Firm News & Events

Update on “Stay or Pay” Employment Contracts

by Christopher J. Nannini

November 6, 2026

Question: I heard that California’s “stay-or-pay” law was repealed.  Is that true?

Answer: No, the law was not repealed.  Instead, it was delayed for a year.  The state’s “stay-or-pay” restrictions were originally set to be effective January 1, 2026.  On September 30, 2026, Governor Newsom signed AB 1697, which pauses enforcement of the restrictions until January 1, 2027.  In addition, the law eliminates retroactive liability for 2026.   

Despite this temporary breathing room, employers cannot do the following starting January 1:

• Require an employee to pay an employer, training provider, or debt collector for a debt if the employee’s employment with the employer ends;
• Authorize the employer, training provider, or debt collector to resume or initiate collection of a debt if the employee’s employment with the employer ends; or
• Impose any penalty, fee, or cost on an employee if the employee’s employment or work relationship” with the employer ends.

Although the law is expansive, it will not apply to various situations, including:

• Agreements entered into before January 1, 2027;
• Agreements entered into with independent contractors;
• 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 enrollment in an apprenticeship program approved by the California Division of Apprenticeship Standards”;
• Tuition repayment for a transferable credential that “is offered separately from any employment contract” and does not require repayment to the employer if the worker is terminated, except if the worker is dismissed for misconduct; or
• Retention bonus agreements, provided they meet certain conditions.

AB 1697 also expanded and clarified some critical exceptions, giving employers much-needed flexibility before the new deadline:

• Expanded Bonus Repayment: Under the original framework, repayment clauses for sign-on or retention bonuses were permitted only if executed “at the outset of employment”. AB 1697 removed this restriction.  Employers can now implement retention bonus repayment agreements for existing employees at any point, provided that the bonus is not tied to specific job performance, repayment terms are in a separate agreement, the employee has five business days to consult an attorney, no interest accrues, the repayment is prorated over a period not exceeding two years, the employee can defer receipt of the payment to the end of a fully-served retention period without repayment obligation, and the employee resigned (or was fired for misconduct).
• New Advanced PTO Exception: Employers can now legally recover advanced but unearned vacation or paid time off (“PTO”) balances of up to 40 hours when a worker voluntarily resigns, provided that no interest is charged and the policy was clearly disclosed when the employee requested the advance.
• Government and Educational Programs: Exemptions remain intact for government-funded recruitment or loan forgiveness programs, approved apprenticeship programs, and specific transferable credentials offered independently of the employment contract.

With the January 1, 2027, effective date rapidly approaching, employers should not be complacent.  Employers are encouraged to use the next few months to audit all offer letters, signing bonuses, relocation agreements, and training or tuition reimbursement programs.  Employers may work with their labor counsel to restructure these agreements to ensure legal compliance.

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Forms, Notices, and Other Employment Documents

by Alyssa C. Matsuhara

October 23, 2026

Question: I’m starting a business in California and planning to hire employees.  What documents or notices am I required to give to my employees and post at the office?

Answer: There is a never-ending list of forms, notices, and other documents for California employers.  Employers must provide new and existing employees upon various forms and notices related to employment eligibility, federal and state taxes, workers’ compensation, and wage replacement benefits, and anti-discrimination and anti-harassment laws.  Additionally, there are other documents employers may consider providing to employees, such as employee handbooks.

New Hires

Hiring a new employee requires a lot of paperwork.  Between federal and state law, and depending on the size of the employer, there are dozens of required documents an employer must provide to an employee.  Below are just some of the main legally-required documents:

• Wage and Employment Notice to Employees. This notice is required under California Labor Code section 2810.5 and provides the employee with required information about rate of pay and paid sick leave.
• Form I-9: Employment Eligibility Verification. This federal form is required to verify the identity and employment authorization of individuals hired for employment in the U.S.
• Form W-4: Employee Withholding. This federal form tells the employer how much federal income tax to withhold from the employee’s pay.
• Form DE-4: California Employee’s Withholding Allowance Certificate. This state form tells the employer how much state income tax to withhold from the employee’s pay.
• Harassment, Discrimination, and Retaliation Prevention Policy. California prohibits harassment, discrimination, and retaliation in the workplace.  This written policy is mandatory for California employers.
• Emergency Contact Information Form. Under California’s Know Your Rights Act, employers must allow an employee to provide them with emergency contact information and to indicate if the employee wants the emergency contact to be notified if the employee is arrested or detained at work.

