Firm News & Events

Governor’s Executive Order on AI Workforce Disruption

by Emmanuel P. Jimenez

July 3, 2026

Question: I’m a small business owner and have used AI to do certain tasks I would previously have given to staff and make my business more efficient. I heard, however, that the Governor issued an order that limits how much employers can use AI to take over tasks that used to be performed by people. Is that true?

Answer: No. The Governor has not issued an order that restricts how employers can use AI in the workplace.  However, the Governor did issue an executive order recently that addresses how AI will, in the near future, disrupt the labor market.

On May 21, 2026, Governor Newsom issued a “first-in-the-nation” executive order aimed at preparing California employees, businesses, and the broader public for the potential labor market disruption associated with the ever-growing adoption of artificial intelligence.  Titled Executive Order N-6-26 (the “Order”), the Order previews the State’s forthcoming policy goals for AI regulation, as well as potential enforcement efforts.

The Order begins by outlining the current state of AI development, as well as the State’s current efforts to foster job growth and workforce development, such as job training opportunities.  The Order then announces that the State intends to “take proactive steps to manage and mitigate” AI’s potential disruptions to the workforce, education, and the economy.

To that end, the Order directs state agencies to study and collect data on AI’s impact on the California labor market.  The Order requires that, within 180 days, the California Labor and Workforce Development Agency recommend revisions to the California Worker Adjustment and Retraining Notification (Cal-WARN) Act to make the Act more responsive to AI developments.  These recommendations would result in changes to California’s layoff notice requirements related to AI-driven workforce shifts. Notably, two other states (Connecticut and New York) have adopted similar revisions to their WARN acts which require employers to notify the state of layoffs related to the adoption of AI.  And currently, there is a similar bill (Senate Bill 951) pending in the California Legislature.

The Order also creates new information-gathering requirements for state agencies.  For example, the Order tasks the LWDA with reviewing policies that provide discharged employees with safety-new protections, including severance policies and temporary work programs.  The LWDA’s safety-net review may foreshadow State-specific proposals that create new benefits for workers displaced by AI, such as mandatory severance programs.

Moreover, the Order requires the LWDA to review how collective bargaining agreements—and the union bargaining process more broadly—are addressing AI’s impact on employees.  Finally, the Order requires the California Employment Development Department to launch a dashboard that shows AI’s “impacts on employment across various sectors.”  This includes a directive to EDD to gather and report feedback from businesses about their adoption of AI into hiring and workforce decisions.

Overall, the Order does not create any new obligations for California employers.  However, it does serve as a roadmap for the State’s policy goals with respect to AI regulation.  Importantly, the Order also hints at areas where the State will likely create new regulations, which do impact employers, in the near future.  Employers should continue to monitor regulatory developments at the state level and, when in doubt, contact their employment counsel for guidance on the impact of any new regulations.

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New Test For Unpaid Volunteers at Nonprofits

by Marco A. Lucido

June 19, 2026

Question: I run a small nonprofit and have unpaid volunteers in addition to paid staff.  When am I permitted to treat an individual as an unpaid volunteer rather than an employee?

Answer: In California, an employer may treat an individual as an unpaid volunteer only if specific criteria are met.  California’s Division of Labor Standards Enforcement (the DLSE) historically took the position that the intent of the parties is the controlling factor.  Under DLSE guidance, a volunteer must donate their time voluntarily without contemplation of pay.  A recent court decision expands on this guidance and outlines a new, two-part test.

In Spilman v. The Salvation Army, the California Court of Appeal clarified when nonprofits may treat an individual as an unpaid volunteer instead of a paid employee.  The individuals who sued The Salvation Army participated in its six-month residential substance abuse rehabilitation program.   In this program, they were required to participate in “work therapy” as part of their rehabilitation efforts.  Common tasks included loading and unloading trucks, accepting and sorting donations, moving carts of donated goods, and picking up donations. In exchange, they received dormitory housing, meals, clothing, gratuities, and rehabilitation services.  They were not, however, compensated for their work.

