California Employers Brace for New Employment Laws in 2026
As the holidays approach, California employers should start preparing for a slew of new employment laws that become effective on January 1, 2026 or shortly thereafter. These include:
AB 692 – Most Stay-or-Pay Agreements Are Now Illegal
As we blogged about here, after January 1, 2026, most stay-or-pay agreements signed will be illegal in California. A “stay-or-pay” agreement requires an employee to pay the employer, a training provider, or a debt collector a fee, penalty, or other sum if the employee terminates their employment before completing some pre-set minimum term of employment. One classic example of a stay-or-pay agreement is an agreement utilized by an employer that requires an employee to repay training or education costs incurred by the employer if the employee leaves within the first 6 months of employment.
AB 858 – Re-Hiring of Employees Terminated Due to COVID
AB 858 extends until January 1, 2027 the requirement for California employers to recall and re-hire eligible employees who were laid-off due to the COVID pandemic. To be eligible for recall and re-hiring, the employee must have worked for the employer for at least 6 months prior to January 1, 2020.
SB 464 – New Pay Data Reporting Requirements
Under existing law, California employers with 100 or more employees are required to file a “Pay Data Report” (“PDR”) with the California Civil Rights Department (“CRD”) in May of each year. As a result of SB 464, any demographic data generated during the process of generating an employer’s PDR must be kept separate from the employees’ personnel files to prevent the risk of misuse of that data and, in addition, to protect employees’ privacy. In addition, SB 464 now obligates a Court to impose penalties against any employer who fails to provide a required PRD. And, finally, starting in 2027, SB 464 will increase the reporting job categories from 11 to 23 in order to allow for finer analysis of pay data.
SB 294 – New Employee Notices; New Employee Right to Designate Emergency Contact
SB 294 requires California employers to provide a “standalone” written notice to all employees by February 1, 2026 (and on an annual basis thereafter) explaining certain enumerated constitutional and employment law rights of employees. Employers must distribute this notice in the language normally used to communicate with employees and ensure it is received by (or accessible to) all employees within 1 business day of transmission. Under SB 294, the California Labor Commissioner must develop and post a model notice template on or before January 1, 2026 that employers can use to comply with this new law. In addition, as a result of SB 294, by March 30, 2026, California employers must offer employees the option to designate an emergency contact and to specify whether that individual should be notified if the employee is arrested or detained by immigration officials or other law enforcement offers.
SB 590 – Expansion of Paid Family Leave to Care for “Designated Persons”
Existing California law provides eligible employees with up to 8 weeks of partial wage replacement when caring for ill family members, bonding with a new child, or handling a military-related exigency. As a result of SB 590, starting on July 1, 2028, these benefits are expanded to allow an employee to recover benefits when caring for a “designated person” as well. SB 590 defines a “designated person” as an individual related to the employee “by blood” or with a relationship to the employee that is the “equivalent of a family relationship.”
SB 642 – Pay Equity Laws Broadened to Include Non-Binary Employees
Under existing California law, employers are prohibited from discriminating against employees of the opposite sex by paying them less for substantially similar work. SB 642 replaces the words “opposite sex” with the words “another sex” to make the law protect nonbinary individuals. SB 642 also extends the statute of limitations for pay equity claims from two years to three years. In addition, employees who are successful on a pay equity claim can now seek back pay for the entire period of time in which the violation occurred, up to a maximum of 6 years.
SB 648 – New Protections for Tipped Employees
Existing California law prohibits employers (and their individual agents) from taking, collecting, or withholding employee gratuities. SB 648 expands these protections by granting the California Labor Commissioner new enforcement powers, including the ability to investigate tip theft, issue citations for violations, and file civil actions to recover withheld gratuities. In addition, as a result of SB 648, if a customer pays a tip by a credit card, the full tip amount must be paid to the tipped employee without deduction for any credit card processing or other fees. Finally, SB 648 requires employers to (a) pay to the tipped employee all tips earned no later than the next regular pay date (b) maintain records of all customer tips and make them available to California Labor Commissioner for inspection.
AB 1514 – New Exemptions from “ABC Test” for Manicurists
As we previously blogged about here, the “ABC Test” generally applies in California to determine whether a worker can quality as an independent contractor. Under existing law, certain occupations and industries are exempt from having to satisfy the “ABC Test” and are, instead, required to satisfy the more lenient Borello test, as we blogged about here. AB 1514 extends these exemptions to include licensed manicurists until January 1, 2029 and commercial fishers until January 1, 2031 provided they meet certain conditions specified in the new law.
SB 261 – Enhanced Enforcement of Wage Judgments
Under existing law, the California Labor Commissioner adjudicates employee wage claims and issues legally enforceable orders and judgments when an employer fails to pay earned wages to an employee. As a result of SB 261, effective January 1, 2026, an employer who fails to pay a Labor Commissioner judgment for 180 days or more will be liable for a civil penalty of up to 3-times the amount of the judgment. This civil penalty is owed in addition to the amount of the unpaid judgment, plus interest. In addition, in any action to enforce a wage judgment, SB 261 requires the Court to award reasonable attorneys’ fees and costs to the prevailing party who initiated the action (either the employee, the Labor Commissioner, or a public prosecutor). Finally, SB 261 extends joint and several liability for these penalties to successor employers, thus ensuring that business reorganizations or sales cannot be used to avoid responsibility for unpaid wage judgments.
If you or your company have any questions about these new laws, or how to implement them in the New Year, feel free to contact us. Happy Holidays!
