New Legal Developments for California Employers – by Lisa vanKrieken – Law Offices of Folger Levin

Lisa VanKrieken Esq., partner at the law offices of Folger Levin in San Francisco issued a comprehensive document outlining all of the new and changed employment laws for 2026.

Folger Levin LLP Phone: 415-625-1050Website: http://www.folgerlevin.com

NEW LEGAL DEVELOPMENTS
FOR CALIFORNIA EMPLOYERS

2026 again brings many legal changes for California employers. Here are some of the highlights:

Under California’s new AI regulations, employers who use automated-decision systems must be able to prove they are not biased; Employers will need to update job postings to provide a good-faith estimate of the pay scale. Furthermore, pay equity analysis must include all forms of compensation (including bonuses) and employees of all gender; Employers will need to update their sick leave, jury duty, and victims of crime and violence policies; New annual “Know Your Rights” notice and emergency contact designation; IRS changes tips and overtime compensation reporting requirements; New requirement to maintain and provide employees their education and training records; Employer’s lack of response to off-duty harassment can create a hostile work
environment; EEOC has shifted their enforcement focus to protecting groups that may be made uncomfortable by
DEI programming; “Stay or pay” agreements are no longer permitted, with limited exceptions; SB 93 recall obligations for hospitality employers have again been extended, this time to

ARBITRATION

EFAA’S EXPANSIVE REACH: ARBITRATION AGREEMENTS INCREASINGLY UNENFORCEABLE
The 2021 federal law, Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act (“EFAA”), is having a wide and lasting impact. The EFAA took effect in 2022, amending the Federal
Arbitration Act (“FAA”) to prohibit enforcement of employment arbitration agreements for claims involving sexual assault or sexual harassment.
Recent decisions—including Lee v. Marriott Int’l, Inc., 2025 U.S. Dist. LEXIS 184957 (N.D. Cal. Sep. 21, 2025) and Casey v. Superior Court, 108 Cal. App. 5th 575 (2025) — highlight how courts are interpreting the law broadly to limit the enforceability of arbitration agreements in employment disputes which include claims even tangentially related to sexual assault or sexual harassment.
In Lee, the plaintiff was a long-term employee who alleged constructive discharge based on discriminatory conduct related to pregnancy, pregnancy disability, and gender, and claimed that she
was retaliated against for raising complaints about this treatment. When the employer moved to compel arbitration, the court refused to compel arbitration, finding that the plaintiff’s claims
were sufficiently intertwined with allegations of sexual harassment to apply the EFAA — despite the fact that no sexual harassment or hostile work environment claim was alleged. The court emphasized that, under the EFAA, if any part of a case plausibly relates to sexual harassment or assault, the entire dispute may be exempt from arbitration — even if the claims are not yet explicitly raised. This means that employers may not be able to enforce arbitration agreements in any case where sexual harassment is even tangentially implicated. In Casey, the California Court of Appeal addressed a similar issue. The plaintiff was a real estate agent who sued in 2023, alleging sexual harassment in addition to wage-and-hour claims. The employer made two arguments why the dispute could proceed (at least in part) in arbitration. First, the employer argued that California, not federal law, controlled, because the parties’ agreement was governed by California law under a choice-of-law provision. The Court of Appeal rejected this argument, finding that parties may not bargain their way around the protections of the EFAA. The court reasoned that the FAA was implicated because federal commerce was involved, and also found that federal law preempted the less protective state law. Second, the employer also argued that while harassment may be subject to the EFAA and need to proceed in court, at the very least, the wage-and-hour claims could be compelled to arbitration. The court again disagreed, holding that because the complaint included “one claim” that fit within the scope of the EFAA, the EFAA applied to the whole action, and the employer could not compel arbitration of any of the claims — even those unrelated to harassment. The court’s reasoning echoed the federal approach: if sexual harassment is in the mix, the entire case must proceed in court, not arbitration.

What should employers do? 
Employers should be aware that courts are interpreting the EFAA extremely broadly. Arbitration agreements may offer little protection in employment disputes where sexual harassment is even
potentially at issue. Thus, employers should be mindful that many employment claims will proceed in court rather than in arbitration even if a mandatory arbitration agreement exists.

CALIFORNIA SUPREME COURT CLARIFIES THAT LATE FEE PAYMENT NO LONGER WAIVES ARBITRATION WHERE THE EMPLOYER SHOWS GOOD FAITH OR EXCUSABLE NEGLECT
In Hohenshelt v. Superior Court, 18 Cal. 5th 310 (2025), the California Supreme Court clarified that an employer’s simply forgetting to timely mail a check did not automatically waive the
employer’s right to compel arbitration. Previously, under Code Civil Procedure section 1281.98, a party’s late payment of arbitration fees in employment (or consumer) arbitration in
California could be deemed a waiver of the right to arbitrate, even if the delay was inadvertent. The Court has now clarified that where late payment of arbitration fees is due to good-faith error
or excusable neglect — and not as a tactic to delay or prejudice the opposing party — such delay does not constitute a waiver of the right to arbitrate. This decision provides important relief for
employers, as inadvertent administrative errors or misunderstandings about payment deadlines will no longer automatically forfeit the benefits of arbitration. Employers should, however, continue to exercise diligence in meeting all arbitration-related deadlines, as intentional or bad-faith delays may still result in waiver.

DISCRIMINATION AND HARASSMENT

SB 464: NEW EEO-1 JOB CATEGORIES BY 2027
California’s SB 464 amends pay data reporting requirements for employers beginning with the 2026 reporting cycle, which will be due in May 2027. Under this new framework, employers may no
longer rely on the prior ten Equal Employment Opportunity Information Report (“EEO-1”) job categories. Instead, as of 2027, California employers must classify employees using 23 new job
categories, which will require employers to reevaluate how each job title is categorized for reporting purposes. The bill also clarifies that any data collected for pay reporting purposes must
be stored separately from an employee’s personnel records. This clarification applies to both employers and labor contractors. Another notable change concerns enforcement. Previously, courts had discretion to impose penalties on employers who failed to file pay data reports when requested by the California Civil Rights Department (“CRD”). Beginning in 2026, however, SB 464 removes that discretion from the courts, stating instead that courts “shall” impose civil penalties for noncompliance. The penalty amounts remain unchanged: up to $100 per employee for the first failure to file and up to $200 per employee for each subsequent failure. These penalties may also be apportioned to labor contractors that fail to provide necessary pay data to an employer.

