Structured PAGA Defense Audit Program (Start Q1 2026)

• Implement quick weekly or biweekly audits of meal/rest breaks, premium pay, expense reimbursements, and wage statements.
• Document findings and corrective actions to demonstrate “reasonable steps” needed for the 15% penalty cap.

Inventory and Align AI / Automated Tools with CRD Regulations (Q1 2026)

• Identify any automated tools used in hiring, scheduling, performance management, or discipline.
• Confirm human oversight, schedule discriminatory impact audits, and document your process and vendor oversight.

Calendar All 2026 Reporting & Notice Deadlines (January Planning)

• January 1: Minimum wage and exempt salary changes; various laws take effect.
• February 1: First annual Know Your Rights notice distribution.
• March 30: Emergency contact designation deadline.
• May 16: California pay data report due.
• June 24: Federal EEO-1 report due.
• Add reminders for July 1 tip enforcement authority, local wage increases, and educational video integration.

I.   WORKPLACE KNOW YOUR RIGHTS ACT (SB 294)

Overview and Effective Dates

SB 294, the Workplace Know Your Rights Act, creates one of the most significant new notice and education obligations for California employers in recent years. It focuses on ensuring employees understand their workplace rights and constitutional protections, particularly in situations involving law enforcement and immigration-related activity.

Key Effective Dates

• January 1, 2026 – Labor Commissioner to publish the “Know Your Rights” template.
• February 1, 2026 –
  • Deadline to begin providing the standalone notice to all new hires.
  • First annual distribution to all existing employees due.
• March 30, 2026 – Deadline to provide employees an opportunity to designate an emergency contact.
• July 1, 2026 – Employee and employer educational videos released.

Annual Written Notice Requirement

Starting February 1, 2026, employers must provide a standalone “Know Your Rights” notice:

• To all current employees on February 1, 2026, and going forward annually
• To all new hires upon hire
• To union representatives where applicable

Acceptable delivery methods include:

• Email
• Text message
• Personal delivery
• Any standard communication channel regularly used with employees

The notice must be a separate, standalone document, not buried inside a handbook or general onboarding packet.

Required Notice Content

The notice must address several categories of rights:

• Workers’ Compensation Rights
  • Access to workers’ compensation benefits
  • Contact information for the Division of Workers’ Compensation
• Immigration-Related Rights
  • Employee rights during immigration inspections
  • Notice requirements under Labor Code section 90.2
  • Protections against unfair immigration-related practices
• Organizing and Collective Action Rights
  • Right to organize, form, or join a union
  • Right to engage in concerted activity for mutual aid or protection
• Constitutional Rights in the Workplace
  • Fourth Amendment: Protection against unreasonable searches and seizures
  • Fifth Amendment: Protection against self-incrimination and right to due process
  • Application of these rights when law enforcement enters the workplace

Language Requirements

• Employers must use the Labor Commissioner’s official template.
• Translations must be provided in any language normally used to communicate with employees.
• Employers should monitor the Labor Commissioner’s website for new or updated translations.

Recordkeeping Requirements

Employers must maintain proof of delivery for at least three years, such as:

• Signed acknowledgments
• Digital read receipts or delivery confirmations
• HRIS logs showing distribution
• Email and text message delivery confirmations

Best Practice: Use an electronic tracking system (HRIS/onboarding platform) that logs distribution and acknowledgments and can generate reports quickly in response to agency audits or litigation.

Educational Videos (Effective July 1, 2026)

By July 1, 2026, the Labor Commissioner will release:

• An employee-facing video explaining the rights outlined in the notice
• An employer-facing video explaining compliance obligations and constitutional protections in workplace contexts

Recommended Uses

• New hire onboarding
• Annual compliance training
• All-hands meetings and compliance refreshers
• Management/HR training on handling law enforcement and immigration interactions at work

Emergency Contact Designation (March 30, 2026)

By March 30, 2026, employers must allow employees to designate an emergency contact to be notified if they are arrested or detained at work.

