California's 2024-2025 Legislative Session Closes With A Host Of New Employment Laws For 2026

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The 2024–2025 California legislative session came to an official close at midnight on October 13, 2025, when Governor Newsom's deadline to sign or veto bills passed by the Legislature expired. Of the approximately 917 bills passed by the Legislature, the Governor signed 794 bills into law and vetoed 123 bills. The bills signed into law include several new employment-related laws for California employers.

Below is a summary of some of the major employment-related legislation signed into law this year. Most of these bills become effective on January 1, 2026. However, a few became effective immediately or make changes the Legislature has identified as declaring "existing law."

Given the volume of employment litigation in California, we encourage all employers to carefully review and update their policies and practices to make sure their policies and practices align with the latest legislation.

I. EMPLOYMENT CONTRACTS

AB 692: Prohibition of "Stay or Pay" Provisions in Employment Contracts

California is well known for its prohibition against noncompete agreements. AB 692 builds upon these restrictions by targeting employment contracts that contain so-called "stay or pay" provisions. A "stay or pay" provision is a contractual provision that requires a worker to pay their employer a penalty, fee, or acquired debt if they terminate their employment before completing a minimum term of employment. With very limited exceptions, AB 692 outlaws most "stay or pay" provisions in employment contracts executed on or after January 1, 2026. For a complete breakdown of AB 692 and its impacts, please see our full write up in an earlier blog post than you can access here.

II. WAGE AND HOUR

1. SB 400: Labor Code Protections for IRA "Correction" Payments

The Inflation Reduction Act of 2022 ("IRA") provides various tax credits and incentives for green and clean energy projects. As this blog has previously discussed, many of the IRA's tax credits are conditioned on employers complying with prevailing wage and apprenticeship requirements derived from the federal Davis-Bacon Act. But unlike traditional Davis-Bacon Act projects, an IRA-eligible project is not required to comply with the IRA's prevailing wage and apprenticeship requirements unless the taxpayer actually claims IRA tax credits. So long as a taxpayer does not claim the tax credits in its tax return, a taxpayer is free to not require the payment of prevailing wages to workers employed on an IRA-eligible project. Consequently, when a taxpayer discovers that it or one of its contractors failed to pay the applicable "prevailing wage" to workers employed on an IRA-eligible project, the IRA regulations allow the taxpayer to either: (a) forego their right to claim the IRA tax credits or (b) preserve the right to claim the tax credits by paying penalties to the IRS and making a "correction payment" to the "underpaid" equal to the amount of the unpaid prevailing wages plus interest.

SB 400 was enacted to ensure that "correction payments" under the IRA do not automatically trigger liability for wage and hour claims under the California Labor Code on the theory that making a correction payment is, in itself, proof of unpaid wages, untimely wage payments, or inaccurate wage statements. To that end, SB 400 adds Sections 280 and 281 to the California Labor Code to state that an "elective retroactive wage payment" under the IRA does not, on its own, give rise to a cause of action under PAGA or constitute a violation of Sections 200 through 244, Sections 500 to 558.1, or Sections 1171 to 1207 of the California Labor Code.

To be clear, SB 400 does not mean that an IRA correction payment can never trigger wage and hour liability under the California Labor Code. For example, an IRA correction payment could still trigger Labor Code violations if the correction payment impacts the regular rate used to calculate overtime in a previous pay period and the employer does not make those payments necessary to cover the additional overtime owed for the prior pay periods. Additionally, if a project is also subject to prevailing wage requirements under the California Public Works Law, a correction payment could evidence a failure to timely pay prevailing wages in compliance with the California Public Works Law. But, SB 400 does ensure that an IRA correction payment will not, standing alone, give rise to claims under the Labor Code.

SB 400 was enacted as an urgency statute. Meaning it became effective immediately upon the Governor signing the bill into law on October 1, 2025.

2. SB 648: Labor Commissioner Authority to Issue Citations for Tip Theft

Section 351 of the California Labor Code protects an employee's right to their tips and gratuities. Section 351 declares tips and gratuities to be the "sole" property of the employee to whom the patron paid, gave, or left the tips or gratuities and prevents employers from collecting, taking, or receiving any portion of that tip or gratuity. The statute also prohibits California employers from counting an employee's tips and gratuities as a "credit" against their wages or deducting the cost of credit card processing fees from the amount of a tip or gratuity paid by credit card.

