Most California employers think about their time and attendance records in only one context: the day a plaintiff’s lawyer subpoenas them. By then, the records are working against you — every late meal punch, every missing premium, every off-the-clock minute becomes a line item in someone else’s damages model. But the same data that creates exposure when you ignore it becomes one of your strongest defensive and operational assets when you actually use it. The difference between the two is simply whether you are reading your records on an ongoing basis or seeing them for the first time in discovery.

Here are five ways California employers can put their time records to work proactively.

1. Your records are the proof that you took the “reasonable steps” that cap PAGA penalties.

The 2024 PAGA reforms gave employers a defense that did not exist before: an employer that has taken “all reasonable steps” to comply with the Labor Code before receiving a PAGA notice caps its civil penalties at 15% of the amount otherwise recoverable, and an employer that takes those steps within 60 days after the notice caps them at 30%. Against a default exposure of $100 per pay period, per aggrieved employee (and up to $200 for subsequent violations), that cap is the difference between a seven-figure case and a five- or six-figure one. The statute expressly lists conducting periodic payroll audits and acting on the results as a reasonable step — and a payroll audit is only as good as the records behind it. The same is true of premium payments. Under Donohue v. AMN Services, LLC (2021), time records showing missed, short, or late meal periods create a rebuttable presumption that a compliant meal period was not provided. You rebut that presumption by showing you paid the one-hour premium — and your records are what prove you paid it, and when. Records you actually work with are the evidentiary backbone of the entire reasonable-steps defense. (For more on recording and reporting these issues, see our recent update on electronic timekeeping and pay stub compliance.) This is the primary reason I co-founded Scaled Comp – a software platform to help lawyers and employers analyze time records in an efficient process to decrease liability.

2. Your records tell you which managers understand the rules — before one gap becomes a systemic problem.

Aggregate compliance numbers hide more than they reveal. When you look at the underlying records, a cluster of late meal breaks at one store, or a manager whose location never records a single break premium, usually is not a workforce-wide problem — it is a training problem with a single supervisor. Catching that pattern in a monthly review lets you correct it with coaching and documentation while it is still small. This matters for two reasons. First, training supervisors on Labor Code and Wage Order requirements and taking appropriate corrective action with supervisors who fail to follow the law are both expressly named reasonable steps under the reformed PAGA — so the very act of identifying and correcting the manager builds your defense. Second, an issue you catch and fix in March is a handful of premium payments; the same issue discovered in litigation two years later is a class period.

3. Attendance and tardiness patterns are early intelligence on performance and risk.

Your time records are a performance-management tool, not just a compliance record. Chronic tardiness, employees performing work before they clock in, and punches that drift outside scheduled shifts are all visible in the data — if someone is looking. Two patterns deserve particular attention. Off-the-clock work, where an employee is regularly in the building and working before the clock-in punch, must be paid and addressed promptly, because an employee cannot waive the right to be paid or the right to minimum wage. And identical punch times day after day are a red flag: real human start times vary by a few minutes, and records showing everyone clocking in at exactly 8:00:00 every day invite the argument that the time was not actually recorded as worked. When you spot these patterns, pay what is owed, document the issue, and apply consistent discipline. That record of paying employees and correcting problems as you learn of them is exactly what demonstrates a policy with teeth — and it supports legitimate, well-documented employment decisions if performance ultimately becomes a separation issue. (See our recent post on termination best practices to reduce liability.)

4. Location-level data isolates your real exposure and tells you where to look first.

Running wage-and-hour compliance across a portfolio of locations is a fundamentally different challenge than running one — your exposure compounds with every site you add, and you cannot be everywhere at once. Records that can be sliced by location and ranked by issue type let you see at a glance where your biggest exposure sits, instead of working through site-by-site reports one at a time. If three of your twenty locations account for most of your missed-break premiums, that is where your audit time, your retraining, and your management attention belong. The goal is to drive your violation rate down to the point — generally a couple of percent or less — where the reasonable-steps defense is genuinely available and your residual exposure is simply not large.

5. The same data forecasts and prevents tomorrow’s violations — at the scheduling stage.

Everything above reads the records after the work happens. The highest-value use turns them around to look forward. California’s overtime structure alone is a forecasting problem: daily overtime after 8 hours, double time after 12, weekly overtime after 40, and overtime (then double time) on the seventh consecutive day in a workweek. Layer on split-shift premiums and reporting-time pay, and a schedule that looks fine on paper can carry premium obligations no one priced in. Historical records show you which shift patterns trigger these costs, so you can flag them while the schedule is still a draft — before it is published, when changing it is free — rather than discovering the overtime on the back end. That is both a compliance control and a budgeting tool: you are managing labor cost and legal exposure in the same moment, rather than reconciling both after payroll has already run. (Split-shift premiums and reporting-time pay each carry enough nuance to deserve their own treatment, and I will take them up in a future column.)