What should employers do?
Employers should plan ahead and prepare to update and assign employees to the new job categories required under SB 464 in advance of the 2027 deadline.

SB 477: AMENDMENTS TO THE CALIFORNIA FAIR EMPLOYMENT AND HOUSING ACT
On October 3, 2025, California enacted SB 477, which amends the Fair Employment and Housing Act (“FEHA”) regarding appeals with the CRD. Prior to SB 477, complainants had one year from the date of the Right-to-Sue notice to file a lawsuit. SB 477 changes that timeline. Now, if a complainant appeals the CRD’s decision to close the employee’s complaint, the one-year deadline is tolled until the appeal concludes. Once the CRD issues written notice confirming that the investigation remains closed following the appeal, the complainant then has a full year from that notice to file suit. SB 477 also clarifies group or class CRD complaints. The law now defines a “group or class complaint” as “any complaint alleging a pattern or practice.” The CRD may also elect to proceed
with a group or class complaint when an administrative complaint relates to multiple similarly situated individuals. And the bill also provides for tolling of group or class complaints during the pendency of a petition filed with the superior court to compel discovery or for the duration of an appeal.

What should employers do?
Employers should be aware that these amendments may result in more appeals and longer timelines for case closure and the tolling of the one-year Right-to-Sue deadline. Further, the CRD now has clearer authority to file group or class complaints on behalf of similarly situated individuals. Employers should be prepared for the possibility that the CRD will combine claims into a single
action, especially if systemic issues are alleged.

FEDERAL PWFA REGULATIONS ON ELECTIVE ABORTION ACCOMMODATIONS VACATED 

As we reported in our 2025 Newsletter, the federal Pregnant Workers Fairness Act (“PWFA”) requires employers with 15 or more employees to provide reasonable accommodations for employees’
known limitations related to pregnancy, childbirth, or related medical conditions. As part of PWFA, Congress tasked the Equal Employment Opportunity Commission (“EEOC”) with issuing
regulations to carry out the PWFA. On May 21, 2025, however, a federal court vacated portions of the EEOC regulations which required employers to accommodate elective abortions. State of
Louisiana v. EEOC, 784 F. Supp. 3d 886 (W.D. La. 2025). The states of Louisiana and Mississippi had challenged the law in light of the ban on abortions in each state.

What should employers do?
The PWFA still restricts employers from asking about or requiring medical documentation for the specific reason behind an employee’s accommodation request. Unless an employee specifically states that an elective abortion is the reason for their request, employers should not change their existing PWFA accommodation processes. California employers also should continue to follow state law, which generally provides broader protections than federal law. If an employee requests time off or an accommodation, and identifies that it is related to an elective abortion, California
employers should remember that the request will likely fit within requirements of California law (such as paid sick leave, Pregnancy Disability Leave (“PDL”), or the California Family Rights Act
(“CFRA”)).

EMPLOYER’S LACK OF RESPONSE TO OFF-DUTY HARASSMENT MAY CREATE HOSTILE WORK ENVIRONMENT

The California Court of Appeal recently addressed whether an employer can be liable under the FEHA for coworker harassment that occurs entirely off-duty and off-premises. In Kruitbosch v.
Bakersfield Recovery Services, Inc., the court reversed in part a trial court’s decision sustaining a demurrer (a motion to dismiss the case), and clarified that an employer’s response (or lack
thereof) to harassment complaints can itself create a hostile work environment. 114 Cal. App. 5th 200 (2025). In that case, while the plaintiff was on leave following the death of his partner, he alleged that he was subjected to crude sexual advances by his coworker, including receiving multiple unsolicited nude photographs. This coworker then appeared at his home uninvited, left a cucumber with a condom on the driveway, and later that same day invited him to a hotel room for sex, claiming she had “dope.” Five days later, when the plaintiff returned to work, he immediately reported the conduct to the acting program director and HR, explaining his coworker’s inappropriate and unwanted contact. The acting program director told plaintiff there was little that could be done. Later that day, HR posted a video on social media depicting whining dogs with the caption, “This is a work day at the [sic] office… lmbo,” in an apparent reference to the plaintiff’s complaint. Later that week, HR sarcastically told the plaintiff, “I hope you don’t get no more pictures.” At no point did the employer take steps to investigate the complaint, prevent further harassment,
or impose any disciplinary action. The plaintiff alleged that his work environment became unbearable, and, as a result, within a week of his return, he resigned. The court looked at several factors as to whether the alleged conduct should be found to be work-related. Those factors included whether the harassing conduct occurred: (1) in or through a venue or modality (such as cell phone) paid for or hosted by the employer; (2) from circumstances the employer had arranged, sanctioned or approved; (3) where the employer was deriving, or could be expected to obtain, some benefit; or (4) in the context of employment-related social circumstances where it would be expected that employees would interact and socialize. Additionally, the court cited the Ninth Circuit’s emphasis that the key question is whether, under the totality of the circumstances, the “harassing conduct had an unreasonable effect on the working environment and, if so, to consider whether and how the employer responded to that effect.” In this case, the plaintiff did not allege any of the four factors noted above, but the court did find that the director’s comments and the social media post mocking him, “in conjunction with [the employer’s] ratification of [the co-worker’s] conduct through inaction, materially altered his working conditions.” Thus, the court concluded that the employer’s dismissive and mocking behavior after the complaint could itself have altered the plaintiff’s work environment in an objectively severe manner, and his hostile work environment claim was viable.

What should employers do?
This case serves as a critical reminder that employers must continue to take all harassment complaints seriously, even if the alleged conduct happened outside of work. Dismissing or failing
to investigate such complaints solely because the conduct happened off premises can still expose employers to liability under California law, especially if the conduct impacts an employee’s work
environment. The case also underscores the critical need for prompt and respectful handling of harassment complaints by managers and HR professionals.

