The Essentials—California Employment Law Update for 2026

This edition of The Essentials coincides with the close of California’s 2025 legislative session and summarizes the most significant employment-related bills enacted this year. We have highlighted key provisions of the new laws taking effect in 2026 and one related to the use of artificial intelligence (AI) that took effect in October 2025.

• Hiring and Firing
• Training, Notices, and Information Requests
• Leaves of Absence
• Labor
• Wage and Hour
• Litigation, Claims, and Enforcement

Hiring and firing

AB 858: Rehiring and Retention of Displaced Workers

AB 858 extends the sunset date for COVID-19-related employee recall and reinstatement rights to 1 January 2027. 

Background

In 2021, California Labor Code Section 2810.8 was enacted to protect employees in the hospitality and business services industry (including, but not limited to, hotels, event centers, and employers that provide maintenance services) who were laid off due to COVID-19. Under the law, covered employers must:

1. Offer available positions in writing to qualified employees who:
   1. Worked for the employer for six months or more in the 12 months preceding 1 January 2020; and 
   2. Were laid off “due to a reason related to the COVID-19 pandemic.” 
2. Prohibit retaliation or adverse action against employees asserting their rights under these provisions.

Section 2810.8 was originally set to expire on 31 December 2024. 

In 2023, SB 723 broadened eligibility by extending recall rights to any employee: 

1. Who was employed by the employer for six months or more; 
2. Whose most recent separation from active employment by the employer occurred on or after 4 March 2020; and 
3. Whose separation was due to a reason related to the COVID-19 pandemic.

SB 723 also created a presumption that a separation due to a lack of business, reduction in force, or other economic, non-disciplinary reason is related to the COVID-19 pandemic unless the employer establishes otherwise by a preponderance of the evidence. SB 723 extended the repeal date to 31 December 2025.  

AB 858 now further extends the sunset date to 1 January 2027, maintaining recall and reinstatement rights for affected employees in the hospitality and business services sectors through that date.

AB 692: Employment Contract Repayment Prohibition

AB 692 creates Business and Professions Code section 16608 and Labor Code section 926, which prohibits employers from including or requiring workers to sign employment-related contracts that impose financial penalties, repayment obligations, or fees tied to the termination of employment. Specifically, employers, training providers, or debt collectors may not require workers to repay debts, end forbearance, or pay any “quit fee,” retraining fee, or other penalty if the worker’s employment ends. Limited exceptions apply for certain tuition repayment agreements for transferable credentials, government loan programs, approved apprenticeship programs, and discretionary signing bonuses meeting detailed fairness criteria. 

A contract that violates these prohibitions is deemed a restraint of trade and is void as contrary to public policy. Workers or their representatives may bring civil actions to enforce the law, with available remedies including actual damages or US$5,000 per worker (whichever is greater), injunctive relief, and recovery of attorney’s fees and costs.

SB 617: California Worker Adjustment and Retraining Act

The California Worker Adjustment and Retraining Act (WARN) prohibits employers from implementing a mass layoff, relocation, or termination at a covered establishment without providing prescribed written notice to affected employees, the Employment Development Department, and other local agencies. The WARN notice must comply with all elements specified in 29 U.S.C. § 2101, et seq.

SB 617 introduces new WARN notice requirements related to coordination of workforce services and public assistance programs:

Coordination of Services

Employers must indicate in the WARN notice whether they: (1) plan to coordinate services, such as a rapid response orientation, through the local workforce development board; (2) plan to coordinate services through a different entity; or (3) do not plan to coordinate services with any entity. If the employer chooses to coordinate services, it must arrange services within 30 days from the date of the WARN notice.  

Rapid Response Activities

Regardless of whether the employer chooses to coordinate services, the WARN notice to affected employees must include the following description of rapid response activities offered by the local workforce development board: “Local Workforce Development Boards and their partners help laid off workers find new jobs. Visit an America’s Job Center of California location near you. You can get help with your resume, practice interviewing, search for jobs, and more. You can also learn about training programs to help start a new career.”