The throughline is simple: records you look at only in litigation are a liability, and records you work with every month are an asset. The cost of building that habit is modest, and in 2026 the technology to automate most of this by using software like Scaled Comp is very accessible for most employers. The cost of not building it tends to show up all at once, years later, in a demand letter.

California employers know the rule by heart: non-competition agreements are void in this state. Business and Professions Code section 16600 has been on the books for over a century, and the Legislature doubled down in 2024 with SB 699 and AB 1076, making it unlawful even to attempt to enforce a non-compete and requiring employers to send notices to employees who had signed them. The conventional wisdom that follows is that when a competitor raids your workforce — or when your star branch manager walks out the door with your team and your customers — there is nothing you can do about it.

Readers of this blog know that the conventional wisdom is wrong. As I wrote last June in “Noncompetition Agreements Remain Unenforceable in California — But Employers Still Have Tools to Protect Company Assets”, the end of the non-compete did not leave California employers defenseless: the Labor Code’s duty of loyalty (sections 2860 and 2863), interference claims, and other statutory and common law remedies remain available to protect company assets. A new published Court of Appeal decision now shows just how much force those tools carry.

In Guild Mortgage Company LLC v. CrossCountry Mortgage LLC (4th Dist., Div. One, May 27, 2026, D085036/D085273), the court made clear that while California protects employee mobility after the employment ends, employees owe their employer an undivided duty of loyalty while they are still employed — and managers entrusted with running the business may owe full fiduciary duties on top of that. A competitor that helps employees breach those duties can be liable for aiding and abetting the breach. Here are five takeaways from the decision for this Friday’s Five.

1. The facts: a branch “gutted” from the inside

Guild and CrossCountry (CCM) are rival nationwide residential mortgage lenders. According to Guild’s complaint, over an 18-month period CCM induced and conspired with several of Guild’s branch employees — including the branch manager, a senior loan officer, and the branch operations manager — to gut the branch by recruiting their Guild colleagues to come work for CCM, diverting Guild’s customers to CCM, and converting Guild’s pipeline of active loan applications to CCM. Critically, all of this allegedly occurred while those employees were still employed, and being paid, by Guild. The conspirators also allegedly accessed Guild’s computer systems without authorization and copied confidential customer financial information, loan-level data, and employee compensation information.

The result was a mass resignation of virtually all of the dozens of employees at the branch. Guild first arbitrated against the three ringleaders and won — the arbitrator ordered the branch manager alone to pay over $10.6 million. Guild then sued CCM. The trial court sustained CCM’s demurrers and dismissed the entire case, concluding the employees owed Guild no actionable tort duty and that the remaining claims were displaced by California’s Uniform Trade Secrets Act (CUTSA). The Court of Appeal reversed across the board.

2. Every employee owes a duty of loyalty — not just executives

The centerpiece of the decision is its reaffirmation that “an employee, while employed, owes undivided loyalty to his employer.” The court grounded this in longstanding case law (Huong Que, Inc. v. Luu (2007); Fowler v. Varian Associates, Inc. (1987); Stokes v. Dole Nut Co. (1995)) and in Labor Code section 2863, which requires an employee who has business of his own similar to that entrusted to him by his employer to “always give the preference to the business of the employer.”

The court drew the line that matters for employers and employees alike: California law permits an employee to seek other employment and even to make some preparations to compete before resigning — but it “does not authorize an employee to transfer his loyalty to a competitor.” Recruiting your coworkers for a competitor, steering customers away, and moving the company’s active business pipeline to a rival while still drawing a paycheck crosses that line.

Significantly, the court declined to follow AMN Healthcare, Inc. v. Aya Healthcare Services, Inc. (2018), which some defendants have read to mean that an employee’s obligations to an employer sound only in contract, not tort. The Guild Mortgage court held that AMN never considered the contrary authority or Labor Code section 2863, and that disloyalty of this kind violates a social policy meriting tort remedies. This is a meaningful clarification: the duty of loyalty exists by operation of law, with tort remedies attached, whether or not the employee signed anything.

3. Fiduciary duty turns on function, not title

CCM argued that the branch manager could not owe fiduciary duties because he was “merely a branch manager,” not a corporate officer. The court rejected the argument, relying on GAB Business Services, Inc. v. Lindsey & Newsom Claim Services, Inc. (2000): an officer or manager who participates in the management of the company and exercises some discretionary authority is a fiduciary as a matter of law, while a purely “nominal” officer with no management authority is not. As GAB put it, the test “is not control; it is, instead, merely participation in management” — a low threshold.