UNDER CALIFORNIA’S NEW AI REGULATIONS, EMPLOYERS WHO USE AUTOMATED-DECISION SYSTEMS MUST BE ABLE TO PROVE THEY ARE NOT BIASED

Groundbreaking new regulations adopted by the CRD governing the use of Automated-Decision Systems (“ADS”) in employment became effective on October 1, 2025. ADS is defined as “a computational process that makes a decision or facilitates human decision making regarding an employment benefit…” This includes decisions about hiring, promotion, performance evaluations,
compensation, training, and other employment-related outcomes. These systems may be powered by artificial intelligence, machine learning, algorithms, statistical models, or other data-driven technologies. The regulations clarify that ADS tools are not limited to traditional assessments. They encompass a wide range of technologies, such as computer-based tests, games, or puzzles used to evaluate or predict an applicants’ or employees’ skills, reaction times, word choice, aptitude, attitude, personality traits, or cultural fit. They also include systems that screen resumes for specific patterns, direct job advertisements to targeted groups, analyze facial expressions or vocal tones during interviews, or process data acquired from third parties. The regulations make it unlawful to use ADS in a manner that discriminates against an applicant or employee based on a protected category under the FEHA (including, for example, race, religion, national origin, disability, gender, marital status, age, etc.). The regulations indicate that in defending against a claim that the use of ADS resulted in unlawful discrimination, an employer may rely on evidence that it conducted anti-bias testing or took “similar proactive efforts to avoid unlawful discrimination. The regulations, however, do not prescribe a specific methodology for such anti-bias testing. The regulations also address the use of technology that screens, ranks, or prioritizes applicants based on their availability or scheduling preferences. Under the regulations, such practices may result in unlawful discrimination against individuals based on religious creed, disability, or medical condition. If such a practice has an adverse impact on a protected group, it will be unlawful unless an employer can show that the practice is job related and consistent with business necessity. Moreover, any technology used to collect scheduling information must include a mechanism for applicants to request a reasonable accommodation, and generally, employers that do use ADS must be prepared to provide reasonable accommodations. In conjunction with the new regulations
concerning ADS, the Civil Rights Council also amended its regulation on preservation of personnel and employment records. Under the amended regulations, all personnel and employment
records must be kept for at least four years from the making of the record or the date of the personnel action involved (rather than the two-year retention period under the prior regulations).
The regulations specifically require ADS data to be retained for this period.

What should employers do?
Employers who use ADS for hiring, promotions, or other employment decisions should be aware that California sets a high bar for proving these systems are free from bias. Although the regulations do not prescribe a specific methodology for such testing, in practice, this could include demographic impact analyses to assess whether the ADS produces different outcomes based on
protected characteristics like race, gender, or disability; fairness audits to ensure the system aligns with equal employment opportunity standards; simulation testing using mock applicant
profiles to detect patterns of exclusion; vendor documentation reviews to evaluate whether third-party providers have conducted bias testing and disclosed their methods; and remediation
protocols to adjust algorithms when bias is detected. Frequent audits thorough recordkeeping and vendor certifications are needed to show compliance. If employers cannot reliably demonstrate
that their ADS tools do not result in discrimination, they should discontinue their use. Employers should also update their records retention periods in light of the new four-year
retention period.

SB 642: EXPANSION OF CALIFORNIA PAY LAWS

Effective January 1, 2026, SB 642 — the “Pay Equity Enforcement Act” — expands both California’s Pay Scale Disclosure Law (Labor Code Section 432.3) and California’s Equal Pay Act (“CEPA”) (Labor Code Section 1197.5). The statute first revises the definition of “pay scale” for job postings under the Pay Scale Disclosure Law to require that employers provide a “good faith estimate of the salary or hourly wage range that the employer reasonably expects to pay for the position upon hire,” rather than merely a broad or generic range. Employers therefore will need to look more closely at the pay scales listed in job postings. SB 642 also amends CEPA in several ways. First, the bill clarifies that employers are prohibited not only from paying lower wages to employees of the oppositive sex for substantially similar work, but also from paying employees less than employees of another sex (thus including non-binary gendered employees, and gender identity and gender expression). Additionally, SB 642 extends the time for an employee to bring a CEPA claim from two years to three years from the date of the alleged violation. An employee may recover for the entire time period that a violation of the act exists; however, this time period may not exceed six years. The amendments further now define a violation to have occurred when an alleged unlawful compensation decision or practice is adopted, when an individual becomes subject to the unlawful decision or practice, or when an individual is affected by the application of the unlawful decision or practice. In addition, the amendments now expansively define wages (for purposes of comparing salaries for equal pay purposes) 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 or gasoline allowances, hotel accommodations, reimbursement for travel expenses, and benefits,” although the statute also makes clear that this definition is for the purposes of CEPA only. Finally, the bill also aligns the definition of “sex” with the definition in
the FEHA for purposes of CEPA.

What should employers do?
Employers should review and update all job postings effective January 1 to provide a “good-faith estimate” of the pay scale. Employers also should include all forms of compensation (including
bonuses) in any pay equity analysis, and consider conducting pay equity reviews through counsel to identify employees of all sexes performing substantially similar work. As a reminder, legally, any wage disparities may only be based on a seniority system, a merit system, a system that measures earnings by quantity or quality of production, or a bona fide factor such as education,
training, or experience.

FEDERAL EXECUTIVE ORDERS AND AGENCY GUIDANCE TARGET DEI PROGRAMS

Since the beginning of 2025, the current administration has issued multiple presidential Executive Orders aimed at dismantling Diversity, Equity, and Inclusion (“DEI”) and Diversity Equity Inclusion and Accessibility (“DEIA”) programs in workplaces. In February 2025, Attorney General Pam Bondi issued a memorandum furthering these efforts by directing the Civil
Rights Division of the U.S. Department of Justice (“DOJ”) to “investigate, eliminate, and penalize illegal DEI and DEIA preferences, mandates, policies, programs, and activities in the private sector and in educational institutions that receive federal funds.” Then in July 2025, the Attorney General’s Office issued parallel guidance on applying federal antidiscrimination laws to entities that receive federal funds or are otherwise subject to federal antidiscrimination laws. Specific to the employment context, in March 2025, the EEOC and DOJ released two technical
assistance documents to educate individuals about what the agencies refer to as “unlawful DEI” in the workplace–“What To Do If You Experience Discrimination Related to DEI at Work” and
“What You Should Know About DEI-Related Discrimination at Work.” While this guidance does not modify the federal statutes that prohibit private employers from discriminating based
on protected classifications, the agencies enforcing those laws have shifted their enforcement focus to protecting groups that may be made uncomfortable by DEI programs. Among other things, this guidance indicates the agencies will consider unlawful any “DEI training that includes statements stereotyping individuals based on protected characteristics – such as ‘all white people
are inherently privileged’ and ‘toxic masculinity,’” as an unlawful practice if it results in discriminatory treatment by creating a hostile work environment or imposing penalties for
dissent. Employers with DEI programs which may be subject to governmental scrutiny should consult with counsel if they have any questions.