CalFresh Information

WARN notices must also include a description of the statewide food assistance program known as CalFresh, the CalFresh benefits helpline, and a link to the CalFresh Internet website.

Employer Contact Information

WARN notices must include a functioning email and telephone number of the employer for contact.

Amendments to FEHA Regulations Regarding Use of AI in Employment

Effective 1 October 2025, the California Civil Rights Department finalized amendments to the Fair Employment and Housing Act (FEHA) regulations regarding the use of AI and automated-decision systems (ADS) in employment decisions (AI Regulations).¹

Under the revised regulations, it is unlawful for an employer to use ADS in a manner that results in discrimination against applicants or employees. ADS is defined as a “computational process that makes a decision or facilitates human decision making regarding an employment benefit” that “may be derived from and/or use artificial intelligence, machine learning, algorithms, statistics, and/or other data.”² Pursuant to the AI Regulations, ADS can perform the following non-exhaustive list of tasks:

1. Conduct computer-based assessments or tests (such as puzzles or games) that make predictive assessments about an applicant/employee that measure skills, dexterity, reaction time, personality traits, aptitude, attitude, cultural fit, or screen or recommend an applicant or employee.
2. Direct job advertisements or other recruiting materials to targeted groups.
3. Screen resumes for particular terms or patterns.
4. Analyze facial expressions, word choice, and/or voice in online interviews.
5. Analyze employee or applicant data acquired from third parties. 

Employers may reference reasonable, well-documented anti-bias testing, audits, or other proactive measures as part of a defense to discrimination claims, including evidence of the quality, efficacy, recency, and scope of such efforts. However, employers remain liable for discriminatory outcomes even if the ADS is developed or administered by a third-party vendor that conducts recruiting, application screening, hiring, or other employment decisions on the employer’s behalf. 

Additionally, applicants and employees must receive pre-use and post-use notices explaining when and how ADS tools are used, what rights they have to opt out, and how to appeal or request human review. The amended regulations also expand record-keeping obligations, requiring employers to retain ADS-related documents and data for at least four years. 

TRAINING, NOTICES, AND INFORMATION REQUESTS

SB 294: The Workplace Know Your Rights Act

SB 294 requires employers to provide a standalone written notice to all employees by 1 February 2026, and on an annual basis thereafter, outlining specific constitutional, employment, and labor rights, including the right to notice of immigration-agency inspections and rights under the Fourth and Fifth Amendments. Employers must distribute this notice in the language normally used to communicate with employees and ensure it is received or accessible to employees within one business day of transmission. The California Labor Commissioner will develop and post a model notice template, available in multiple languages, by or before 1 January 2026. 

Additionally, by 30 March 2026, employers must offer employees the option to designate an emergency contact and to specify whether that individual should be notified if the employee is arrested or detained. For employees who elect notification, the employer must notify the employee’s designated emergency contact if the arrest or detention occurs at the workplace. If the arrest or detention happens outside of work, the employer must notify the emergency contact only if the employer has actual knowledge of the employee’s arrest or detention.

Employers are prohibited from discharging, threatening to discharge, demoting, discriminating, or retaliating against employees for exercising their rights under SB 294. Violations of SB 294 may result in civil penalties of up to US$500 per employee for each violation. For violations concerning the emergency contact requirements, penalties can range from US$500 per employee for each day the violation continues, up to a maximum of US$10,000 per employee.

SB 303: Bias Mitigation Training

SB 303 creates Government Code § 12940.2 to clarify that an employee’s assessment, testing, admission, or acknowledgment of their own personal bias when made in good faith and solicited or required as part of employer-provided “bias mitigation training” does not, by itself, constitute unlawful discrimination under the FEHA. The statute defines “bias mitigation training” to include education and activities aimed at recognizing conscious and unconscious thought processes and implementing strategies to mitigate their impact (e.g., assessments, workshops, toolkits, and tracking). The intention behind SB 303 is to encourage employers to conduct such trainings; however, the law does not shield discriminatory conduct or decisions unrelated to the training.