The Guild Mortgage court distilled the principle into a sentence every employer should remember: what matters is not the title, “but rather the levels of trust, confidence, and discretion reposed by the employer.” Guild had entrusted its branch manager with stewardship of a sizable branch, supervision of dozens of employees, and safeguarding sensitive customer financial information. That was enough to plead a fiduciary relationship — and a competitor that knowingly assists a fiduciary’s betrayal can be liable for aiding and abetting the breach.

4. CUTSA does not swallow the case

The trial court had dismissed Guild’s interference claims and its claim under Penal Code section 502 (the Comprehensive Computer Data Access and Fraud Act, or CCDAFA) on the theory that CUTSA displaced them. The Court of Appeal disagreed on both fronts, and these holdings are important for any employer litigating employee-raiding cases.

First, on the interference claims, the court applied the “gravamen” test: courts look at the gist of the complaint to determine whether a claim is really just a repackaged trade secret claim. Here, the heart of Guild’s case was not the taking of confidential information — it was a coordinated scheme to sabotage a branch by appropriating its personnel, customers, and business pipeline while the key players were still on Guild’s payroll. The data theft was in aid of that scheme, not the scheme itself. Claims with that independent factual basis survive.

Second, in a holding of first impression in the published California case law, the court held that CUTSA does not displace civil claims under the CCDAFA at all. The two statutes target different social ills — CUTSA protects intellectual property; the CCDAFA protects the integrity of computer systems and data. The court found it implausible that the Legislature created (and later expanded) the section 502 civil remedy only to have it swallowed by CUTSA, enacted in the same month in 1984. For employers, this confirms that unauthorized access to company systems by departing employees supports a standalone statutory claim with its own remedies, regardless of whether the information taken qualifies as a trade secret.

5. Practical steps for employers — on both sides of the raid

For employers worried about being the target of a raid:

  • Ensure your employment agreements with managers and key employees include enforceable provisions — duties of confidentiality, agreements not to solicit or divert clients and employees during employment, and acknowledgments of the trust and discretion placed in managerial roles (the Guild employees had exactly these provisions, and they supported the interference-with-contract claim).
  • Maintain and enforce computer access policies, since unauthorized access and copying is what triggers CCDAFA liability.
  • Monitor for the warning signs — unusual data downloads, coordinated resignations, customers suddenly moving to a competitor — and act quickly, because Guild’s prompt arbitration against the individual employees produced a substantial award before the case against the competitor was even decided.

For employers doing the hiring: this decision is equally a warning. Recruiting from a competitor is lawful — California protects employee mobility, and nothing in Guild Mortgage changes that. But there is a difference between hiring a competitor’s employees after they resign and enlisting a competitor’s current employees to recruit their colleagues, divert customers, and move business while still on the competitor’s payroll. Aiding and abetting a breach of the duty of loyalty or fiduciary duty exposes the new employer to the full range of tort remedies, including potential punitive damages. Train your recruiters and managers on where that line sits, and document that candidates are not bringing data, customer lists, or active business with them.

The lesson of Guild Mortgage is that California’s hostility to non-competes was never a license for disloyalty. The non-compete ban governs what employees may do after they leave; the duty of loyalty governs what they may do before they leave. Employers should make sure their agreements, policies, and litigation strategies account for both.

Terminating an employee is one of the hardest things a business does, and it is almost certainly the most legally scrutinized decision you will make in the workplace. It is also one of the few decisions that triggers immediate legal obligations — the clock starts running the moment you end the relationship. Yet how to actually conduct a termination is not taught in any management class.

The good news is that a termination handled the right way is not just a risk to survive — it is an opportunity to reduce your liability. The same disgruntled employee who walks out feeling blindsided and shorted is the one who calls a plaintiff’s firm on the drive home. The employee who is treated with respect, paid everything owed on the spot, and given a clean process to point back to is a much harder case for that firm to build. Here are five things to get right.

1. Document the true reason for the termination — and do not sugarcoat it

    If the termination is for cause, say so and document it as for cause. Do not take the easy route and tell the employee they were “laid off” or that it was a “reorganization” when the real reason was poor performance, theft, or a policy violation. It feels kinder in the moment, and it avoids an awkward conversation, but it sets a trap for the company.

    Here is why. If that employee later sues — for discrimination, retaliation, or wrongful termination — and the company has to explain in litigation that the real reason was performance, you have handed the plaintiff a credibility problem. The story changed. A shifting explanation for a termination is exactly the kind of evidence a plaintiff’s lawyer uses to argue the stated reason was pretext for an unlawful one. Juries notice when the reason on the separation paperwork does not match the reason the company gives under oath.