The California Labor Commissioner has long had the authority to investigate claimed violations of Section 351 and prosecute violations through a civil action. However, California law does not expressly authorize the Labor Commissioner to enforce Section 351 through the issuance of citations, as the Labor Commissioner can with respect to other wage and hour violations.

SB 648 amends Section 351 to expressly authorize the Labor Commissioner to enforce Section 351 through a civil action or through the issuance of a citation in accordance with procedures in Labor Code Section 1197.1. This becomes effective on January 1, 2026.

3. SB 809: Independent Contractors and Employee Vehicle Business Expenses

California's "ABC" test sets the standard for most employers to determine whether a worker may be properly classified as an independent contractor. Until January 1, 2025, Labor Code Section 2781(h) exempted from the ABC test subcontractors providing construction trucking services for which a contractor's license is not required. As that exemption expired, the Legislature enacted SB 809 to provide some construction contractors with a pathway to avoid penalties for previously misclassifying drivers as independent contractors. Accordingly, SB 809 adds Sections 2750.9, 2775.5, and 2802.2 to the California Labor Code effective January 1, 2026.

These new provisions will accomplish the following:

• Section 2750.9 of California Labor Code will establish a "Construction Trucking Employer Amnesty Program" (the "Amnesty Program"). The Amnesty Program will allow eligible construction contractors to avoid civil and statutory penalties associated with the misclassification of drivers by entering into a settlement agreement with the Labor Commissioner, or an agreement with a union or a city attorney that is approved by the Labor Commissioner, before January 1, 2029. Any such settlement agreement must, among other items, require the contractor applying for relief to: (1) reclassify misclassified drivers; (2) retain the reclassified drivers as employees; (3) pay any necessary restitution and unpaid taxes for the period of misclassification; (4) secure adequate workers' compensation coverage for the reclassified drivers; and (5) properly classify future drivers as employees when they are hired to perform duties similar to the "reclassified" positions. The Labor Commissioner will establish an application process for the Amnesty Program. The Amnesty Program will not be available for construction contractors who, at the time of their application for relief, have either: (a) a pending civil lawsuit against them alleging or involving a misclassification of a construction drivers that was filed on or before December 31, 2025, or (b) a final penalty assessed by the California Economic Development Department pursuant to Section 1128 of the Unemployment Insurance Code for failure to file returns or reports for employees.
• Section 2775.5 of the California Labor Code will expressly declare that a worker's ownership of a vehicle they use to provide labor or services does make that worker an independent contractor unless their relationship with the hiring entity fully satisfies the ABC Test. Section 2775.5 will also expressly declare that if an employee owns a vehicle that is used to provide labor or services to their employer, then the employer must reimburse the employee for the costs associated with using the vehicle in accordance with Labor Code Section 2802 and new Labor Code Section 2802.2. Importantly, SB 809 clarifies that these provisions are "declarative of existing law," meaning that they identify existing legal obligations, not new obligations that would become effective January 1, 2026.
• Section 2802.2 will make clear that an employer's duty under Labor Code Section 2802 to reimburse employees for "necessary" work-related expenses applies to the use of a vehicle "owned by an employee and used by that employee in the discharge of their duties." New Section 2802.2 elaborates on this obligation in the construction trucking industry by clarifying that a commercial motor vehicle driver who owns a vehicle they use in the discharge of their duties as an employee is entitled to reimbursement for "the use, upkeep, and depreciation of [the] truck, tractor, trailer, or other commercial vehicle," regardless of whether the vehicle is owned by the driver as an individual or by the driver through a corporate entity. Reimbursement can be provided as a flat-rate reimbursement that is no less than the actual costs incurred by the employee or a per-mile reimbursement that is no less than IRS rate for the time that services were provided. As noted above, SB 809 clarifies these reimbursement obligations are "declarative of existing law"—such that they are currently in effect without delay.