SB 464: Strengthening Pay Data Reporting Requirements

Under current law, private employers with 100 or more employees must file an annual Pay Data Report with the California Civil Rights Department (CRD) no later than the second Wednesday in May each year, covering the preceding calendar year. Employers that engaged 100 or more workers through labor contractors must also submit a separate report identifying those contractors. The report requires disclosure—by establishment, job category, race, ethnicity, and sex—of (i) the number of employees; (ii) the mean and median hourly rate; and (iii) the total hours worked. Data is organized into 10 standard job categories and corresponding federal pay bands, with employee counts determined by a designated snapshot period between 1 October and 31 December. Reports are submitted through the CRD’s online portal and certified by an authorized corporate officer. Individual-level data are expressly confidential and not subject to disclosure under the California Public Records Act except as necessary in enforcement proceedings. The CRD may publish only aggregated, anonymized statistics. If an employer fails to report, the CRD may seek a court order compelling compliance, and a court may impose a civil penalty—currently a discretionary sanction that can be shared between the employer and any non-cooperative labor contractor.

SB 464 strengthens this framework in five principal respects:

Mandatory Civil Penalties

Courts are required—not merely permitted—to impose civil penalties whenever the CRD requests enforcement against a non-filing employer.

Segregation of Demographic Data

Employers and labor contractors are required to maintain demographic data separately from general personnel files to enhance privacy and reduce risk of misuse. 

Expanded Job Categories

Beginning 1 January 2027, private-sector reporting increases the number of job categories from 10 to 23, aligning more closely with the federal Standard Occupational Classification structure and enabling finer analysis of pay disparities.

Inclusion of Public Employers

Starting with reports due in May 2027, public employers with 100 or more employees—including state agencies, courts, the California State University system, and political subdivisions—will become subject to equivalent pay-data reporting obligations. Public-sector reports must include, on a voluntary-disclosure basis, information regarding race, ethnicity, disability, veteran status, gender, gender identity, and sexual orientation, organized by civil-service pay-scale categories.

Transparency and Privacy Clarifications

The bill codifies legislative findings restricting public access to raw employer filings while reaffirming CRD authority to publish aggregate reports that safeguard individual confidentiality.

SB 513: Personnel Records

Under California Labor Code section 1198.5, employers are required to make available for inspection all personnel records relating to an employee’s performance or any grievance concerning the employee. SB 513 expands this requirement to include employees’ education and training records. For purposes of this law, “education or training records” include all of the following: 

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 a training, including skills in equipment or software.
5. The resulting certification or qualification.

Section 1198.5 makes it a crime for an employer to violate these requirements.

LEAVES OF ABSENCE

SB 590: Paid Family Leave Expansion to Designated Persons

California’s Paid Family Leave (PFL) program currently provides up to eight weeks of partial wage replacement for employees who are caring for ill family members, bonding with a new child, or handling a military-related exigency. 

Effective 1 July 2028, SB 590 expands PFL benefits to cover employees caring for a “designated person”—an individual related by blood or with a relationship equivalent of a family relationship. 

When an employee first requests benefits to care for a designated person, the employee must: (1) identify the designated person; and (2) attest under penalty of perjury either how they are related by blood to the designated person or how their relationship is the equivalent to a family relationship. 

Labor

AB 288: Expansion of PERB’s Authority

The federal National Labor Relations Act (NLRA) established a comprehensive statutory scheme regulating unfair labor practices between employers and labor organizations affecting interstate commerce and vests the National Labor Relations Board (NLRB) with power to conduct union elections and prevent unfair labor practices. California’s Public Employment Relations Board (PERB) previously had jurisdiction only over public sector employers, their employees, and the labor organizations that represent those employees. Currently, the NLRB and PERB do not have concurrent jurisdiction.

Effective 1 January 2026, AB 288 expands PERB’s jurisdiction, enabling it to oversee private sector employers, their employees, and the unions that represent those employees in circumstances where the NLRB is unable to act or where the NLRB has “expressly or impliedly ceded jurisdiction.” In doing so, AB 288 grants PERB the authority to provide impacted private sector employees and their labor organizations the right to petition PERB to certify election, decide unfair labor practice charges, issue bargaining orders, order parties to arbitration, and order other appropriate remedies, including injunctive relief and penalties. 