    Document performance as you actually see it, contemporaneously, and make sure the reason you give the employee, the reason in the file, and the reason you would give a jury are all the same reason. Consistency is your friend here.

    2. Have the final paycheck — and everything else owed — ready before the meeting

    This is the issue that did not get enough attention a few years ago and now drives a meaningful share of termination claims. Under Labor Code section 201, when you terminate or lay off an employee, all final wages are due immediately, at the time of discharge — not on the next payday, not at the end of the week, not “once payroll runs.” (If an employee quits without notice, you have 72 hours; with at least 72 hours’ notice, it is due on the last day.)

    “Final wages” is broader than people assume. It includes regular and overtime wages, and all accrued, unused vacation or PTO, which California treats as earned wages that cannot be forfeited. It also includes earned commissions and non-discretionary bonuses to the extent they can be calculated.

    Miss the deadline and you are exposed to waiting time penalties under Labor Code section 203: the employee’s full daily wage rate for every day the final pay is late, up to 30 days. For a single mid-level employee that can run into thousands of dollars on its own — and these penalties are a favorite add-on claim because they are easy to prove and separate from the underlying wages. The one escape valve is a genuine good-faith dispute about whether the wages were actually owed; a payroll-processing delay or “we needed a few more days” is not a defense.

    A practical, easily missed trap that ties into scheduling: if you bring an employee in for a scheduled shift and then terminate them early in that shift, you may owe reporting time pay on top of everything else — generally half the scheduled shift (no less than two and no more than four hours) at the regular rate. If you are going to terminate someone who is scheduled to work, either handle it before the shift or let them work at least half of it. Better yet, build the final-pay calculation before the employee ever walks into the room. Planned terminations should never produce a late or short final check.

    3. Conduct the termination meeting with respect

    There is nothing scientific about this one, but after years of defending these cases I am a firm believer in good bedside manner. Most employees will not enjoy being terminated, but they will usually understand the decision if they were given honest performance feedback along the way and were treated like an adult during the meeting itself.

    The employees who sue are very often not the ones with the strongest legal claim — they are the ones who felt humiliated, ambushed, or disrespected on the way out. Keep the meeting brief, factual, and private. Have a second management witness present. Do not argue, debate, or pile on; the decision is made, and the meeting is to deliver it, not to relitigate it. Tell them what comes next — final pay, benefits continuation, return of property — so they leave with information rather than a grievance.

    Dignity is cheap, and it is one of the most cost-effective forms of litigation prevention available to an employer.

    4. If you offer severance, get the release right under current California law

    Paying severance can cost money in the short term, but in exchange for that payment you should obtain a release of claims — and a properly drafted release can save enormous time and money down the road. The catch is that the rules for what a California severance agreement can and cannot say have changed significantly, and an agreement built off an old template may be unenforceable or expose you to new claims.

    A few of the current requirements and limits to keep in mind:

    • SB 331 (the “Silenced No More Act”). For agreements signed on or after January 1, 2022, you must give the employee at least five business days to consider the severance agreement (they may sign sooner if they choose), and you must advise them in writing of their right to consult an attorney. The agreement cannot prevent the employee from disclosing factual information about unlawful acts in the workplace such as harassment, discrimination, or retaliation, and any non-disparagement provision tied to a FEHA release must include specific carve-out language preserving the employee’s right to discuss unlawful conduct. You can still keep the severance amount confidential and protect genuine trade secrets.
    • No “no-rehire” clauses. Under AB 749, settlement and severance agreements may not contain provisions barring the employee from future employment with the company or its affiliates.
    • Non-competes are void — and you may owe notice. California’s prohibition on non-competes was strengthened by SB 699 and AB 1076 (effective January 1, 2024), which also created a private right of action and required employers to send individualized written notice to current and certain former employees that any non-compete provisions are void. Do not paper a severance agreement with restrictive covenants that California will not enforce; doing so can itself be treated as unfair competition.
    • Older workers (age 40+). If you want a valid release of age claims under the federal ADEA/OWBPA, you still need the separate consideration period (generally 21 days, or 45 days in a group layoff) and a 7-day revocation window. These run alongside, not instead of, the SB 331 timeline.

    The takeaway: a release is still one of the best tools you have, but only if it is current. Have counsel review your template — not every few years, but on the cadence California’s legislature actually moves, which is essentially every year.

    5. Keep the right records — and work from a checklist

    Most of what protects you in litigation is built before the lawsuit ever arrives, in the form of records you can actually put your hands on. Retention guidelines worth following:

    • Payroll and time records: keep at least four years on a rolling basis. The Labor Code requires shorter periods, but wage claims (including unfair competition claims under the UCL) can reach back four years, so four years is the practical floor.
    • Personnel files: at least three years after termination, and longer is advisable given the longer statutes of limitations on many employment claims.
    • Paid sick leave records: at least the statutory period, and keep in mind accrued, unused sick time may need to be reinstated if you rehire within a year.
    • If litigation is anticipated: preserve everything and suspend routine destruction until the matter resolves.

