Starting January 1, 2026, multiple new laws will take effect impacting employers and employees across California. Below is an overview of the most significant employment law changes, some of which will require updates to handbooks, employment agreements, and other policies for businesses to remain in compliance. Please note that this is not a comprehensive account of all significant legal developments, but rather a summary of the laws that will impact many of our clients. If you have any questions about employment laws impacting your particular business or place of employment, please contact us.
Increased Statewide Minimum Wage
Although the Labor Commissioner’s office has yet to make an official announcement, a letter issued by the California Department of Finance indicates that the state minimum wage will be rising to $16.90/hr effective January 1, 2026. As we shared with you earlier this year, a number of California cities, including LA, Santa Monica, and West Hollywood, have local minimum wages that are higher than the state minimum wage. Additionally, certain other employers, including healthcare and fast-food employers, must adhere to a higher minimum wage. Employers need to comply with whichever law affords employees the highest minimum wage.
Increases to the state minimum wage impact not only minimum wage workers but also those employees who have been classified as exempt salaried workers because exempt salaried workers generally must be paid a base salary that is at least twice the state minimum wage for full-time employment (40 hours per week). Therefore, as of January 1, 2026, most exempt salaried workers must be paid no less than $70,304 annually to retain exempt status. Employees who have been misclassified as exempt, including because their salaries are below this threshold, can seek damages and penalties for unpaid overtime, missed meal and rest breaks, interest, and attorney’s fees.
Mileage Reimbursement Rate
The IRS has set the business mileage reimbursement rate for 2026 at 72.5 cents per mile.
Ban on “Stay-or-Pay” Agreements
Effective January 1, 2026, AB 692 will ban most employment agreements requiring employees to repay training costs, visa-related costs, signing or retention bonuses, relocation costs, and the cost of other benefits if their employment ends before a set period.
Finding that these contracts impermissibly restrain workers from job mobility for fear that they will be responsible for repaying these costs, this new law makes it illegal for employers to include a term in any employment contract that does any of the following:
- Requires the worker to pay an employer, training provider, or debt collector for a debt if the worker’s employment ends;
- Authorizes the employer, training provider, or debt collector to resume or initiate collection of or end forbearance on a debt if the worker’s employment ends;
- Imposes any penalty, fee, or cost on a worker if the worker’s employment ends.
The law contains a few narrow exceptions. One exception permits employers to require repayment of a sign-on or retention bonus in the event of early termination but only if all of the following conditions are met:
- The contract is entered into at the outset of employment and is not tied to specific job performance.
- The terms of any repayment obligation are set forth in a separate agreement from the primary employment contract.
- The employee is notified that they have the right to consult an attorney regarding the agreement and is provided with no less than five business days to obtain advice of counsel prior to executing the agreement.
- Any repayment obligation for early separation from employment is not subject to interest accrual and is prorated based on the remaining term of any retention period, not exceeding two years from the receipt of payment.
- The worker has an option to defer receipt of the payment to the end of a fully served retention period without any repayment obligation.
- Separation from employment prior to the retention period was at the sole election of the employee, or at the election of the employer for misconduct.
The law also does not apply to:
- A contract entered into under any loan repayment assistance program or loan forgiveness program provided by a federal, state, or local governmental agency;
- A contract related to the repayment of certain tuition costs provided that specified requirements are met; and
- Certain apprenticeship contracts.
Expanded Pay Transparency and Reporting Protections
Existing law requires employers to provide the “pay scale” for a position to both applicants and current employees upon request. Employers with 15+ employees must also include this information in any job posting. The new law defines “pay scale” as “a good faith estimate of the salary or hourly wage range that the employer reasonably expects to pay for the position upon hire.”
SB 464 requires employers with 100+ employees to report expanded demographic and pay data information to the CA Civil Rights Department on an annual basis starting with the 2026 reporting cycle.
AB 406 will now entitle employees to utilize their paid vacation time, personal leave, paid sick leave, or other compensatory time off that is otherwise available to them for time taken off work for jury duty as well as to participate in legal proceedings when they or a family member are a crime victim.
New Mandatory Annual Notice to Employees
The Workplace Know Your Rights Act will require employers to provide a standalone written notice to each current employee on or before February 1, 2026 and annually thereafter. The notice must outline key rights, including:
- Workers’ compensation benefits
- Protection against unfair immigration-related practices
- Constitutional rights when interacting with law enforcement at work
- The right to organize a union or engage in concerted activity in the workplace
The Labor Commissioner has released a template notice, available in English and in Spanish.
A new law authorizes the Labor Commissioner to investigate and issue citations or file a civil action against employers who withhold gratuities left by patrons for their employees. If you allow employees to receive tips or participate in a tip pool, you should have detailed policies discussing how tips will be calculated and distributed to staff to avoid claims of tip theft.
New Requirements for Personnel Files
SB 513 will now require employers who maintain education or training records to include those records in each employee’s personnel file. The records need to include all of the following:
- The name of the employee.
- The name of the training provider.
- The duration and date of the training.
- The core competencies of a training, including skills in equipment or software.
- The resulting certification or qualification.
CalSavers Registration Deadline
Employers who do not offer their employees a retirement plan must register with CalSavers, a state-run retirement program. Employers with less than five employees and who do not offer their employees a retirement plan have until December 31, 2025 to register. Larger employers have already been required to register with CalSavers since 2022.
Data Breach Notification Requirements
SB 446 will require individuals and businesses in California to disclose security breaches divulging the data of California residents within 30 calendar days of discovery of the data breach. The law dictates specific requirements for the contents of the data breach notice.
Prohibitions on Use of AI for Employment-Related Decisionmaking
On October 1, 2025, regulations went into effect making it illegal for California employers to use an automated-decision system or selection criteria in a way that discriminates against applicants or employees on account of their race, gender, or other legally protected categories. The regulations define an automated-decision system as a “computational process that makes a decision or facilitates human decision making regarding an employment benefit.”
Automated-decision systems are used by some employers to:
- Create computer-based assessments or tests, such as questions, puzzles, games or other challenges to make predictive assessments about employees/applicants; measure skills, dexterity, reaction-time, and/or other abilities or characteristics; and measure an employee’s/applicant’s personality trait, aptitude, and/or “cultural fit;”
- Direct job advertisements to targeted groups;
- Screen resumes for particular terms or patterns; and
- Analyze facial expression, word choice, and/or voice in online interviews to evaluate applicants/employees
Employers must ensure that the tools they use do not intentionally or unintentionally discriminate against applicants/employees on account of legally protected categories, including by asking their vendors for their anti-bias testing protocols.
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Given the many changes going into effect next year, all California employers should review their employee handbooks, employment agreements, and other policies and practices to ensure compliance in the new year. If you have any questions about these new laws or would like us to review or revise your handbooks, employment-related agreements, or other employment-related documentation to make updates in light of the new legislation, please contact us.
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The above summary has been prepared for general informational purposes only and is not intended as legal advice.
Bernstein & Friedland, P.C. is a boutique employment law firm in Los Angeles specializing in wrongful termination, discrimination, harassment, retaliation, and unpaid wage and overtime matters. Please visit our website at www.laemploymentcounsel.com to learn more about us. We are here to support you if you have questions about any of the above or any other employment-related matters.