Implementation steps:

• Provide a form or digital process for designation
• Allow employees to update contact information at any time
• Store information securely and confidentially
• Create clear procedures for when and how to use this information
• Train managers on these procedures and privacy expectations

Anti-Retaliation Protections

Employers may not retaliate against employees who:

• Exercise any of the rights described in the notice
• Request information about their rights
• Designate or update an emergency contact
• Engage in protected concerted activity

Potential consequences of retaliation include:

• Back pay and front pay
• Reinstatement
• Attorney’s fees and costs
• Injunctive relief and civil penalties

Ongoing Compliance Requirements

The Labor Commissioner may periodically update the notice template. Employers should:

• Check annually (at least every January) for template updates
• Subscribe to trusted employment law update services (like Zaller Law 😊).
• Integrate template changes into onboarding and annual distribution processes
• Maintain flexibility in HR systems to accommodate updates

SB 294 Implementation Action Plan
Before February 1, 2026

• Assess your HR communication systems to ensure you can deliver and track notice distribution electronically.
• Download the Labor Commissioner’s template (and translations) once posted.
• Update new hire packets to include the standalone notice.
• Build a distribution list of current employees and confirm contact info.
• Configure your HRIS/onboarding system to track delivery and acknowledgment.
• Develop an emergency contact form or digital workflow.
• Train HR and management on procedures.

February 1, 2026

• Distribute the notice to all current employees.
• Begin including the notice in all new hire packets.
• Document distribution and acknowledgments.

By March 30, 2026

• Collect emergency contact designations.
• Confirm all employees had an opportunity to designate a contact.

July 2026 and Beyond

• Download the Labor Commissioner videos and integrate them into training.
• Schedule viewings for managers and HR.

Annually

• Calendar February 1 for annual distribution.
• Calendar January to check for template updates.
• Maintain three-year record retention for proof of distribution.

II.   BAN ON STAY-OR-PAY AGREEMENTS (AB 692)

Overview and Effective Date

Effective January 1, 2026, AB 692 targets “stay-or-pay” or “Training Repayment Agreement Provisions (TRAPs)” that require employees to repay training, relocation, or other employment-related expenses if they separate before a specified period.

The law closes a loophole that had allowed some employers to approximate non-compete restrictions by imposing financial penalties on employees who leave.

Core Prohibition

AB 692 makes it unlawful for employers to require employees to repay:

• Training expenses
• Relocation costs
• Hiring-related fees or onboarding costs
• Other employment-related expenses

…based on the employee’s decision to leave employment, except in narrow statutory exceptions.

The prohibition applies whether the employee:

• Resigns or quits
• Is terminated (except for specific statutory “misconduct”)
• Signed the agreement voluntarily or as a condition of employment

Key Concept: Employers cannot restrict employee mobility by imposing financial penalties tied to leaving employment.

Historical Context

California’s long-standing ban on non-compete agreements (Business & Professions Code §16600) led some employers to experiment with stay-or-pay provisions. Courts reached mixed results, creating uncertainty.

AB 692 eliminates that uncertainty by generally banning stay-or-pay arrangements.

Narrow Exceptions

AB 692 allows limited exceptions in three areas:

• Government-Sponsored Programs
  • Government-backed loan forgiveness or tuition repayment programs tied to public service
  • Federal or state grant conditions
• Transferable Educational Credentials (subject to all five conditions below)
  Employers may require repayment for truly transferable educational credentials (degrees, professional certifications) only if:
  • The repayment agreement is a separate contract, distinct from employment agreements and onboarding paperwork.
  • Obtaining the credential is not a condition of employment or continued employment.
  • The agreement clearly discloses the full, capped cost up front, limited to actual employer costs.
  • Any required service period uses a prorated repayment schedule (e.g., 50% repayment after half the service period). No accelerated “all-or-nothing” repayment.
  • No repayment is required if the employee is terminated, except for statutorily defined “misconduct” under Unemployment Insurance Code §1256.
• State-Approved Apprenticeship Programs
  • Programs formally approved under California apprenticeship standards.

These exceptions are narrowly drawn; most employer training, relocation, or signing bonus arrangements will not qualify.

Penalties and Litigation Risk

Violations of AB 692 can result in:

• Statutory damages of at least $5,000 per affected employee
• Attorney’s fees and costs
• Injunctive relief and actual damages
• Potential class actions and PAGA representative claims

Even a small number of improper agreements can create substantial exposure.

What Remains Permissible

AB 692 does not prohibit employers from:

• Offering retention bonuses tied to future service (without repayment of training costs)
• Providing sign-on bonuses with clawback provisions if an employee leaves within a short period (e.g., first 90 days), so long as structured appropriately
• Requiring return of company property
• Recouping advances on future wages in compliant ways
• Using targeted non-solicitation and trade secret/confidentiality protections where lawful

The line is between:

• Future incentives for staying (generally allowed), vs.
• Penalties for leaving based on past training or expenses (generally prohibited).