HIRING

SB 93: RECALL OBLIGATIONS FOR HOSPITALITY EMPLOYERS EXTENDED THROUGH JANUARY 1, 2027
Since April 2021, certain employers such as hotels, private clubs, and event centers have faced strict requirements under Labor Code section 2810.8 (also known as SB 93) to recall employees who
were laid off as a result of the COVID-19 pandemic. We previously advised on SB 93’s requirements in our 2022 and 2024 New Developments newsletters. Although Labor Code section 2810.8 was set to expire on December 31, 2025, based on a one-year extension of the law, the law has again been extended through January 1, 2027. The penalties for failure to comply with SB 93’s recall requirements are substantial and include, but are not limited to, hiring and reinstatement, front or back pay, and stiff civil penalties for each day an employee’s rights are violated under SB 93. And Labor Code 2810.8 also includes strict recordkeeping requirements to maintain certain records for three years. The Division of Labor Standards Enforcement (“DLSE”) has been aggressively pursuing audits and enforcement actions against employers, imposing penalties in the millions of dollars.

What should employers do?
Covered employers should review their current practices and recordkeeping to ensure continued compliance, review the Labor Commissioner’s FAQs on how to comply with SB 93, and consult with counsel for any questions.

AB 692: “STAY OR PAY” CONTRACT PROVISIONS PROHIBITED

In the latest attempt to prohibit employment practices that might restrain employees’ mobility in the labor market, effective January 1, 2026, California’s AB 692 makes it illegal (with a few
exceptions) for employers to include any terms in employment contracts that require an employee to repay a debt if their employment ends, commonly known as “stay-or-pay” provisions. The law
similarly prohibits provisions that allow (1) initiation of collection on a debt (or ending refraining from enforcement), or (2) the imposition of any penalty, fee, or cost in such
circumstances when employment is terminated. Among other things, the new law will prohibit training repayment provisions, known as “TRAPs,” which require an employee to repay the cost of training provided to them if they leave employment within a certain amount of time, as well as provisions requiring a departing employee to repay funds that the employer paid for the employee’s relocation. AB 692 does have exceptions to this general prohibition for the following types of agreements:
1. a contract under a federal, state, or local loan repayment assistance or forgiveness program;
2. a contract to repay the cost of tuition for a “transferable credential” that meets certain criteria;

3. a contract related to a state-approved apprenticeship program;
4. a contract for discretionary or unearned monetary payment at the outset of employment (such as a signing bonus with a retention component or a relocation payment with a “clawback”
agreement) that is not tied to job performance, so long as the following conditions are met: (i) repayment terms are in a separate agreement from the employment contract, (ii) the employee is
notified of their right to consult an attorney about the agreement and is given at least five business days to do so; (iii) repayment, if triggered, is prorated based on the remaining term of
any retention period, not to exceed two years and not subject to accruing interest; (iv) the employee may defer receipt of payment to end of retention period without obligation; and
(v) repayment is only required if the separation is at the employee’s sole discretion (that is, a voluntary resignation) or due to employee misconduct.
5. a contract related to the lease, financing, or purchase of residential property. Employers should refrain from using “stay-or-pay” repayment agreements starting January 1,
2026, unless they have been reviewed by counsel to ensure compliance with AB 692.

LEAVES AND BENEFITS

COURT CLARIFIES THAT OUTSIDE SALESPERSONS ARE EXEMPT EMPLOYEES FOR CA PAID SICK LEAVE CALCULATION PURPOSES
The California Court of Appeal in Hirdman v. Charter Communications, LLC, 113 Cal. App. 5th 376 (2025), clarified that outside salespersons qualify as exempt employees under the Healthy
Workplaces, Healthy Families Act of 2024 (“HWHFA”), the statute mandating paid sick leave for employees in California. In Hirdman, a former outside salesperson filed a claim under the Private Attorneys General Act (“PAGA”), which allows employees to seek civil penalties for Labor Code violations on behalf of themselves and other aggrieved employees. Plaintiff argued that outside salespersons should not be considered “exempt employees” for purposes of calculating paid sick leave. If treated as nonexempt, plaintiff’s sick pay would have included commissions, resulting in a significantly higher rate of pay. The HWHFA, however, provides that for exempt employees, paid sick leave “shall be calculated in the same manner as the employer calculates wages for other forms of paid leave time.” The employer used this method and paid plaintiff at his base hourly rate, consistent with its method for other paid leave.
The court held the statutory language is clear and unambiguous: “exempt employees” includes all employees exempt from overtime under any recognized exemption, including outside salespersons, and rejected plaintiff’s argument that a 2016 DLSE Opinion Letter warranted a different result.

What should employers do?
The decision affirms that employers may calculate sick leave for all exempt employees, including exempt outside salespersons, using the same method applied to other forms of paid leave. Employers should also regularly review their classifications to ensure positions are properly classified as exempt or nonexempt.

AB 406: CALIFORNIA BROADENS SICK LEAVE AND VICTIMS LEAVE PROTECTIONS AND UPDATES JURY DUTY NOTICE REQUIREMENTS
AB 406 addresses inconsistencies and ambiguities following AB 2499, which last year made significant changes to employees’ rights to time off in connection with crime and violence
affecting employees and certain family members. Under AB 406, beginning January 1, 2026, time off in connection with judicial proceedings related to a crime will be available to additional
categories of family members, and employees will be able to use paid sick leave when taking time off for such reasons (in addition to other types of paid time off or unpaid time off). AB 406
also aligns the notice requirements for time off in connection with jury duty with the notice requirements to take time off for certain other reasons, namely by permitting employers to require
reasonable advance notice from employees, unless providing such notice is not feasible.