The above items are just a handful of the forms employers are required to give employees upon hiring.  Depending on the size of the employer or your particular industry, additional documents may be required.  Employers are encouraged to implement a “new hire checklist” to help ensure compliance.

Required Posters

There are many posters that employers are legally mandated to print and post in a place that employees are likely to see, such as a breakroom.  A few of those posters include:

• Federal and state minimum wage posters.
• Cal/OSHA’s Safety and Health Protection on the Job poster.
• Paid Sick Leave notice.
• Payday notice.
• California Wage Order poster.
• Workers’ Compensation poster.

Termination of Employment

Employers should also be aware of the documents required when they separate employment with someone, including:

• Notice to Employee as to Change in Relationship. This form is required under California Unemployment Insurance Code section 1089 and advises the separating employee of the change in his or her employment status.
• California Department of Health Care Services’ Health Insurance Premium (HIPP) notice. This notice informs unemployed Californians of the HIPP program, which is an optional premium reimbursement program under Medi-Cal.
• California EDD’s For Your Benefit notice. This notice provides information about programs offered for unemployed Californians such as Unemployment Insurance, State Disability Insurance, Paid Family Leave, and Workforce Services.

Federal and California law require employers to provide many forms and notices to employees, in both the onboarding and separating processes.  The above items are a non-exhaustive list, and employers should be aware of the documents they are legally required to provide to employees based on the size of the company or organization.  When in doubt, an employer may consult with their legal counsel.

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New Laws for 2027

by Kali N. Smiley

October 9, 2026

Question: I heard there are some new California laws that will affect employers in 2027.  What are the new laws, and when do they go into effect?

Answer: Yes, several new employment laws will become effective January 1.  This year, there are some significant impacts relating to minimum wage, the use of artificial intelligence, discrimination and harassment, training requirements, arbitration agreements, and leaves of absence.  Below is a summary of the new laws in these areas. 

Minimum Wage

California’s minimum wage for non-exempt employees will increase to $17.40 per hour.  The minimum salary for full-time exempt employees will increase to $72,384 per year.  Employers should keep in mind that the minimum wage differs for certain employees and should check their city or county’s minimum wage to ensure they are paying their employees the correct minimum wage.

Artificial Intelligence and Automated Decision Systems

This new law prohibits employers from using Artificial Intelligence to avoid compliance with labor and employment laws, inquire about an employee’s protected status, or to discipline employees for exercising their legal rights.  Additionally, employers who primarily rely on Automated Decision Systems to make disciplinary or termination decisions must have a human review and corroborate the output of the Automated Decision System.  The employer must also provide the affected employee with a written notice that the employer used an Automated Decision System.

Immigration Status Discrimination

The new law prohibits employers from using an employee’s perceived immigration status to dissuade the employee from exercising their rights as an employee or to persuade the employee into doing something they can legally refuse or opt out of.  The actual immigration status of the employee is irrelevant, and an employer will still be liable for violating the statute even if the employee faced no risk of deportation or other adverse immigration consequences.  Employers who violate this law may face a $10,000 penalty per employee for each violation.

Harassment and Discrimination on the Basis of Sex

The legislature has expanded the definition of the term “sex” under the California Fair Employment and Housing Act.  The new definition of “sex” will include several new categories including but not limited to: pregnancy, childbirth, breastfeeding, and related medical conditions; gender identity and expression; gender-affirming healthcare; and variations in sex characteristics, including intersex traits or differences in sex development.  Employers should review their policies and practices to ensure they comply with the expanded employee protections.