4. AB 751: Extension of Rest Period Exemption at Petroleum Facilities

California law requires most employers to "authorize and permit" employees who work 3.5 hours or more in a day to take an uninterrupted rest period of at least 10 minutes for every four hours worked, or "major fraction" thereof. Ordinarily, an employee must be completely relieved of all duties and be free to leave the employer's premises during this rest period.

In 2020, the Legislature enacted California Labor Code Section 226.75 to partially exempt employees in a "safety-sensitive position" at a "petroleum facility" from the duty-free component of the rest periods requirements. In particular, Section 226.75 states that the requirement to relieve employees of all duties during rest periods shall not apply to certain workers at petroleum facilities to the extent the employee is required to "carry and monitor a communication device ... and to respond to emergencies" or "remain on employer premises to monitor the premises and respond to emergencies." This exemption was to expire Jan. 1, 2026.

AB 751 indefinitely extends Section 226.75's rest period exemptions. The bill also clarifies that the exemption applies to employees who hold safety-sensitive positions at a refinery that produces fuel through the processing of alternative feedstock.

5. SB 693: Extension of CBA Meal Period Exemptions to Water Corporations

SB 693 expands the categories of employees exempt from the state's meal period requirements if they are covered by a collective bargaining agreement. Under Labor Code Section 512, most California employers must provide employees with an unpaid, uninterrupted, and duty-free meal period of at least 30 minutes in length before the start of their sixth hour of work. A second meal period must be provided before the start of the employee's eleventh hour of work if the employee works more than ten hours in a day.

Section 512(e) exempts certain categories of employees from the meal period requirements if they work in specified industries and are covered by a valid collective bargaining agreement that expressly provides for: (a) the wages, hours of work, and working conditions of employees; (b) meal periods for covered employees; (c) final and binding arbitration of disputes concerning the meal period provisions; (d) premium wage rates for all overtime hours worked; and (e) hourly rates of pay that are at least 30 percent higher than California's minimum wage rate. SB 693 adds employees of a "water corporation" to the categories of employees that can qualify for this exemption. The statute defines a "water corporation" as "every corporation or person owning, controlling, operating, or managing any water system for compensation within [the State of California]."

III. PAY EQUITY AND PAY DISCLOSURE

1. SB 642: The Pay Equity Enforcement Act

SB 642, unofficially labeled the "Pay Equity Enforcement Act," amends California's Equal Pay Act and related pay disclosure provisions of the California Labor Code.

The California Equal Pay Act, codified at California Labor Code Section 1197.5, prohibits pay discrimination on the basis of sex, race, and ethnicity. More specifically, the Act makes it unlawful to pay employees at wage rates that are less than the rates paid to employees of another sex, race, or ethnicity for "substantially similar work" unless justified by a seniority system, a merit system, a system that measures earnings by quantity or quality of production, or another "bona fide factor" other than sex, race, or ethnicity. In furtherance of these prohibitions, Section 432.3 of the California Labor Code requires, among other things, employers to disclose the pay scale for a position to an applicant upon request. If an employer has 15 or more employees, Section 432.3 also requires the employer to include a position's pay scale in any job posting (including positions the employer posts through third parties).

SB 642 amends these laws in four significant ways.

