California Expands Pay Transparency Requirements

California continues to lead the way in pay transparency legislation with the recent enactment of Senate Bill 642 (SB 642). Effective Jan. 1, 2026, SB 642 amends California's pay transparency requirements, mandating that employers include anticipated equity compensation, such as stocks and stock options, when publishing a job opening. While this change further broadens the scope of information employers must provide to prospective employees, as of right now, it does not expressly change how "wages" are defined in other disputes under the California Labor Code.

What Does SB 642 Require?

Previously, California's pay transparency law required employers to disclose the pay scale for positions in job postings, but this did not explicitly include non-cash compensation such as stocks or stock options. SB 642 now expands the definition of "wages" and "wage rates" to include "all forms of pay, including but not limited to, salary, overtime pay, bonuses, stock, stock options, profit sharing and bonus plans, life insurance, vacation and holiday pay, cleaning and gasoline allowances, hotel accommodations, reimbursement for travel expenses, and benefits."

Historical Context: Treatment of Stock Options Owed to Employees Under California Law

Historically, and as California Labor Code section 200 currently codifies, California law does not explicitly include stock and stock options as "wages" owed to an employee. Instead, California Labor Code section 200 defines wages as "all amounts for labor performed by employees of every description, whether the amount is fixed or ascertained by the standard of time, task, piece, commission basis, or other method of calculation." Because of this definition, California cases interpreting section 200 have regularly limited the definition of "wages" to exclude stock options.

A Change in Disclosure, Not in Wage Entitlement

Importantly, SB 642 does not amend the California Labor Code's definition of "wages," nor does it grant employees any new rights to claim stock options as "wages owed" under wage-and-hour laws. The new law is strictly a pay transparency requirement and does not redefine what constitutes wages for purposes of wage claims.

Potential for Litigation—What Might Employers Expect?

Although SB 642 does not alter the underlying definition of "wages" owed under the California Labor Code, employers may see novel arguments from plaintiffs seeking to include stock options in wage claims, citing SB 642 as evidence that stock options should be treated as "wages owed." However, employers might argue that legislative intent and statutory interpretation may support the position that SB 642 is a transparency measure, not a substantive change to wage entitlement, given that the assembly notes for SB 642 explicitly states, "nothing in this definition may be construed to define 'wage' or 'wage rates' for purposes of any other section of this code." Because SB 642 does not go into effect until Jan. 1, 2026, and no court has had the opportunity to opine on the statute, the issue is still in flux. Therefore, employers should continue to monitor legislation updates and consider consulting with counsel to enhance compliance with SB 642.

Key Takeaways for Employers

• Update Job Postings: Employers may wish to ensure all job postings include anticipated stocks and stock options as part of the pay range or scale and consult with counsel to enhance compliance.
• Monitor Legal Developments: Continue to monitor California's proposed and enacted legislation for any updates.