    Then build a checklist and use it every single time. Termination is exactly the kind of high-pressure, emotionally charged event where it is easy to forget a step, and a checklist forces you to think the process through when there is no pressure — final pay calculated, accrued vacation included, benefits/COBRA information ready, property return arranged, access and credentials disabled, separation documents prepared and compliant, and the reason documented consistently. A checklist also lets you confirm your managers are following both the legal requirements and your own internal process.

    One additional 2026 note if you are doing anything larger than a one-off termination: the California WARN Act now requires expanded content in mass-layoff, relocation, and termination notices issued on or after January 1, 2026 (SB 617) — including information about workforce development board coordination and the CalFresh food assistance program. If you are contemplating a reduction in force, loop in counsel early; the 60-day notice obligation and the new notice content are easy to get wrong and costly when you do.

    A termination will never be pleasant. But the difference between a termination that becomes a six-figure problem and one that quietly closes the file usually comes down to the things in this list: an honest, consistent reason; a final check that is correct and on time; a respectful conversation; a release that complies with current law; and records you can actually find. Do those five things and you have turned one of your riskiest decisions into one of your better-defended ones.

    Join Our Upcoming Masterclass

    Terminating California Employees — Exiting with Confidence: Best Practices for Lawful Terminations and Litigation Prevention

    Tuesday, June 17, 2026, 10:00 AM PT

    A termination is one of the highest-risk decisions a California employer makes — and often the first thing a plaintiff’s attorney scrutinizes when a claim comes in. Performance issues, misconduct, protected leave, final pay deadlines, and severance terms all have to be weighed before the decision is final, and a misstep on any one of them can turn a routine separation into a wrongful termination, discrimination, or retaliation claim.

    Join Anthony Zaller and Anne McWilliams for a practical Masterclass designed to help California employers make sound, defensible termination decisions while minimizing litigation exposure. Attendees will leave with actionable guidance on documentation, pre-termination risk assessments, separation and final pay requirements, and severance and release agreements.

    In this session, you will learn how to:

    • Identify the legal risks that should be assessed before a termination decision is final
    • Build documentation that supports and defends the decision
    • Conduct a termination meeting that reduces conflict and exposure
    • Use severance and release agreements effectively
    • Meet California’s final pay and separation requirements
    • Reduce the risk of wrongful termination, discrimination, and retaliation claims

    Register here.

    California employers have extensive obligations under the Labor Code to create and maintain accurate time records and pay stubs. The Labor Code itself doesn’t prescribe a specific format or technology, but the way employers handle these records has only grown more important — particularly after the 2024 Private Attorneys General Act (PAGA) reform, which ties penalty caps to whether an employer can show “reasonable steps” toward compliance. Solid, accessible records are now one of the strongest pieces of evidence employers can put in front of a court or the Labor Commissioner.

    This Friday’s Five covers five issues every California employer should think through when it comes to electronic timekeeping and pay stubs.

    1. Is there a required type of timekeeping system?

    No. California law does not mandate any particular timekeeping system, and pen-and-paper records remain legally permissible. The key requirement is that records be kept in “ink or other indelible form” — meaning entries cannot be erased, altered, or made to disappear.

    That said, most employers — even those with only a handful of employees — have moved to electronic systems for good reason. Electronic timekeeping reduces calculation errors, creates a clear audit trail for any time edits, and integrates with meal break flagging, daily and weekly overtime calculations, and split shift premium tracking. In the current enforcement environment, the ability to pull a clean, organized report of every shift, break, and edit can make an enormous difference. A pen-and-paper record kept in a binder is legal, but it isn’t going to help much when a plaintiff’s firm requests four years of records.

    2. Can time records be kept electronically?

    Yes, with conditions. California Wage Orders require time records to be kept “in the English language and in ink or other indelible form.”

    The Division of Labor Standards Enforcement (DLSE) addressed electronic storage in two Opinion Letters that don’t perfectly line up:

    – A July 20, 1995 Opinion Letter concluded that electronic storage satisfies California law if the records (1) are retrievable in California and (2) can be printed in indelible format upon request of the employee or the Division.
    – A November 10, 1998 Opinion Letter said the underlying electronic data could be maintained outside California, so long as a hard copy was kept at a central location within the state.

    Because the two letters are not perfectly aligned, the conservative reading is to follow the Wage Orders themselves: records “shall be kept on file by the employer for at least three years at the place of employment or at a central location within the State of California.” As a practical matter, employers should be confident they can produce records — either electronically or on paper — that are stored in California at any time.

