What’s Changing in California Employment & Labor Law for 2026

By Jordan Ash, Esq. (Founder & Attorney – ASH LEGAL)

Employment & Compliance Insights — October 06, 2025

With new years come new labor laws and the ever-evolving California employment landscape evolves once again.

And unlike Christmas decorations, employers and HR professionals should be preparing now for new state labor laws — many of which take effect on January 1, 2026.

Below is a run down of the key updates every California business should be aware of and preparing for as we begin to say goodbye to 2025.

1. Minimum Wage & Exempt Salary Threshold Increases

Beginning January 1, 2026, the statewide minimum wage will rise from $16.50 to $16.90 per hour for all employers.

Because California’s exempt status is tied to minimum wage, the minimum annual salary for exempt employees (executive, administrative, or professional) will also increase — to approximately $70,304 per year.

Special wage rates also apply to health care workers, where “exempt health care salary” thresholds will increase under overlapping rules that take effect July 1, 2026. Employers in that sector should confirm whether their pay schedules align with the higher of the two applicable tests.

In the meantime, employers, HR professionals, and businesses should be reviewing all exempt classifications and salaries before January 2026 to avoid inadvertent misclassification.

2. Ban on “Stay-or-Pay” Employment Agreements

Starting January 1, 2026, California will prohibit most “stay-or-pay” clauses. These are contracts that require employees to reimburse training costs or repay funds if they leave within a certain period.

Some exceptions remain for legitimate tuition reimbursement programs or retention bonuses, but new rules require detailed compliance conditions to qualify.

To prepare, employers, HR professionals, and businesses should audit all employment contracts, offer letters, and repayment provisions to ensure compliance before year-end.

3. New Statewide Minor Work Permit System

By October 2, 2026, California will replace its traditional school-issued work permit model with a new state-administered registration system for minors.

Employers hiring minors will need to register through the new portal, and minors themselves will apply directly with the state rather than their schools.

Action items for employers with seasonal or youth staff could include preparing for a new permitting process in late 2026.

4. Unionization Rights for Rideshare Drivers

A landmark 2025 law signed by Governor Newsom grants Uber and Lyft drivers the right to unionize and collectively bargain, while retaining their independent contractor classification under Proposition 22.

The law takes effect May 2026, signaling an expansion of collective bargaining frameworks into the gig economy.

Although limited to rideshare drivers for now, this marks a significant policy shift — and could foreshadow similar efforts across other app-based industries.

5. PAGA Reform & Enforcement Adjustments

Amendments to California’s Private Attorneys General Act (PAGA) — enacted in 2024 — continue to reshape private enforcement:

• Employees may now retain 35% of civil penalties (up from 25%).

• Employers gain expanded opportunities to cure violations before lawsuits proceed.

• Certain procedural reforms may streamline litigation going into 2026.

Action item: Employers should refresh their compliance documentation, wage statements, and employee handbooks to limit exposure under the revised PAGA framework.

6. The Next Frontier: AI, Automation & Pay Transparency

Emerging proposals in Sacramento target artificial intelligence, automated decision-making systems, and algorithmic bias in hiring and promotion.
California is expected to tighten rules on:

• AI-driven employment tools and automated decision systems

• Pay transparency and wage range disclosure

• Workplace surveillance and data privacy

While many of these measures are still under consideration, employers should anticipate new compliance duties related to technology and hiring practices in 2026 and beyond.

7. Extended Limitations Periods & Recordkeeping Risks

Pending bills (such as SB 642) may extend statutes of limitation under California’s equal pay and discrimination laws — effectively lengthening the window for employees to file claims.

This would heighten the need for longer-term recordkeeping and consistent documentation of pay, promotion, and disciplinary decisions.

Preparing for 2026: What Employers Should Do Now

To stay compliant and avoid liability, California employers should:

1. Review pay and exemption classifications before January 2026.

2. Revise training or repayment agreements to remove “stay-or-pay” language.

3. Plan for the minor-work permit transition in late 2026.

4. Monitor gig-worker and unionization developments.

5. Audit policies and records for wage, hour, and PAGA compliance.

6. Track AI, privacy, and pay-transparency bills through the 2025-26 session.

Final Takeaway

California remains one of the most dynamic employment law jurisdictions in the country. The year ahead will bring both new opportunities and new compliance challenges for employers. Staying proactive — and updating your policies now — is the best way to ensure a smooth transition into 2026.

ASH LEGAL provides tailored legal counsel for California employers, business owners, and startups navigating state and local employment compliance.
For guidance or policy review, contact us at (818) 856-6617, jordan@ashlegal.pro or reach out directly through our Contact Page.