These individuals sued, claiming that they were employees and should have been paid minimum wage and overtime.  The Salvation Army disagreed and argued that they were volunteers and therefore not entitled to compensation.   The trial court ruled in favor of the Salvation Army based on the ground that there was no “express or implied” agreement for compensation.  The trial court reasoned that an expectation of compensation is essential and that these participants voluntarily participated in the program without an expectation of compensation.  In other words, they knew they were not going to be paid, and they participated anyway.

The individuals appealed, and the California Court of Appeal reversed the trial court’s ruling.  The Court of Appeal reasoned that—unlike an employee—a volunteer agrees to work for a personal or charitable reason or benefit, rather than to earn money.  The Court of Appeal then adopted a new two-part test to make guide this distinction.

For a nonprofit to lawfully use unpaid volunteers, it must now establish both of the following: (1) The worker freely agreed to work for the nonprofit to obtain a personal or charitable benefit, rather than for compensation, and (2) overall, the nonprofit organization's use of the volunteer labor is not a subterfuge to evade the wage laws.  Regarding the first part of the test, the Court stated that the key question is whether the person was motivated by a personal benefit (like rehabilitation or giving back to the community) rather than earning money.  Regarding the second part of the test, the Court noted that any “work” requirement must genuinely serve the volunteer’s personal or charitable purpose rather than serve the organization.  The Court of Appeal also noted that the duration of a volunteer relationship may also be relevant.

Nonprofits in California should closely analyze their classification of volunteers and employees.  These organizations may explore having agreements with volunteers that make it clear they meet these new criteria.  The risks of improperly classifying an employee as a volunteer can be substantial and lead to costly claims for unpaid wages and penalties.  Nonprofits with questions about volunteer status should contact their labor counsel.

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Associational Disability Accommodation Obligations Under FEHA

by Fenton & Keller

June 5, 2026

Question:  I have an employee whose spouse has a disability and requires ongoing care.  The employee requested a modified work schedule so the employee can take the spouse to pre-scheduled doctors’ appointments.  Do I have to accommodate this request?

Answer:  Maybe.  Historically, there has been confusion about whether California law (the Fair Employment and Housing Act) requires employers to provide accommodations to employees who are not themselves disabled but are associated with a disabled person. Recent federal court decisions have clarified this confusion.  A recent string of court opinions suggest that the FEHA requires employers to engage in the interactive process and consider reasonable accommodations for employees associated with a disabled individual.

The FEHA is California’s version of the federal Americans with Disabilities Act.  Like the ADA, the FEHA prohibits discrimination, and separately requires reasonable accommodation, for employees with protected characteristics, including a physical or mental disability.  However, the FEHA does not expressly state whether these protections extend to non-disabled employees caring for a disabled family member.

In 2016, the California Court of Appeal in Castro-Ramirez v. Dependable Highway Express, Inc. held that the FEHA prevents employees from discriminating against employees who are associated with a disabled individual.  However, the court stopped short of deciding whether the FEHA establishes a separate duty to “reasonably accommodate” employees who associate with a disabled person.

Since the Castro-Ramirez, there has been confusion and inconsistent court opinions on this question. But there have been some significant recent developments.  In 2025, three separate federal district courts in California addressed the issue and reached the same conclusion—that the FEHA may require employers to consider reasonable accommodations for employees associated with disabled individuals.  Although not binding on a California state court, these opinions give employers insight into how a state court might analyze the FEHA.

Given these recent opinions, a best practice for employers is to consider reasonable accommodations for employees who are associated with a disabled individual.  Depending on the circumstances, accommodations may include intermittent leave, modified scheduling, remote work, shift changes, or other workplace adjustments that enable the employee to perform the essential functions of the position while assisting a disabled family member.  Employers should engage in the interactive process and evaluate whether the requested accommodation is reasonable under the circumstances and whether it would create an undue hardship.  If a reasonable accommodation exists and does not impose an undue hardship, it should generally be considered.  However, employers are not required to eliminate essential job functions, create new positions, or implement accommodations that would impose significant operational burdens.