    One additional practical recommendation: do not rely entirely on a vendor’s cloud. Download time records periodically and store a copy on your own system. If you change software providers, terminate a vendor relationship, or run into a billing dispute that interrupts access, you don’t want to discover that the records you need to defend a lawsuit are locked behind a portal you can no longer reach.

    3. Electronic pay stubs

    Labor Code section 226 contains language similar to the Wage Orders — deductions must be “recorded in ink or other indelible form, properly dated, showing the month, day, and year,” and a copy must be kept on file for at least three years at the place of employment or at a central California location.

    The DLSE addressed electronic pay stubs in a July 6, 2006 Opinion Letter that approved electronic delivery if the employer meets specific conditions. The DLSE’s stated goal was to harmonize the “detachable part of the check” provision and the “accurate itemized statement in writing” requirement of Labor Code section 226(a) — permitting electronic statements so long as each employee retains the right to elect a paper version and electronic recipients can easily access and convert their statements at no expense.

    In short, the DLSE expects employers to meet the following:

    • Employee election. Any employee may elect to receive paper pay stubs at any time.
    • Complete information by payday. All information required under Labor Code section 226(a) must be available on a secure website no later than payday.
    • Secure access. The website must be controlled by unique employee IDs and confidential PINs, protected by a firewall, and generally available (downtime only for system errors or maintenance).
    • Reasonable accessibility. Employees must be able to access records on their own computers or on company-provided computers, with terminals available at work.
    • Free printing. Employees can print at work, near the access point, at no cost — and may also save or print from home.
    • Three-year retention with continuing access. Electronic statements must be available to active employees for at least three years. Former employees must receive paper copies at no charge upon request.

    The DLSE has not issued comparably detailed guidance specifically endorsing electronic time records, but the underlying analysis is similar. Employers moving in this direction should work with counsel and confirm their system covers each of the items above.

    4. What time records must capture (it’s more than start and stop)

    This is where many employers fall short. The Wage Orders require time records showing “when the employee begins and ends each work period. Meal periods, split shift intervals and total daily hours worked shall also be recorded. Meal periods during which operations cease and authorized rest periods need not be recorded.” (See, e.g., IWC Wage Order 5-2001(7)(a)(3).)

    Labor Code section 1174 adds the requirement to keep records of hours worked daily, wages paid, number of piece-rate units earned, and the applicable piece rate.

    A few practical points worth highlighting:

    • Record meal breaks to the minute. Recording the start and stop time of each meal period — not just total hours worked — is essential. Without those entries, recent case law has applied a presumption against the employer that a compliant break was not provided.
    • No rounding. With electronic timekeeping there is little practical reason to round time entries, and the California Supreme Court has signaled growing skepticism of rounding generally. Recording to the minute is the safer practice.
    • Track premium payments separately. When you pay a meal or rest break premium, identify it clearly on the pay stub. If a plaintiff’s firm later argues no premiums were ever paid, you want a clean record showing exactly when and why each one was issued.
    • Capture split shift intervals. The Wage Orders specifically call this out, but it is easy to overlook unless the system is set up for it.


    5. Records must be maintained in California — and kept long enough to matter

    The Wage Orders and Labor Code section 1174(d) both require records to be kept “at the place of employment or at a central location within the State of California” for at least three years.

    Two practical notes on retention:

    • Three years is the floor, not the ceiling. The statute of limitations for many wage and hour class actions extends back four years under Business and Professions Code section 17200. Most employers should plan on retaining time records and wage statements for at least four years.
    • Make sure the data is actually usable. Saved records do an employer no good if they cannot be reproduced in a format that is accurate and readable. Periodically test your system by pulling a sample of records the way you would have to in litigation. If you cannot easily generate a clean report of clock-in/clock-out times, meal break start and stop times, premium payments, and time edits, fix that now — not after a PAGA notice arrives.

    The bigger picture

    The 2024 PAGA reform changed the calculus significantly. Employers who can demonstrate reasonable steps to comply with the Labor Code prior to receiving a PAGA notice can cap penalties at 15% of the total civil penalties. Employers who take corrective action within 60 days of receiving notice can cap penalties at 30%. Those caps can be the difference between a seven-figure case and a manageable one.

    Reasonable steps don’t come from a single policy document. They come from the combination of lawful written policies, supervisor training, periodic payroll audits, prompt corrective action when issues come up, and — central to all of it — time and pay records that are accurate, complete, properly retained, and able to be produced when needed.