Immediate Employer Action Steps
Before January 1, 2026

• Comprehensive Agreement Audit
• • Review offer letters, executive contracts, training agreements, relocation packages, tuition assistance programs, and onboarding documents.
• Remove Prohibited Language
• • Eliminate stay-or-pay provisions and training/relocation repayment clauses not clearly within an exception.
• Evaluate Potential Exceptions
• • For any educational/credential programs, verify that all conditions are met.
  • Document compliance; consult counsel before relying on exceptions.
• Update Policies and Templates
• • Revise standard offer letters and agreements.
  • Ensure training, relocation, and tuition policies do not condition employment on repayment.
• Train HR and Management
• • Educate HR, recruiters, and leadership about the new restrictions and permissible alternatives.
• Design Lawful Retention Strategies
• • Consider retention bonuses, clear career paths, competitive compensation, and culture investments.

Existing Agreements

AB 692 is not retroactive. However:

• Agreements signed before January 1, 2026 become unenforceable if they continue in effect or are renewed after that date.
• Courts may refuse to enforce pre-2026 agreements based on public policy.

Best Practice: Proactively release current employees from existing stay-or-pay obligations and discontinue their use going forward.

III.   ENHANCED CAL-WARN REQUIREMENTS (SB 617)

Overview and Effective Date

SB 617, effective January 1, 2026, expands the content and coordination requirements of California’s Worker Adjustment and Retraining Notification Act (Cal-WARN), which mandates 60-days’ advance notice of certain mass layoffs, plant closures, and relocations.

Cal-WARN Coverage Refresher

Cal-WARN applies to employers that:

• Operate a covered establishment, and
• Employ or have employed 75 or more full- and part-time employees during the preceding 12 months.

Triggering events include:

• Plant closures affecting any number of employees
• Layoffs of 50 or more employees within a 30-day period (regardless of percentage)
• Relocations of at least 100 miles affecting any number of employees

New Required Disclosures Under SB 617

In addition to existing Cal-WARN content, notices must now specific language, including:

• Workforce Development Coordination Statement
  • Employers must state whether they will coordinate transition services through:
    • The local workforce development board (LWDB),
    • Another entity, or
    • No entity.
• LWDB Contact Information
  • Email address and telephone number for the relevant LWDB, regardless of whether the employer formally coordinates services.
• Mandatory Standardized Statement
  • A specific statement about LWDBs and America’s Job Center of California locations, as required by statute.
• CalFresh Program Information
  • Description of CalFresh, including the helpline and website, so employees know about food assistance resources.
• Employer Contact Information
  • A functioning employer email address and phone number for follow-up questions.

Critical 30-Day Coordination Deadline

If you choose to coordinate services with an LWDB or another entity, those services must be arranged within 30 days from the date of Cal-WARN notice.

Practical steps:

• Identify the LWDB early in the planning process.
• Initiate contact as soon as possible.
• Schedule rapid response sessions well before the layoff date.
• Document communications and timing.

Notice Recipients and Timing

Cal-WARN notices must go to:

• Affected employees
• Employee representatives (unions)
• The Employment Development Department (EDD)
• The relevant LWDB
• Chief elected officials of city and county governments where the job loss occurs

Timing remains: 60 calendar days before the mass layoff, relocation, or termination.

IV.   PAY TRANSPARENCY EXPANSION (SB 642)

Overview and Effective Date

SB 642, effective January 1, 2026, significantly expands California’s pay transparency and equal pay rules. It changes how employers set and disclose pay ranges and how courts and agencies evaluate equal pay claims.

“Good Faith Estimate” Pay Scale

Previously, employers could post broad salary ranges for positions, even if they did not reflect actual hiring expectations.

Under SB 642:

• “Pay scale” means a good faith estimate of the salary or hourly wage range that the employer reasonably expects to pay for the position.
• Ranges must be realistic and tied to actual hiring decisions.

Example

• Non-compliant: “$40,000–$120,000” for a single mid-level role.
• Compliant: “$75,000–$85,000” if that reflects the actual expected hiring range.

SB 642 applies to employers with 15 or more employees and covers all job postings, including postings by third-party recruiters.

Expanded Definition of “Wages” Under Equal Pay Act

For Equal Pay Act claims (Labor Code §1197.5), “wages” now explicitly includes:

• Base salary or hourly wages
• Bonuses (sign-on, retention, performance, etc.)
• Equity compensation and stock options
• Certain benefits (health, retirement)
• Travel reimbursements and allowances (mileage, gas, car allowance)
• Cleaning, meal, and housing allowances
• Per diems and similar forms of compensation

This expanded definition applies only to Equal Pay Act analysis, not to every Labor Code provision.