• First, SB 642 amends the definition of "pay scale" under Labor Code Section 432.3. The statute currently defines a "pay scale" as "the salary or hourly wage range that the employer reasonably expects to pay for the position." SB 642 updates this definition to state that the "pay scale" is "a good faith estimate of the salary or hourly wage range that the employer reasonably expects to pay for the position upon hire." Legislative committee reports relating to SB 642's drafting indicate that this language was added to place "reasonable limits" on the range of a pay scale and to prevent employers from posting overly broad pay scales that make the pay disclosure "meaningless" to applicants. As an example of a "meaningless" job scale, the Senate Committee on Labor, Public Employment, and Retirement identified a job posting that listed an annual salary range of $65,000 to $400,000. Therefore, employers should be sure that the salary ranges they provide for job postings are narrow enough to provide applicants with a reasonable estimate of the range of salaries they actually expect to pay upon hiring an applicant.
• Second, SB 642 extends and clarifies the statute of limitations for pay equity claims under the California Equal Pay Act. Existing law allows employees to file a lawsuit within two years after "the cause of action occurs." SB 642 extends the time for bringing a lawsuit to three years after "the last date the cause of action" occurs. SB 642 also clarifies that a cause of action "occurs" when: (a) an employer adopts a compensation decision or other practice prohibited by the California Equal Pay Act; (b) when an individual becomes subject to a compensation decision or other practice prohibited by the California Equal Pay Act; or (c) when an individual is "affected" by "application" of compensation decision or other practice prohibited by the California Equal Pay Act, including each time that an employer pays wages, benefits, or other compensation resulting from unlawful decision or other practice.
• Third, SB 642 amends the California Equal Pay Act to allow employees who experience pay discrimination in violation of the Act to obtain relief for "the entire period of time" the pay discrimination occurs, up to six years. This significantly increases an employer's potential liability for pay discrimination, as wage claims ordinarily limit the look-back period to three or four years before the lawsuit commences. Given the expanded recovery period, employers must ensure they maintain pay scale, pay equity, and other wage and hour records for at least six years.
• Fourth, SB 642 amends the California Equal Pay Act to add a new definition of "wages" and "wage rates." As a result of SB 642, the California Equal Pay Act will now define "wages" and "wage rates" to mean "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 or gasoline allowances, hotel accommodations, reimbursement for travel expenses, and benefits." Consequently, employers should ensure pay equity across all of these various forms of "wages" and "wages rates"

SB 642's amendments become effective on January 1, 2026.

2. SB 464: New Obligations for Annual Pay Data Reports to the CRD

In furtherance of California's pay discrimination laws, Section 12999 of the California Government Code requires private employers with more than 100 employees to submit annual pay data report to the California Civil Rights Department. The report must include a breakdown of employees by race, ethnicity, and sex in 10 specified job categories, along with data on the number of employees by race, ethnicity, and sex within federal pay bands used by the U.S. Bureau of Labor Statistics in its Occupational Employment Statistics survey; the median and mean hourly rate for each combination of race, ethnicity, and sex within each job category; and the total number of hours worked by each employee counted in each pay band during the reporting year.

SB 464 makes three basic changes to Section 1299. First, SB 464 requires employers to collect and store any "demographic information" they gather for the purpose of preparing and submitting the required pay data report separately from employee personnel records. Second, SB 464 increases the number of job categories for which employers must report pay data from 10 to 23 categories beginning January 1, 2027. Third, SB 464 amends Section 12999 to require courts to impose a civil penalty for a failure to file the pay data report if the civil penalty is requested by the Civil Rights Department.

IV. NOTICES AND RECORDKEEPING

1. SB 513: Preservation of Training Records as "Personnel Records"

SB 513 expands an employer's recordkeeping obligations with respect to personnel files. Currently, Labor Code Section 1198.5 gives California employees the right to "inspect and receive" a copy of the "personnel records" their employer maintains with respect to the employee's "performance" or to any "grievance" concerning the employee. SB 513 amends Section 1198.5 to define "personnel records relating to the employee's performance" to include "education or training records."

SB 513 also identifies the particular information an employer must retain with respect to "education or training records" Specifically, SB 513 requires an employee's education or training records to include: (1) the employee's name; (2) the name of the training provider; (3) the duration and date of the training, (4) the core competencies of a training, including skills in equipment or software, and (5) any certification or qualification resulting from the training or education.

This new recordkeeping obligation becomes effective on January 1, 2026.