What should employers do?
Employers should work with counsel to update their sick leave, jury duty, and victims of crime policies, to comply with these legal updates. Additionally, employers should ensure they are
permitting employees to take time off as required by these legal changes. Lastly, with the expansions within AB 406, it is likely that the CRD will release an updated “Survivors of Violence and Family Members of Victims Right to Leave and Accommodations” Notice. Employers are reminded that they must provide this notice to employees at the time of hire, annually, upon request, and whenever an employee notifies the employer that they or a family member are/is a victim. Once the CRD issues the updated notice, employers should ensure that they obtain and distribute it to their employees. Until that time, employers should use the notice form the CRD issued in July 2025, which is available [here].

SB 590: PAID FAMILY LEAVE EXPANDS ELIGIBILITY
TO INCLUDE CARE FOR DESIGNATED PERSONS 

Although the CFRA requires employers to allow employees to take leave to care for family members or a “designated person” with a serious medical condition, California Paid Family Leave
(“PFL”) benefits have not been available for leaves to care for a designated person. PFL is a California Employment Development Department (“EDD”) program which provides up to eight weeks of
partial wage-replacement benefits within a 12-month period to employees who take time off work to care for a seriously ill family member, bond with a minor child, or participate in a qualifying
military leave. SB 590 corrects the misalignment between PFL and the CFRA. Beginning July 1, 2028, PFL will be available to employees who take time off work to care for a seriously ill “designated person.” An employee who requests PFL to care for a designated person must attest, under penalty of perjury, how the individual is related by blood, or how the individual’s association is the equivalent of a family relationship.

What should employers do?
Prior to July 1, 2028, employers should update their employee handbooks to explain that employees caring for designated persons may be eligible for PFL, and should notify employees who request leave to care for a designated person that PFL benefits may be available.

NATIONAL LABOR RELATIONS BOARD

SB 399: FEDERAL COURT GRANTS PRELIMINARY INJUNCTION AGAINST CALIFORNIA’S PROHIBITION OF “CAPTIVE AUDIENCE” MEETINGS
Last year, California passed SB 399 (now Labor Code Section 1137) which prohibits employers from holding mandatory (or “captive audience”) meetings on political or religious topics (such as union organizing). However, the California Chamber of Commerce filed a lawsuit challenging the statute’s legality, and a federal district court granted a preliminary injunction prohibiting
enforcement of the statute on the grounds that it is preempted by the National Labor Relations Act (“NLRA”), as well as violating the First Amendment. The ruling will likely be appealed by the
state Attorney General, but in the meantime, an injunction bars enforcement of the law. And while the National Labor Relations Board (“NLRB”) issued a decision in 2024 also banning captive audience meetings, in 2025, the NLRB’s new Acting General Counsel rescinded prior guidance on that issue (as well as rescinding many other pro-employee General Counsel memoranda). Thus, for now, the risk of holding captive audience meetings has lessened considerably both in California and before the NLRB.

NLRB
Administrative enforcement of federal labor laws has been significantly impacted and impeded under the current administration, most notably enforcement of the NLRA. Specifically, the NLRB has been almost entirely dormant this past year, lacking a quorum for almost the entire year since January 2025, when President Trump fired Democratic member Gwynne Wilcox. Wilcox has challenged her firing in court, and although Wilcox initially was reinstated by a federal judge (temporarily restoring a quorum), the D.C. Circuit Court of Appeals halted that reinstatement in March. However, a full panel of the D.C. Circuit then overruled that decision and reinstated Wilcox back on the Board, until the U.S. Supreme Court intervened in April, staying that order, again resulting in no quorum. Thus, Wilcox’s removal will remain in place while litigation continues over the legality of her removal, with a likely appeal to the Supreme Court to follow. In the meantime, the nomination of one new Board member and new General Counsel have been approved by a Senate Committee and sent to the Senate for confirmation, but a second Board member’s nomination has been tabled, thus further delaying the existence of a quorum after another Board member’s term expired in August. Despite the turmoil at the NLRB, Regional NLRB offices remain open to process cases (except during the federal shutdown), and notably, union organizing activity has remained very strong. The ongoing nationwide surge of labor activism has continued in various industries, especially tech, retail (e.g., Starbucks, Apple, and Amazon), and hospitality, with numerous union elections, strikes, and unfair labor practice (“ULP”) disputes (including over 500 ULP charges filed against Starbucks alone). Non-profits have also seen a surge in organizing campaigns in recent years.

NOTABLE NLRB GUIDANCE CHANGES IN 2025:
Under the new Administration, although the Board itself is not active, the NLRB’s Acting General Counsel has made many changes in NLRB Guidance, including the following:

• Rescinding more than 30 prior General Counsel memoranda, including most notably the prohibition of non-disparagement and confidentiality provisions in hourly employees’
separation agreements, which prohibition had followed the NLRB’s 2023 McLaren Macomb decision.
• Narrowing the definition of “protected concerted activity” to presume that solo activity without a clear group purpose is not concerted.
• Rescinding a policy that allowed for heightened remedies (such as letters of apology, credit card penalties, and more) in ULP cases. Such remedies (known as Thryv remedies, based on a
2022 NLRB decision) had already been rejected in December 2024 by a Third Circuit decision involving Starbucks. However, in February 2025, the Ninth Circuit issued a decision which
affirmed the 2022 Thryv decision, and awarded heightened non-wage remedies after Macy’s refused to rehire strikers. Then, on October 31, 2025, the Fifth Circuit disagreed with the Ninth Circuit’s analysis and agreed with the Third Circuit, holding that the Section 10(c) of the NLRA forbids Thryv remedies. Even more recently, on November 5, 2025, the Sixth Circuit also ruled that Thryv remedies are not permissible under the NLRA, and specifically that “the Board’s efforts both lack statutory authority and raise serious constitutional questions.” Thus, while there is a
split among the Circuits, three Circuits have now ruled against the legality of Thryv remedies.
• Providing guidance in General Counsel Memorandum 25-07 that any party who secretly records a collective bargaining session is violating the duty to bargain in good faith. Covertly taping
negotiations – without the other side’s consent or knowledge – was described as inherently destructive to good-faith bargaining and unlawful.
• Providing updated instructions in General Counsel Memorandum 25-08 on how NLRB regions should handle refusal-to-hire cases involving “salting” (that is, when union organizers,
known as “salts,” apply for employment). The memo states that “as unfair as it may seem” to employers, salts are protected by the NLRA, because an employer cannot refuse to hire an
applicant just because of their union organizing intent. However, the guidance also instructs scrutiny on whether a union applicant is a “bona fide” job-seeker, instructing Regions to first
gather evidence from the union or worker to show they genuinely desired employment before even soliciting the employer’s side.