    The technology to do this well is widely available in 2026, and using it has moved closer to an expectation than an option for California employers. If your current system cannot quickly tell you which employees were owed premiums last quarter, which meal breaks were short or late, or which managers have been editing time entries without documentation, those gaps are worth closing before someone else finds them first.

    Artificial intelligence has quietly become part of how work gets done. Employees are using it to draft emails, summarize documents, build spreadsheets, and answer customer questions — often without anyone in management deciding that should happen. For employers, the question is no longer whether AI is in the workplace. It is whether it is being used on the company’s terms, with the right guardrails in place.

    California has also moved quickly. New regulations now govern how employers can use AI in employment decisions, and existing confidentiality and privacy obligations apply to AI just as they apply to everything else. A clear, written AI policy is the most practical way to encourage productive use while managing the risks. Here are five reasons every California employer should have one.

    1. New California regulations now govern AI in employment decisions

    Effective October 1, 2025, the California Civil Rights Council adopted regulations under the Fair Employment and Housing Act (FEHA) addressing “automated-decision systems” (ADS) — broadly, any computational tool that makes or helps make employment decisions. (2 Cal. Code Regs., tit. 2, §§ 11008.1 et seq.)

    The regulations confirm that using an AI tool to assist with hiring, screening, scheduling, evaluations, promotion, or discipline can violate California law if it produces discriminatory results — whether intentionally or through disparate impact — based on protected characteristics. Three points stand out for employers: the rules require retaining ADS-related data for at least four years; liability extends to the employer even when the tool comes from a third-party vendor; and bias testing of a tool is treated as relevant evidence supporting an employer’s defense, while the absence of testing can be used against you. A policy requiring meaningful human review before AI drives any employment decision is the necessary first step.

    2. AI can compromise confidential information and trade secrets

    This is the risk that catches most employers off guard. Many AI tools store the information users submit, process it on outside servers, and may use it to train the underlying model. When an employee pastes pricing, recipes, formulas, supplier terms, or business strategy into a public AI tool, the company can lose control of that information.

    That creates two problems. Information generally qualifies for trade secret protection only if the company takes reasonable steps to keep it secret, and disclosing it to a public AI tool can be treated as a failure to do so. Separately, most employers owe confidentiality obligations to their own customers, guests, and vendors under contracts and nondisclosure agreements — and disclosing that information to an AI tool can breach those agreements. A policy that prohibits entering confidential information into any AI tool without approval draws the line before the leak happens.

    3. Employee and customer privacy obligations still apply

    Feeding personal information about employees, customers, or guests into an AI tool implicates California’s privacy laws, including the CCPA and CPRA. The fact that the information is being handed to software rather than a person does not change the obligation to protect it. A policy should make clear that personal information does not go into an AI tool unless the specific use has been approved and the tool meets the company’s security and privacy requirements.

    4. Accuracy and accountability cannot be outsourced

    AI tools produce confident, polished output that is sometimes inaccurate, incomplete, or entirely fabricated. The employer inherits those errors — in internal work product, in customer communications, and, in some well-publicized cases, in documents filed with courts and agencies. “The AI said so” is not a defense.

    A good policy makes employees responsible for verifying anything they rely on and treats AI output as a first draft rather than a final answer. That single expectation, communicated clearly and in writing, prevents a great deal of avoidable trouble.

    5. Your employees are already using it

    The most important reason may be the simplest. Employees are already using AI at work whether or not their employer has authorized it — often through personal accounts on personal devices. A 2025 Cybernews survey of more than 1,000 U.S. employees found that 59% use AI tools their employer never approved, and that 75% of those workers admit to sharing potentially sensitive information — including employee data, customer details, and internal documents — with those tools. This “shadow AI” is the real status quo. Without leaning into AI, providing safe AI tools for employees to use, and developing an AI policy, employers have no notice of what tools are in use, no monitoring, and no documented expectation that company AI activity is tracked and stored like other technology.

    A policy does not stop employees from using AI. It channels behavior that is already happening into approved tools, with clear rules, monitoring, and a stated lack of any expectation of privacy when using company systems. That is far better than learning about a problem after the fact.

    A practical next step

    An AI policy does not need to be long or complicated to be effective. It should encourage employees to use approved tools, prohibit putting confidential information into AI without approval, require human review of AI-assisted employment decisions, and make clear that company AI use is monitored. We have prepared a model AI use policy and a one-page employee quick guide that our clients are using to put these protections in place. If you would like to discuss adopting a policy for your business — or you are already using AI in any part of your hiring or HR process and want to assess your exposure under the new FEHA regulations — we are happy to help.