2. AB 963: Recordkeeping Requirements for California Public Works Projects

AB 963 creates new recordkeeping obligations relating to projects subject to prevailing wage requirements under the California Public Works Law. AB 963 does so by adding section 1776.1 to the California Labor Code starting January 1, 2026. Under this new statute an owner or developer that enters into an agreement with a contractor on a public works project that is first "advertised for bid" or executed on or after January 1, 2026, must make a variety of new records available to the Department of Industrial Relations, multiemployer Taft-Hartley trust funds, or joint labor-management committees ("Requesting Entities") upon their request. The records that must be kept and disclosed upon request include:

• the request for bids on the project;
• any lists of bids received and total bid amounts;
• the final construction contracts executed between the direct contractor and either the owner or developer demonstrating compliance with the various contract requirements imposed by the Public Works Law;
• the names and license numbers of the contractors and subcontractors performing the public work;
• a certified copy of all payroll records for the project that owner or developer has in its possession, custody, or control; and
• the monthly reports required under Section 2602 of the Public Contract Code, if the owner or developer was required to provide an enforceable commitment to use a "skilled and trained workforce" on the project.

The records must be produced within 30 days of a request from a Requesting Entity. However, the request must be made within three years of the completion of the work subject to the California Public Works Law.

The producing party may redact social security numbers and non-public pricing information or proprietary/confidential information. But, the producing party may not redact contractor or subcontractor names, the scope of work, or contractual requirements relating to prevailing wage obligations or the duty to employ a skilled and trained workforce.

Failure to comply with a request for a production of records triggers a civil penalty of $100 per day for noncompliance, escalating to $500 per day after 10 days of noncompliance.

3. SB 294: The Workplace Know Your Rights Act

SB 294, entitled the Workplace Know Your Rights Act, requires employers to provide each current employee and new hire with a standalone notice regarding various categories of workers' rights no later than February 1, 2026. Among other provisions, the notice must contain:

• a description of rights relating to worker's compensation, immigration agency inspections, protection against unfair immigration-related practices, the right to organize and engage in "concerted activity," and constitutional rights when interacting with law enforcement at the workplace;
• a description of new legal developments pertaining to laws enforced by the California Labor & Workforce Development Agency that the Department of Industrial Relations identifies as "material and necessary"; and
• a Department of Industrial Relations created list of the agencies that enforce the laws listed in the notice.

SB 294 requires the Department of Industrial Relations to create a template notice for employers to use. The notice required by SB 294 must be provided to each new employee upon hire and to each current employee on an annual basis. The notice must also go the employee's collective bargaining representative, if any, by email or regular mail on an annual basis.

Employers must communicate the required notice to employees in "a manner the employer normally uses to communicate employment-related information." If the Department of Industrial Relations provides a template notice in a different language that the employee "understands," an employer must provide the notice in that other language.

In addition to requiring the annual notice of workplace rights, SB 294 requires employers, upon an employee's request, to notify an employee's designated emergency contact if the employee is arrested or detained at the employer's worksite.

Violations of SB 294's workplace notice requirements create liability in the form of a civil penalty of $500 per employee, per violation. Violations of SB 294's requirements regarding notice of arrests to an employee's emergency contract will give rise to a civil penalty of $500 per day of violation, up to $10,000 pe employee.

V. COLLECTIVE BARGAINING

1. AB 1340: The Transportation Network Company Drivers Labor Relations Act

In November 2020, California voters approved Proposition 22, which amended California law to classify certain app-based rideshare and delivery drivers as independent contractors under specified conditions. AB 1340, entitled the "Transportation Network Company Drivers Labor Relations Act" gives those "transportation network company drivers" the right to form, join, and participate in the activities of transportation network company driver organizations, bargain through representatives of their choosing, and engage in concerted activities for the purpose of bargaining or other mutual aid or protection. Put simply: AB 1340 gives drivers for transportation network companies (such as app-based rideshare companies) the right to engage in unionization activities starting January 1, 2026.

AB 1340 grants the California Public Employment Relations Board ("PERB") authority to enforce the Act, oversee elections under the Act, and determine whether unfair labor practices have occurred. AB 1340 also requires transportation network companies to provide PERB with various information about their drivers sufficient for PERB to maintain a list of the "active TNC drivers" who are eligible to trigger an election and participate in unionization activities. The Act allows a "TNC driver organization" to trigger an election by providing PERB with evidence that at least 10 percent of "active TNC drivers" have authorized them to act as their bargaining representative.