NLRB SUES CALIFORNIA IN BID TO PREEMPT NEW STATE LABOR LAW
Within two weeks of the Governor’s signing of CA AB 288 in October 2025, the NLRB filed a lawsuit against the State of California seeking to block the new statute. The California law would give
the state’s Public Employment Relations Board (“PERB”) authority to certify union elections and handle unfair labor practice charges when the NLRB is impaired (such as when there is no quorum, as exists now) or when the state determines that the Board has ceded its authority. The NLRB argues, however, that the California statute is preempted by federal labor law. The NLRB also has challenged a similar law in New York which expands New York’s state labor relations board to cover private-sector employers.

WHAT ABOUT CEMEX AND BARGAINING ORDERS?
In September 2025, the D.C. Circuit Court of Appeals heard arguments in a case called NP Red Rock LLC v. NLRB (Case No. 24-1221) on the NLRB’s 2023 “Cemex” ruling, which requires that if a union
presents evidence of majority support, the employer (not the union) must petition for an election within 10 days or it will be required to recognize the union. Under Cemex, if the employer commits any unfair labor practice that would impact election conditions, the Board also can issue an order requiring the employer to recognize and bargain with the union. Employers have argued that this violates their rights and the NLRA, by effectively instituting involuntary “card checks” without a vote. A decision is expected in 2026.

IS THE NLRB UNCONSTITUTIONAL?
In a blockbuster decision in August 2025, the Fifth Circuit Court of Appeals in Space Exploration Techs. Corp. v. NLRB, No. 24-50627 (5th Cir. 2025) found that the current form of the NLRB is
likely unconstitutional on the grounds that the NLRB’s structure violates separation of powers and infringes on employer rights. The Fifth Circuit upheld preliminary injunctions blocking
the NLRB from prosecuting unfair labor practice charges against SpaceX and two other employers, holding that the NLRB’s structure “likely violates the U.S. Constitution.” The immediate
effect was that the NLRB could not continue pursuing the pending cases filed in the Fifth Circuit. If this ruling holds, any employer in Texas, Louisiana, or Mississippi could potentially defend an
NLRB case by raising the same constitutional objection, which potentially could force a restructuring of the NLRB (such as making Board members removable at will, or changing
Administrative Law Judge-“ALJ”) hiring and firing processes). A number of other constitutional challenges also were filed against the NLRB in 2024 and 2025, by Starbucks, Amazon, and Trader Joe’s, also arguing that various aspects of NLRB proceedings (from ALJ appointments to quorum issues) are unconstitutional. However, unlike the Fifth Circuit, the Third Circuit held in one NLRB case against Starbucks that the employer lacked standing to even raise the ALJ removal issue. And most recently, in late October, unlike the Fifth Circuit in SpaceX, the Ninth Circuit in NLRB v. N. Mt. Foothills Apartments, No. 24-2223 (9th Cir. Oct. 28, 2025) upheld the constitutionality of the NLRB’s structure, enforcing an NLRB order finding that the employer
unlawfully interrogated, threatened, and discharged an employee who discussed pay and working conditions. Although the employer had raised constitutional challenges to the NLRB’s
structure, arguing as SpaceX did in the Fifth Circuit that the Board’s administrative law judges and members enjoy removal protections which violate constitutionally protected separation-of-powers principles, the Ninth Circuit rejected that challenge. The Ninth Circuit instead held that that so long as an agency officer was validly appointed, retrospective relief based on an unconstitutional provision is only available where the provision inflicts compensable harm, and in that case, the employer failed to show any such harm. Bottom Line: These contrary decisions regarding the NLRB’s constitutionality will very likely result in review by the U.S. Supreme Court to resolve the Circuit split on this monumental question, with potentially huge ramifications. In the meantime, for California employers, the Ninth Circuit has ruled upholding the NLRB’s constitutionality. This issue will be something to watch for in 2026.

WORKPLACE FORMS AND NOTICES

NEW FORM I-9
A new version of Form 1-9 was published earlier this year with an edition date of January 20, 2025. Employers may continue to use prior editions of the Form I-9 until their respective
expiration dates. Because the prior editions of this form do not expire until July 31, 2026, at the earliest, employers have until that date to integrate the new form into their processes. The new
form will expire on May 31, 2027, and is available here.

SB 294: NEW ANNUAL “KNOW YOUR RIGHTS” NOTICE TO EMPLOYEES AND EMERGENCY CONTACT DESIGNATION FOR ARREST/DETENTION
By February 1, 2026 and annually thereafter, California employers must provide written notice of certain rights to all existing employees and the same written notice to each new employee upon
hire. The “Know Your Rights” notice must include, among other things, information about the right to organize a union, workers’ compensation benefits such as disability pay and medical
care for work-related injuries or illness, and employee rights during inspections conducted by immigration agencies, including an employee’s constitutional right to be free from unreasonable
search and seizure. The Labor Commissioner will post a template notice for employer use on its website by January 1, 2026. Employers must also provide employees with the opportunity to name an emergency contact on or before March 30, 2026 (and at the time of hiring for employees beginning after March 30, 2026), for the purpose of notification during an arrest or detention at a worksite or off a worksite, if an arrest or detention occurs during work hours or while the employee is performing job duties and the employer has actual knowledge of the employee’s arrest or detention). Although employers must provide employees the opportunity to name such a contact, employers may not require employees to provide one.

What should employers do?
Employers who fail to comply with these new provisions face civil penalties and hefty fines for certain violations; thus employers should be prepared to provide the written notice of rights and
solicit emergency contact designations in early 2026.