Gender-Inclusive Language

SB 642 extends protections from employees of the “opposite sex” to employees of “another sex,” explicitly covering:

• Non-binary gender identities
• Gender identity and gender expression

This aligns Equal Pay Act protections with California’s broader anti-discrimination framework.

Extended Statute of Limitations & Recovery Period

SB 642 extends exposure:

• Employees have three years from the last date of the violation to bring a claim.
• Because each paycheck can be a separate violation, the statute may effectively run from the last unequal paycheck.
• Employees may recover up to six years of wage disparity.

This combination significantly increases potential damages, especially when combined with the expanded definition of wages.

Recordkeeping Requirements

Employers must retain:

• Job title records
• Wage rate history

…for the duration of employment plus three years after separation. Records must be organized and accessible for potential Labor Commissioner inspections.

Penalties for Pay Scale Posting Violations

Penalties for pay scale posting violations may range from $100 to $10,000 per violation, with each posting potentially treated separately. First-time violators can avoid penalties if they correct the posting upon notice, but the expectation is that employers will quickly become compliant.

Existing Obligations (Labor Code §432.3 & §232)

SB 642 builds on existing rules:

• Employers may not seek or rely on an applicant’s salary history in setting pay.
• Employers must provide the pay scale upon request to job applicants and current employees.
• Employers may not prohibit employees from discussing their wages or working conditions, or require them to sign agreements restricting those discussions.

SB 642 Compliance Action Plan
Before January 1, 2026

• Audit Job Postings
  • Update pay ranges to reflect good faith estimates.
  • Narrow overly broad ranges; align with your actual compensation practices.
• Conduct a Comprehensive Pay Equity Audit
  • Under attorney–client privilege, analyze all compensation elements across genders.
  • Identify disparities and document legitimate, non-discriminatory reasons for any differences.
• Develop a Written Compensation Philosophy
  • Clarify how you set pay (experience, market data, performance, etc.).
  • Train decision-makers on consistent application.
• Improve Recordkeeping Systems
  • Ensure your HRIS can track job titles and wage history over time.
  • Implement retention policies for employment plus three years.
• Update Hiring Procedures
  • Reinforce bans on salary history questions.
  • Standardize responses and disclosures of pay scales on request.
• Train Managers and Recruiters
  • Educate those involved in hiring and pay decisions on the new standards and risks.

Litigation Risk Management

To manage the heightened risk under SB 642:

• Conduct periodic pay equity audits (not one-time exercises).
• Remediate unjustified disparities proactively.
• Keep privileged documentation of the methodology and outcomes.
• Maintain clear, contemporaneous records of compensation decisions.

V.   2026 COMPLIANCE CALENDAR & CRITICAL DEADLINES

January 1, 2026
Multiple laws take effect:

• State Minimum Wage Increase
  • New rate: $16.90/hour for all employer sizes.
  • Update payroll, wage statements, job postings, and offer letters.
• Exempt Employee Salary Threshold
  • New minimum: $70,304 annually (approx. $5,858.67/month; $2,704.00 biweekly).
  • Covered fast-food employers: $83,200 minimum for exempt employees.
  • Audit all exempt employees and adjust or reclassify as non-exempt.
• Stay-or-Pay Ban (AB 692)
  • Stay-or-pay and most training repayment provisions become unenforceable for go-forward use.
  • Scrub templates and existing agreements.
• Pay Transparency & Equal Pay Expansion (SB 642)
  • Good faith pay scale requirement for job postings.
  • Expanded wage definition for Equal Pay Act purposes.
• Know Your Rights Template (SB 294)
  • Labor Commissioner to publish the required notice template and translations.
• Enhanced Cal-WARN Requirements (SB 617)
  • Updated notice content and coordination requirements now in effect.
• Other Changes (e.g., recordkeeping, pay data penalties)
  • Certain statutes convert optional penalties to mandatory in cases of non-compliance.

February 1, 2026
SB 294: First Annual Know Your Rights Notice Distribution

• Distribute the standalone notice to all current employees.
• Include in all new hire packets going forward.
• Provide translated versions as needed.
• Maintain proof of delivery for at least three years.

March 30, 2026
SB 294: Emergency Contact Designation Deadline

• Ensure all employees have had an opportunity to designate an emergency contact.
• Securely retain and manage this information.