2. AB 288: Extension of PERB Jurisdiction Over Private-Sector Labor Disputes

AB 288 expands the jurisdiction of the California Public Employment Relations Board ("PERB") to allow PERB to resolve private sector issues of federal labor law—including by hearing unfair practice charges, conducting union elections, certifying bargaining representatives, and granting appropriate relief—under specified circumstances. These include situations where a worker is covered by the National Labor Relations Act ("NLRA") but ceases to be covered by the NLRA due to legislative, executive, or judicial action repealing or narrowing the NLRA. This also includes situations where the National Labor Relations Board ("NLRB") has engaged in actions that AB 288 deems to be the NLRB "expressly or impliedly ced[ing] jurisdiction" over the NLRA "to the states."

As we reported in a separate blog post, the NLRB has sued to block enforcement of AB 1340 on the grounds that it is preempted by the NLRA.

VI. LEAVES OF ABSENCE AND REHIRE RIGHTS

1. SB 590: Designated Person for Paid Family Leave

SB 590 continues the ongoing trend of expanding leave rights and benefits to events affecting specified categories of family members—this time to include events impacting a "designated person." SB 590 defines a "designated person" to include any individual related to a worker by blood or whose association with the worker is the equivalent of a family relationship.

SB 590 does this in the context of paid family leave ("PFL") under Section 3301 of the California Unemployment Insurance Code. Section 3301 presently allows workers to obtain wage replacement benefits for up to eight weeks when they take time off for, among other purposes, caring for a seriously ill "family member." Starting on July 1, 2028, covered workers will be able to utilize these PFL benefits when they take time off work to care for a seriously ill "designated person."

An employee must identify their "designated person" the first time they file a claim for family temporary disability insurance benefits to care for a designated person. The employees must state under penalty of perjury how they are associated with the "designated person" person by blood or through a relationship equivalent of a family relationship.

2. AB 858: Extension of Right-to-Rehire Rights for COVID-19 Layoffs

In the aftermath of COVID-19, the California Legislature enacted Labor Code Section 2810.8 to require certain categories of employers in hospitality-related industries to offer employees who were laid off for COVID-related reasons with information about available jobs for which the laid-off employees are qualified that become available. Section 2810.8 also required employers to offer positions to those laid-off employees based on a "preference system" in accordance with timelines and procedures specified in the statute. These reinstatement preferences were slated to expire on December 31, 2025. AB 858 extends them to January 1, 2027.

VII. ENFORCEMENT OF JUDGMENTS

1. SB 261: Penalties for Unpaid Wage Judgments

SB 261 introduces significant penalties for employers that fail to timely pay judgments arising out of the nonpayment of wages. SB 261 does this by adding Sections 283.05 and 283.10 to the Labor Code starting January 1, 2026. Under these new provisions:

• If a final judgment arising from nonpayment of wages for work performed in California remains unsatisfied after 180 days, a court may enforce the judgment and impose a civil penalty on the judgment debtor that is up to three times the outstanding judgment amount, plus interest and reasonable costs and attorney's fees for the party seeking to enforce the judgment.
• Any court-assessed civil penalty for failure to timely pay a qualifying judgment will be distributed so that 50% is paid to the affected employee or employees and 50% is paid to the California Division of Labor Standards Enforcement for enforcement of labor laws.
• An employer may avoid these new civil penalties if it proves, by clear and convincing evidence, that good cause exists to reduce the amount of the penalty. The statute does not define "good cause."

SB 261 becomes effective on January 1, 2026.

2. SB 355: Notice Requirement for Judgment Debtor Employers

SB 355 imposes new requirements on employers who have judgments entered against them in proceedings before the Labor Commissioner under Labor Code Section 98.2. Under SB 355, such employers must, within 60 days after a judgment is entered, inform the Labor Commissioner that: (1) the judgment is fully satisfied; (2) the bond required by subdivision Section 238(a) has been posted (if applicable); or (3) that they have entered into an agreement for the judgment to be paid in installments. Failure to comply with these notice requirements will result in a civil penalty of $2,500.

SB 355 becomes effective on January 1, 2026.

Each legislative year introduces new employment laws and amendments to existing regulations, presenting ongoing compliance challenges for employers. If you have questions about how these recent changes may affect your organization, please contact a Sheppard Mullin attorney.