WAGE AND HOUR

CALIFORNIA COURT OF APPEAL VALIDATES PROSPECTIVE MEAL PERIOD WAIVERS
In Bradsbery v. Vicar Operating, Inc., 110 Cal. App. 5th 899 (2025), the California Court of Appeal delivered a notable win for employers regarding meal period waivers, confirming that a one-time,
prospective, written meal period waiver for shifts lasting more than five hours but 6 hours or less are legal and enforceable under California law. The court rejected the argument that meal
period waivers must be obtained on a per-shift basis, finding no statute or regulation imposing that requirement. Instead, the court emphasized that a meal period waiver for future
shifts of 6 hours or less is valid if it is voluntary, clearly communicated, and revocable at any time without retaliation.

What should employers do?
• Use a stand-alone, written meal period waiver signed by the employee (not an oral or a handbook waiver), which states that the waiver is voluntary and revocable at any time and also includes a
simple revocation procedure.
• Train supervisors not to pressure employees to waive meal periods (or work through rest breaks), and to honor revocations of meal period waivers immediately.

CA SUPREME COURT RULES IGNORANCE OF THE LAW IS NOT A ‘GOOD-FAITH’ DEFENSE TO MINIMUM WAGE LIQUIDATED DAMAGES, AND ALLOWS PAID SICK LEAVE CLAIMS IN APPEALS OF LABOR COMMISSIONER RULINGS

The California Supreme Court ruled in Iloff v. LaPaille, 18 Cal. 5th 551 (2025), that employers cannot escape liquidated damages for minimum wage violations merely by claiming they did not know the law. Because such damages are mandatory and automatically imposed, employers must demonstrate they made a “reasonable attempt” to understand their legal obligations in order to avoid liquidated damages through the good-faith defense. The case involved a maintenance worker who lived rent-free on the employer’s property in exchange for performing maintenance services. After the arrangement ended, the worker filed a claim with the California Labor Commissioner, which ruled that he was an employee entitled to unpaid wages and, as a result, was also entitled to the liquidated damages mandated by Labor Code section 1194.2. Following an appeal to the superior court, the court denied liquidated damages, reasoning that the employer could invoke the good-faith defense because both parties had believed the arrangement to be lawful. However, the Supreme Court unanimously reversed, holding that the good-faith defense requires an
employer to show it made a “reasonable attempt” to determine the requirements of the law, and that mere ignorance of the law is insufficient. Thus, mutual agreement to a below-minimum-wage
arrangement did not establish “good faith” when the employer also conceded it had not actually taken any steps to understand its legal obligations. The Court clarified that what
constitutes a “reasonable attempt” is context-dependent, but also emphasized that while uncertainty about unclear laws may be considered, employers may not rely on uncertainty alone and must still show that they made at least some attempt to determine the legal requirements. In addition, the Court ruled that employees may raise paid sick leave claims under the HWHFA for
the first time in court when responding to an employer’s appeal of a Labor Commissioner ruling, even if those claims were not originally raised before the Labor Commissioner. The Court held
that while there is no stand-alone private right of action for such violations which would allow employees to file directly in court, employees may pursue such claims before the Labor Commissioner and, if the employer then appeals, the employee may assert the claim for the first time during the superior court’s de novo review, thus increasing the risks for employers in appealing an adverse Labor Commissioner ruling.

A CALIFORNIA APPELLATE COURT ALLOWS “HEADLESS” PAGA ACTION, BUT ISSUE IS HEADED TO CALIFORNIA SUPREME COURT

In CRST Expedited, Inc. v. Superior Court, 112 Cal. App. 5th 872 (2025), a California Court of Appeal held that employees may pursue PAGA actions seeking penalties even if only for violations
suffered by other employees (rather than the plaintiff themselves) — so-called “headless” PAGA actions — even if they have voluntarily dismissed their individual PAGA claims to avoid
arbitration. In other words, an employee who experienced a single Labor Code violation may pursue penalties in court for entirely different Labor Code violations affecting coworkers, without
seeking penalties for their own claim. However, the Court emphasized that a plaintiff must still be an “aggrieved employee” who personally suffered at least one Labor Code violation to have standing. The plaintiff in this case had filed a lawsuit in court, but after the employer moved to compel arbitration, plaintiff dismissed his individual PAGA claims. Plaintiff then proceeded in court with only nonindividual PAGA claims (which claims cannot be subject to mandatory arbitration under California law), and the employer challenged that as being an improper “headless” PAGA action. The court examined PAGA’s statutory language which allows an aggrieved employee to bring an action “on behalf of himself or herself and other current or former employees.” While the employer argued that the conjunctive “and” requires pursuing both the individual and nonindividual claims together, the court instead concluded that “and” should be read as “and/or” to further PAGA’s enforcement purpose. At the same time, a different California Court of Appeal previously had reached the opposite conclusion in Leeper v. Shipt, Inc.,
107 Cal. App. 5th 1001 (2024), and as a result, the California Supreme Court has granted review in both Leeper and CRST Expedited to decide this issue.

What should employers do?
Employers should monitor the California Supreme Court’s decision and prioritize compliance with California’s wage-and-hour laws (including conducting regular audits), rather than relying
solely on arbitration clauses to defeat wage-and-hour claims. Depending on the ruling, arbitration agreements may have less of a deterrent effect on PAGA actions than hoped, as the rules on
arbitration and PAGA in California continue to evolve.

SB 648: LABOR COMMISSIONER NOW HAS AUTHORITY TO ISSUE CITATIONS FOR TIP THEFT
Effective January 1, 2026, SB 648 amends California Labor Code Section 351 to strengthen enforcement of the state’s tip-protection laws. The Labor Commissioner is now expressly authorized
to investigate tip theft violations and issue citations with civil penalties. Previously, the Labor Commissioner could investigate and file civil actions, but lacked authority to issue
immediate administrative citations for tip theft. Under the new law, if the DLSE issues a citation, the procedures for issuing, contesting, and enforcing that citation now mirror Labor Code Section
1197.1 (the framework used for minimum-wage citations). Because SB 648 states that the procedures for citations and civil penalties will be the same as under Section 1197.1, presumably the
penalties will be the same. Those are $100 per pay period for any initial violation, and $250 per pay period for any subsequent violation. While SB 648 adds enforcement mechanisms, the underlying tip protection rules remain unchanged. Employers may not take any portion of voluntary gratuities or deduct credit card processing fees from tips. Credit card tips must be paid in full by the next regular payday after credit card authorization. Tips may not be counted as a credit against minimum wage in California, and tip pooling must comply with California law and may not benefit managers or supervisors. And all California tipped employees must receive the full minimum wage ($16.90/hour as of January 1, 2026) plus all tips and gratuities.