These cases do not establish a bright-line rule regarding what accommodations must be provided. Rather, employers must evaluate each request individually.  For example, an employee whose child is undergoing cancer treatment may request a modified schedule or intermittent leave to attend medical appointments.  By contrast, an employee whose child has a temporary, non-serious illness who requests a one-year leave of absence may be seeking an accommodation that is unreasonable or would impose an undue hardship on the employer.

The rules regarding associational disability accommodations including medical certification requirements continue to develop.  A case-by-case analysis is required to ensure compliance with the FEHA.  Employers with questions regarding associational disability are encouraged to consult with their employment counsel.

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Considerations For Termination of an Underperforming Employee

by Christopher J. Nannini

May 22, 2026

Question: I run a small business and am considering terminating an employee.  What are the main things I should consider, and what is the overall process for terminating an employee?

Answer: In California, employment is presumed to be “at-will.”  This means that, unless an employer agrees to terminate the employee only for good cause, an employer may terminate an employee for any reason at any time.  The significant caveat is that the reason cannot be an illegal reason (e.g. discrimination or retaliation).  Often, the practical consideration is to minimize the risk that an employee later claims that the termination was for an unlawful reason. 

Before finalizing the termination decision, employers should pause and review the circumstances surrounding the termination.  Has the employee recently complained about wages, harassment, discrimination, unsafe working conditions, or other workplace issues?  Has the employee recently requested or taken protected leave?  Has the employee filed an administrative complaint or threatened legal action?  Is the employee in a protected category, pregnant, disabled, or requesting an accommodation?  These issues do not prevent termination, but they can increase the risk that the employee will claim the stated reason was a pretext for retaliation or discrimination.  Documentation of legitimate, lawful reasons for discharge help minimize this risk.

Employers should also review whether the termination is consistent with company policy and past practice.  If other employees engaged in similar conduct but were not terminated, the employer should be prepared to explain the difference.  If the company has a progressive discipline policy, the employer should confirm whether the required steps were followed or whether immediate termination is justified by the severity of the conduct.  The employer should also review the personnel file to make sure the documented performance or conduct issues support the decision.

If an employer determines to proceed with a termination, the reason given to the employee should be truthful, accurate, and carefully stated.  A reason that later proves false can substantially undermine the employer’s defense in litigation.  For example, stating that an employee made accounting errors on the July 2024, August 2025, and January 2026 billing reports could create an issue if the employee later proves that they did not actually make errors on these specific reports.  An employer may want to instead state that the employee made several errors on billing reports over the past two years.  A well-drafted explanation of the termination should be clear enough to provide notice, but broad enough to minimize the risk that it is later proved incorrect.

Timing is also important.  When an employer discharges an employee, all earned and unpaid wages, including accrued and unused vacation hours, are generally due on the last day of employment.  Failure to timely pay final wages can result in waiting time penalties of up to 30 days.  Employers should be prepared to provide the final paycheck on the last day of employment.

At the time of termination, the employer should provide the employee with the California Employment Development Department (“EDD”) pamphlet (DE 2320), and a Notice of Change in Relationship form.  Sample documents for these forms are available on the EDD’s website.  Additionally, businesses with 20 or more employees must give qualifying terminating staff a notice (DHCS 9601) regarding California's Health Insurance Premium Payment (“HIPP”) program for Medi-Cal benefits.

In higher-risk situations, employers should consider consulting employment counsel before termination.  Sometimes, although not legally required, a delaying termination to improve documentation can help minimize risk.  Employers may also consider offering severance in exchange for a release of claims.  Employers with questions about terminating an employee should consult their employment counsel.

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