The purpose of AB 288 is to ensure that private sector employees are not impacted by any legal challenges to the NLRB’s jurisdiction over those employees. AB 288 will likely face legal challenges to its enforceability, and K&L Gates Labor, Employment, and Workplace Safety lawyers will provide timely updates as they arise.

AB 1340: Transportation Network Company Drivers Labor Relations Act

AB 1340 sets forth the Transportation Network Company Drivers Labor Relations Act (the Act), which provides transportation network company (TNC) drivers with the opportunity to self-organize or to designate representatives of their choice (e.g., labor organizations) in order to bargain with TNCs, to prevent or promptly resolve disputes between TNCs and their drivers, to engage in concerted activity (e.g., strikes and picketing), and to improve the working conditions of TNC drivers. “Transportation network company” or “TNC” is defined as a person or company that “provides prearranged transportation services for compensation using an online-enabled application or platform to connect passengers with drivers using a personal vehicle.” 

The Act directs PERB to oversee and enforce the Act, including ensuring fair elections and resolving unfair labor practice charges. The Act sets forth the notice requirements, timelines, processes, and procedures related to the relationship between TNCs, their drivers, and the labor organizations representing their drivers. It also requires TNCs to provide quarterly information to PERB to facilitate the purpose of the Act.  

Wage and Hour

SB 642: Strengthening Pay Equity Laws

SB 642 amends Labor Code section 432.3 and 1197.5 to enhance pay-equity and transparency requirements. Under existing law, employers are prohibited from discriminating against employees of an opposite sex by paying them less for substantially similar work. SB 642 replaces “opposite sex” with “another sex” to make the law inclusive of nonbinary individuals. The bill also extends the statute of limitations for pay equity claims from two years to three years, and employees can now seek back pay for the entire period of time in which a violation occurred, up to a maximum of six years. 

When defining pay equity, the bill includes all forms of compensation under the term “wages,” such as salary, bonuses, stock options, and allowances for things like travel expenses.

AB 1514: ABC Test Exemption for Licensed Manicurists and Commercial Fishers

California generally applies the “ABC test” to determine whether a worker classifies as an employee or independent contractor. This classification has far-reaching implications on employers for purposes of wage and hour compliance, unemployment insurance, and various other obligations imposed on employers in California. Under existing law, certain occupations and professions are temporarily exempted from the ABC test. These occupations are instead governed by the more employer-friendly, multifactor “Borello test” to determine employment status. AB 1514 extends existing exemptions to the ABC test for licensed manicurists (until 1 January 2029) and commercial fishers (until 1 January 2031). These workers remain subject to the more flexible Borello test during their exemption periods provided that certain conditions are met (e.g., manicurists must control their scheduling, rates, and books of business). The statute also requires state labor agencies to report misclassification complaints and investigations in the nail salon industry by 1 June 2026. 

SB 648: Employee Gratuities

SB 648 amends Labor Code section 351 to strengthen protections regarding tipped employees. It prohibits employers and agents from taking, collecting, or withholding gratuities. It grants the California Labor Commissioner new enforcement powers, including the ability to investigate tip theft, issue citations for violations, and file civil actions to recover withheld gratuities. Additionally, the bill requires that, if a patron pays a tip by a credit card, the full amount indicated as a tip must go to the employee, without deductions for credit card processing fees. Moreover, the bill requires that tips be paid no later than the next regular pay date and requires employers to maintain records of all tips and make them available to the Division of Labor Standards Enforcement (DLSE) for inspection.

LITIGATION, CLAIMS, AND ENFORCEMENT

SB 261: DLSE Enforcement of Wage Judgments

SB 261 strengthens the enforcement of wage judgments issued by the California Labor Commissioner. Under existing law, Labor Code sections 96 and 98 authorize the Labor Commissioner to adjudicate wage claims and issue legally enforceable orders, decisions, or awards when an employer fails to pay earned wages.  