What should employers do?
Employers in tipping industries should review their practices to ensure full compliance before the January 1, 2026 effective date. In addition, because the DLSE may now issue citations for tip
theft, employers should expect more frequent records requests and should ensure they have clear, contemporaneous tip and tip-pooling records.

SB 513: NEW REQUIREMENT TO MAINTAIN AND PROVIDE EMPLOYEES THEIR EDUCATION AND TRAINING RECORDS
SB 513 amends Labor Code Section 1198.5 effective January 1, 2026, to: (1) expand the categories of documents that must be provided in response to an employee’s request for their personnel records, and (2) require employers that maintain training and education records to include specific information in those records.
Currently, Labor Code Section 1198.5 provides that a current or former employee (and their representatives) have the right to inspect and receive a copy of the personnel records that their
employer maintains relating to the employee’s performance or to any grievances concerning the employee. The records must be provided within 30 days of a written request, or the employer may be subject to a $750 penalty. Effective January 1, 2026, Labor Code Section 1198.5 will require that, in response to an employee’s request to inspect or copy their personnel records, an employer also must provide any “education or training records” that the employer maintains about the employee. In addition, Labor Code Section 1198.5 will require that an employer which maintains education or training records to ensure that the records include all of the following information: (1) the name of the employee, (2) the name of the training provider; (3) the duration and date of the training; (4) the core competencies of the training (including skills in equipment or software); and (5) the resulting certification or qualification.

SB 261: FAILURE TO SATISFY WAGE JUDGMENTS WILL RESULT IN INCREASED PENALTIES
Employers soon will have bigger risks in not complying with California Labor Commissioner judgments. When the Labor Commissioner issues a judgment in favor of an employee for unpaid wages, recourse against the employer to ensure that the award is paid has been limited. SB 261 will significantly increase penalties against employers and expand enforcement opportunities by
adding public prosecutors to the list of parties eligible to receive reimbursement of attorneys’ fees and costs for such enforcement. Under Labor Code section 98.2, an employee or the Labor Commissioner may be awarded reasonable attorneys’ fees and costs for enforcement if a judgment for unpaid wages is not paid by the employer. SB 261 will now require that these fees and costs be awarded to the prevailing plaintiff, Labor Commissioner, or public prosecutor for enforcement of awards. Successor employers also are jointly and severally liable for such penalties, and thus employers cannot escape a judgment by selling their business or restructuring. SB 261 also will add Section 238.05 which requires that if a final judgment for nonpayment of wages is not paid
within 180 days after the time to appeal has expired (and no appeal is pending), a court must impose a civil penalty of three times the outstanding judgment amount, including post-judgment
interest. The court must assess half the penalties to the employee and the other half to the DLSE, unless the employer shows by clear and convincing evidence that there is good cause to reduce the
penalty, which will be a difficult burden.

IRS CHANGES TIPS AND OVERTIME COMPENSATION REPORTING REQUIREMENTS
Employers in the hospitality, entertainment, and service industries will soon be subject to new tax compliance responsibilities for the tax year 2025. As part of the “One Big Beautiful Bill”
reconciliation package passed by Congress and signed by the President on July 4, 2025, employees will be able to deduct both portions of their tips and also overtime income from federal taxes
beginning in 2026 for the 2025 tax year. This thus imposes new overtime reporting requirements for employers. By law, tips include monies paid by a guest voluntarily (i.e., voluntary cash or credit card tips) and also such monies received from another employee (i.e., a tip-pooling program). To be eligible for the new tax deduction, tips must be reported to the employer. Mandatory service charges and automatic gratuities, typically used in banquets and sometimes restaurants, are not eligible. To be compliant, employers must file information returns with the IRS and ensure that W-2’s include cash tips and the occupation of the employee. The new overtime tax deduction applies only to overtime compensation under the Federal Fair Labor Standards Act (“FLSA”), not to daily overtime under California law. This presents a unique challenge for California employers who pay California daily overtime and double time. In addition, contractual overtime requirements that exist in collective bargaining agreements or policies beyond FLSA requirements also likely do not qualify. Beginning with tax year 2025 W-2 Forms, employers must track and report qualified overtime compensation separately so that employees may claim a deduction on their federal income tax.

What should employers do?
Employers should contact their payroll providers to understand how they are updating wage reporting to the IRS and W-2 statements to comply with the new law. Employers should also review what positions qualify. In addition, employers are advised to monitor Treasury and IRS guidance on: (1) estimating qualified overtime and tips for 2025; (2) tips and qualified overtime
compensation in 2026. Thankfully, the IRS will provide transition relief for tax year 2025 for taxpayers claiming the deduction and for employers and other payors subject to the new reporting
requirements.

WORKPLACE SAFETY

UPDATING DRIVING POLICIES BASED ON LATEST HANDSFREE DECISION

Earlier this year, in People v. Porter, 111 Cal. App. 5th 927 (2025), the court concluded that California Vehicle Code § 23123.5(a) bans any use of a handheld phone while a driver is holding the
device. This includes passively looking at an app such as a mapping app. The court concluded that the Legislature’s intent was to prohibit all handheld uses of wireless phones by drivers while the
device is held in their hand. Employers should review any employee driving policies and update handbooks to ensure they address this recent legal development.

CAL-OSHA WVPP REGULATIONS
As of July 1, 2024, most places of employment in California were required to have established, implemented, and maintained a workplace violence prevention plan. Cal/OSHA is currently developing its workplace violence prevention standard (regulations) for general industry employers. While further iterations are likely, the regulations proposed in May 2025 helped clarify certain elements of Labor Code Section 6401.9, such as some definitions and incident reporting and record keeping requirements. The draft regulations also had some more substantive provisions, including revising how employee headcount is determined for purposes of establishing the law’s applicability to an workplace and prohibiting employers from retaliating against employees who lawfully defend themselves or others. The final regulations must be adopted no later than December 31, 2026. Employers thus should keep an eye out for the final regulations and prepare to update their workplace violence prevention plans as necessary.