May 16, 2026
California Pay Data Reporting

• Employers with 100+ employees must submit pay data reports to the Civil Rights Department.
• Use an October–December 2025 “snapshot” period.
• Start data collection and validation early to avoid system bottlenecks near the deadline.
• Penalties for non-compliance are now mandatory, with some cure options for first-time offenders.

June 24, 2026
Federal EEO-1 Reporting

• The EEO-1 report is due June 24,  2026 (exact date TBD).
• Coordinate data gathering with California pay data reporting to reduce duplication.

July 1, 2026

• Labor Commissioner Tip Enforcement Authority (SB 648)
  • Labor Commissioner may directly investigate tip violations, issue citations, and pursue recovery of unpaid tips.
  • 4-year retention of detailed tip records strongly recommended.
• SB 294 Educational Videos
  • Employee and employer videos released; integrate into training.
• Local Minimum Wage Increases
  • Many jurisdictions throughout California (e.g., Los Angeles-area cities, West Hollywood, ect…) implement new local rates on July 1.
  • Verify and implement location-specific updates.
• Food Allergen Requirements (SB 68) (for restaurants)
  • Menu disclosures of the nine major allergens required.

Quarterly Recommended Audits (All Year)
Week 1 of Each Quarter – Payroll Compliance

• Review meal/rest break timing and premiums for the prior quarter.
• Check expense reimbursement practices (e.g., cell phone, mileage).
• Audit wage statements for required items.
• Document findings and corrections.

Week 2 – Training & Policy Updates

• Identify new laws/regulations and schedule training.
• Document attendance and completion.

Week 4 – HR Process Review

• Audit new hire packets for completeness and signatures.
• Spot-check arbitration agreement execution and audit trails.
• Review recent terminations and leave administration.

Annual Recurring Deadlines

• January 1: Minimum wage/exempt threshold updates; handbook updates; local wage checks.
• February 1: Annual Know Your Rights notice.
• March 30: Emergency contact process verification.
• May 16: California pay data report due.

VI.   OTHER CRITICAL CONSIDERATIONS FOR 2026

Paid Family Leave Expansion (SB 590 – Future)

Effective July 1, 2028, SB 590 expands Paid Family Leave to include a broader “designated person” category (chosen family).

Action Items for 2026

• Begin planning leave policies and HRIS changes now, especially for larger employers with complex leave programs.
• Align definitions across CFRA, company policies, and future PFL rules.

Sexual Harassment Claims Revival (SB 250)

From January 1, 2026 through December 31, 2027, SB 250 creates a revival window for certain previously time-barred sexual harassment claims where evidence was concealed or NDAs were used as part of a “cover-up.”

Risk Management

• Ensure compliant harassment prevention training.
• Preserve investigation files and extend retention periods.
• Review NDA practices for compliance and risk.

AI in Hiring & Workforce Management (CRD Regulations)

Regulations effective October 1, 2025 already govern the use of automated decision tools in hiring and employment decisions.

Key requirements:

• Human involvement in final decisions.
• Regular audits for disparate impact.
• Employer retains liability for discriminatory results, even when using vendor tools.

If You Use AI Tools

• Inventory all tools used in hiring, scheduling, performance, and discipline.
• Demand transparency and bias testing from vendors.
• Maintain human review at key decision points.
• Document audits and corrective actions.

Time Rounding – Anticipated Developments

The California Supreme Court is expected to further limit or prohibit time rounding (beyond prior rulings on meal breaks).

Prepare Now

• Configure systems to track time to the minute (or finer).
• If tracking in seconds, consider rounding up to the next minute.
• Audit current rounding practices and transition away from rounding where possible.

Headless PAGA Claims – Pending Supreme Court Review

The Court is evaluating whether plaintiffs can dismiss their individual claims (potentially subject to arbitration) and proceed solely with PAGA representative claims.

Regardless of the outcome:

• Arbitration agreements still help eliminate class actions and may shorten the relevant PAGA period.
• Close monitoring is required, but abandoning arbitration entirely is premature.

Arbitration Agreement Compliance

Arbitration remains a powerful tool, but enforcement is increasingly technical.

Critical Elements

• Robust Audit Trail
  • IP address, timestamps, device, email, and completion records.
• Signature Style
  • Prefer stylus/finger/mouse handwritten-style signatures, allowing comparison to IDs.
• Standalone Agreements
  • Separate from other onboarding documents; clear, non-bundled consent.
• Language Access
  • Provide translations (e.g., Spanish) where appropriate; clearly note availability.
• Manager Documentation
  • For higher-risk hires, document in-person or video meetings where agreements are explained.