Effective 1 January 2026, SB 261 authorizes the imposition of civil penalties of up to three times the amount of any unpaid judgment, including interest, if the final judgment remains unpaid 180 days after the appeal period expires. SB 261 also mandates that courts award reasonable attorneys’ fees and costs to prevailing plaintiffs in enforcement actions, whether initiated by the employee, the Labor Commissioner, or a public prosecutor.

In addition, SB 261 extends joint and several liability for these penalties to successor employers, ensuring that business reorganizations or sales cannot be used to avoid responsibility for unpaid wage judgments.

AB 250: Revival of Statute of Limitations on Sexual Assault Claims

AB 250 amends the Code of Civil Procedure section 340.16 to revive certain claims to recover damages suffered as a result of a sexual assault that would otherwise be time-barred by the statute of limitations. Under AB 250, a plaintiff may bring a revived sexual assault claim (if previously barred) by alleging that they were sexually assaulted, one or more entities are legally responsible for damages resulting from the assault, and an entity or its representative covered up or attempted concealment of a prior allegation of sexual assault.

SB 477: Revisions to the FEHA’s Enforcement Procedures

Under existing law, individuals alleging FEHA violations must file a verified complaint with the CRD before initiating a civil action. The CRD investigates and may pursue conciliation or litigation on behalf of the complainant. During this period, the statute of limitations for filing a civil lawsuit is tolled until the CRD issues a closure notice or files its own civil action.

Currently, the CRD must issue a right-to-sue notice within one year (for individual complaints) or two years (for group or class complaints) unless it files suit. Complainants then have one year from the closure notice to file a civil action. FEHA also authorizes the CRD to bring group or class complaints where a discriminatory practice affects multiple individuals, but it has never expressly defined that term. 

SB 477 changes several key features of the FEHA as follows: 

Defines “Group or Class Complaint”

SB 477 codifies, for the first time, a definition of “group or class complaint” to include any complaint alleging a pattern or practice of unlawful conduct. This clarification ensures that systemic discrimination claims fall squarely within the CRD’s group-complaint authority and provides a clearer procedural basis for multi-complainant enforcement actions.

Tolling Statute of Limitations Period

The new law expands the circumstances under which statutory filing periods are tolled. Specifically, starting 1 January 2026, tolling will apply: 1) during any appeal within the CRD following issuance of a closure notice, extending through one year after the CRD provides written notice that the appeal has been resolved; 2) during the pendency of any petition to compel CRD action; and 3) while a written tolling agreement between the complainant and the CRD is in effect, provided the agreement is executed prior to the applicable deadline.

Deferral of Right-to-Sue Notices

Where a complaint is related to a director’s complaint or a group or class complaint, the CRD must now defer issuance of right-to-sue notices until all related administrative proceedings, civil actions, and appeals have been fully resolved. This provision allows the CRD to coordinate the resolution of interrelated claims and prevents premature individual filings that could disrupt ongoing enforcement efforts.

Elimination of Venue Restrictions in Housing Cases.

SB 477 removes FEHA’s county-specific venue limitations for housing discrimination lawsuits, which previously restricted venue to where the alleged violation occurred, where the relevant records are maintained, or where the respondent resides. Plaintiffs may now file such actions in any appropriate venue under general California venue rules, affording greater flexibility for housing discrimination claimants.

AB 1523: Court Ordered Mediation

Under existing California law (Code of Civil Procedure § 1775 et seq.), courts may order a civil action to mediation only where the amount in controversy does not exceed US$50,000. This statutory cap reflects the California legislature’s long-standing intent to reserve mandatory mediation for lower-value disputes where expedited resolution can serve both judicial efficiency and the parties’ economic interests. AB 1523 raises the mediation eligibility ceiling from US$50,000 to US$75,000 starting 1 January 2027 and includes specific eligibility criteria to ensure that court-ordered mediation is invoked only when appropriate. 

Our lawyers invite employers to contact our team below for further information about compliance with and, where appropriate, implementation of these California employment laws. Subscribe to The Essentials series to stay updated on critical developments here. We look forward to serving you and your team.