Bereavement Leave

Under the new law, employees will be permitted to designate any individual as their “designated person” when the employee requests bereavement leave.  Employers must allow employees to take 5 days of bereavement upon the death of any “family member,” which now includes the employee’s designated person.  Employers may limit an employee to one designated person in a 12-month period.  Employers should update their bereavement policy and notify their supervisors and human resources managers of the change of law.

Arbitration Agreements

Arbitration agreements governed by the California Arbitration Act are now subject to all protections and exemptions codified in the Federal Arbitration Act.  Employers with arbitration agreements governed by the CAA should review the FAA to ensure their arbitration agreements are still enforceable and update them as necessary.

To reduce risk, employers are encouraged to conduct internal audits of their handbook policies, personnel procedures, posting compliance, and use of AI.  This article discusses only some of the new laws that will go into effect on January 1.  Employers should contact their labor counsel to ensure compliance with all new labor and employment laws.

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Refresher on Exemption Thresholds

by Marco A. Lucido

September 25, 2026

Question: I’m going to hire a new employee soon.  I want this person to be exempt from the normal overtime and meal and rest period rules.  Can I make this person exempt by paying them a higher salary?

Answer:  Maybe.  A high salary alone does not automatically make an employee “exempt” for purposes of overtime, minimum wage, and meal and rest periods.  In California, an employee needs to satisfy both a salary test and a duties test to be classified as an “exempt” employee.  If an employee cannot satisfy either test, the employee should be classified as a “non-exempt” employee instead.

It is important for an employer to first understand the difference between an “exempt” employee and a “non-exempt” employee.  An “Exempt” employee is generally paid a salary and is not entitled to overtime pay or meal or rest periods.  This employee generally has decision-making authority, and, given the exemption, does not need to complete a timesheet.  On the other hand, a “non-exempt” employee generally must track all time worked and is entitled to overtime pay, meal and rest periods, and other wage-and-hour protections.  For most employees to properly be classified as “exempt,” they must satisfy both “salary test” and the “duties test.”

The “salary test” in California requires that an employee earn at least twice the state’s minimum wage for full-time work (i.e. 40 hours per week).  For 2026, the salary test is a minimum annual salary of $70,304.  Because the test is connected to the state’s minimum wage, it changes each time the state minimum wage changes.

The “duties test” is equally important and sometimes overlooked.  To satisfy the “duties test,” an employee generally needs to meet the requirements of an administrative, executive, or professional exemption as outlined by the California Labor Code and applicable Industrial Welfare Commission (IWC) Wage Order.  The administrative exemption focuses on employees who perform non-manual work related to management or general business operations.  The executive exemption focuses on employees who manage part of the business, including supervision of other employees and authority to hire and fire employees.  The professional exemption focuses on employees who perform work that requires advanced knowledge in a recognized field.  Each exemption generally requires the employee to customarily and regularly exercise discretion and independent judgment.  Employers should keep in mind that the law focuses on the employee’s actual job duties—not only the employee’s job description.

In addition to the administrative, executive, and professional exemptions, there are a few other specific exemptions.  These include outside salespersons, computer software professionals, and physicians.  Different tests that apply to these exemptions.  Also, employers in certain fields, such as healthcare or fast food, must keep in mind that those industries have specific minimum wage rules that could impact that salary test.

Misclassifying an employee as exempt when they should be non-exempt can have costly consequences for employers.  Employers may be held liable for unpaid overtime wages, missed meal and rest break premiums, penalties, interest, and attorneys’ fees.  California also imposes additional penalties for willful misclassification.

Before classifying any employee as exempt, employers should carefully analyze the actual duties and responsibilities of the positions.  Written job descriptions should accurately reflect day-to-day work.  Employers should regularly review employee classifications, especially when roles change. When in doubt, an employer may consult with their legal counsel.

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