PAGA Compliance & Defense

Despite June 2024 reforms, PAGA filings remain high. To qualify for the 15% penalty cap (instead of 100%), employers must show good-faith, reasonable efforts to comply.

Core Elements

• Periodic payroll and timekeeping audits (weekly/biweekly + quarterly).
• Compliant written policies on meal/rest breaks, overtime, expense reimbursement, and wage statements.
• Supervisor training and enforcement of those policies.
• Clear documentation of investigations, corrections, and discipline.

Sample 5-Step Weekly/Biweekly Audit (30 minutes)

• Review meal/rest break timing for a sample of employees.
• Confirm premium pay for missed or late breaks.
• Investigate repeated issues and document causes.
• Spot-check expense reimbursements.
• Review wage statements for accuracy and complete required information.

Employers should examine the use of AI and other software to help with ongoing compliance.  Zaller Law Group has worked with Scaled Comp to develop software to aid in wage and hour compliance and limit PAGA penalties specifically for California employers.  Contact us for additional information. 

Minimum Wage & Exempt Thresholds

• Statewide minimum wage: $16.90/hour effective January 1, 2026.
• Exempt threshold: $70,304/year (2x minimum wage based on a 40-hour week); $83,200 for covered fast-food managers.

Compliance is binary:

• If salary < threshold, employee cannot be exempt, regardless of duties.

Tip Compliance – Enhanced Enforcement

Beginning July 1, 2026, the Labor Commissioner has explicit authority to enforce tip violations.

Key Requirements

• Tips remain 100% employee property.
• Managers/owners may not participate in tip pools (with very narrow exceptions).
• Credit card processing fees cannot be deducted from tips.
• Maintain at least 4 years of detailed tip records.

Audit Your Systems

• Ensure POS systems accurately capture and allocate tips.
• Confirm payroll processes distributions correctly.
• Document written tip pooling/sharing policies.

New Hire Packet Complexity

California new hire packets now routinely include 18–20+ documents, including:

• Standalone arbitration agreement
• Know Your Rights Act notice
• Wage/Notice to Employee (Labor Code §2810.5)
• Emergency contact designation
• At-will acknowledgment
• Handbook acknowledgment
• Meal period waivers (where applicable)
• Expense reimbursement policy
• Background check authorizations
• I-9, W-4, direct deposit forms
• Pay scale disclosure and salary history notice

Best Practices

• Standardize packets and workflows.
• Use digital onboarding with strong audit trails.
• Clearly label and separate critical documents.
• Train hiring managers thoroughly.

VII.   CONCLUSION & STRATEGIC NEXT STEPS

The 2026 California employment law landscape is not simply a checklist of new statutes—it is a redefinition of how regulators expect employers to design and document their systems. Notices, job postings, timekeeping, compensation, AI tools, and arbitration agreements are all evaluated together when agencies and plaintiffs’ lawyers assess your “compliance culture.”

The key strategic questions for employers are:

• Do you have systems that make compliance the default, rather than one-off fixes?
• Can you quickly demonstrate good-faith efforts if you receive a PAGA letter?
• Are you using technology and data to spot and fix issues early, instead of finding them for the first time in litigation?

At Zaller Law Group, we are focused on helping California employers answer “yes” to each of these questions.

In addition to advising on statutes, regulations, and litigation strategy, we are investing in AI-driven compliance tools and structured audit processes that:

• Help employers review time records and identify wage and hour issues before they become PAGA exposure.
• Generate clear, repeatable documentation of weekly, quarterly, and annual compliance audits.
• Support a strong record of “reasonable efforts” to qualify for reduced PAGA penalties and defend against Equal Pay and wage-hour claims.

By combining deep California employment law experience with practical technology solutions, we aim to help employers:

• Reduce litigation and enforcement risk
• Protect margins in a high-cost environment
• Build workplaces that attract and retain talent

California will remain the most challenging employment jurisdiction in the country. But employers with:

• Well-designed systems and checklists
• Consistent training and documentation
• Smart use of technology and data
• A trusted legal partner

can move from constant firefighting to a position of control—turning compliance into a strategic asset rather than a constant threat.

Prepared by: Zaller Law Group, PC
Date: December 2025

This white paper is provided for informational purposes only and does not constitute legal advice. Employers should consult with qualified employment counsel regarding specific situations and compliance questions.

For assistance with 2026 implementation, PAGA defense strategies, arbitration program design, AI and timekeeping compliance reviews, or customized training for your team, contact Zaller Law Group.

© 2025 Zaller Law Group. All rights reserved.