    California employers face one of the most complex and actively enforced wage-and-hour landscapes in the country, and most of that complexity gets triggered the moment a schedule is built. Daily overtime, meal and rest break timing, premium pay obligations, split shifts, reporting time pay, and PAGA exposure all flow from how shifts are scheduled and recorded. This week’s Friday’s Five walks through five scheduling-related issues that California employers should review now, drawn from the topics we covered in our recent masterclass on this subject.

    1. Predictive scheduling: California has no statewide rule, but local ordinances and existing wage laws still constrain how you schedule.

    California has no statewide predictive scheduling requirement. Bills have been proposed nearly every year going back to at least SB 878 in 2016 (which would have required 28 days’ advance notice for retail, grocery, and restaurant employers), but none have passed. Local ordinances do apply, however — the Los Angeles Fair Work Week Ordinance covers certain retail employers in the City and County of Los Angeles, and Berkeley, Emeryville, and San Francisco have their own ordinances as well. Employers should check whether any local ordinance applies to their workforce and industry.

    Even without a statewide predictive scheduling statute, California’s existing rules — daily overtime, meal and rest break timing, split shifts, and reporting time pay — already constrain how schedules can be set and changed, and the penalties for getting any of them wrong are significant.

    Even without a predictive scheduling statute, California employers should treat scheduling as a compliance function with seven-figure exposure if it is managed poorly.

    2. Meal breaks still drive the majority of wage-and-hour litigation — get the basics right and use the new waiver guidance from Bradsbery.

    Meal break claims continue to drive the majority of California wage-and-hour cases. The framework comes from Brinker Restaurant Group v. Superior Court (2012): for non-exempt employees working more than five hours in a day, the employer must provide a 30-minute meal break that begins before the end of the fifth hour. For shifts over ten hours, a second 30-minute meal break must begin before the end of the tenth hour. The employer’s duty is to provide the meal period, not to police it — but in practice we continue to recommend forcing employees to clock out for the full 30-minute break. When records show employees consistently working through breaks, the recent line of cases creating a presumption against the employer becomes very difficult to overcome.

    On waivers, Bradsbery v. Vicar Operating, Inc. (April 2025) clarified that prospective, written, revocable meal period waivers signed at the outset of employment are enforceable for shifts between five and six hours, provided the employee voluntarily consents, understands the waiver, can revoke the waiver at any time, and is not coerced into signing it. Waivers should be standalone documents with clear language addressing both the first and second meal break, not buried inside an onboarding packet. Do not confuse the meal break waiver with an on-duty meal period — the on-duty meal period is available only in very limited circumstances and should not be relied on absent specific legal advice.

    Meal break compliance is the first thing plaintiffs’ counsel reviews when they get an employee’s time records — get the records right and consider implementing standalone onboarding waivers consistent with Bradsbery.

    3. Pay the premium proactively — it is the single most effective way to build the PAGA reasonable steps defense.

    When a meal or rest break is missed, late, or short, the employer owes one hour of pay at the employee’s regular rate of pay. The premium is capped at one meal period premium and one rest period premium per workday. Remember that the regular rate of pay calculation — not the base rate — governs the premium, so non-discretionary bonuses, commissions, and service charge distributions need to be folded in.

    The 2024 PAGA reform created a critical incentive to pay these premiums proactively. Default PAGA exposure is $100 per pay period per aggrieved employee for initial Labor Code violations and $200 per pay period for subsequent violations, with a one-year reach-back from the LWDA notice. For a mid-sized operation, default exposure regularly reaches seven figures. The reformed statute caps civil penalties at 15% if the employer can prove it took all reasonable steps to comply with the Labor Code provisions identified in the notice before receiving the notice, and at 30% if the steps are taken within 60 days after receiving the notice. Reasonable steps include periodic payroll audits with documented corrective action, lawful written policies disseminated to employees, training of supervisors on the applicable Labor Code and Wage Order requirements, and appropriate corrective action against supervisors who fail to follow the law.

    Paying a handful of premiums voluntarily over the course of a year — and recording them clearly on the pay stub — creates the documented record of proactive compliance the defense rewards. It also shifts the burden in litigation: when a plaintiff claims they were never told they could complain about a missed break, you can point to the other employees who were paid premiums during the same period.

    California employers should pay premiums proactively when a missed, late, or short break is identified — the documented record of voluntary payment is one of the cleanest reasonable steps under the reformed PAGA and can drop maximum exposure to a fraction of what it would otherwise be.

    4. Timekeeping records are your first line of defense — and off-the-clock work will undermine them.

    California Labor Code requires employers to maintain accurate time records and to keep them for at least three years (generally most employers retain the records for four years to align with the four-year statute of limitations on derivative unfair competition claims). Practical recommendations: use an electronic timekeeping system; record the start and stop of each work period and each 30-minute meal period; have employees record their own time (no buddy-punching, no manager-entered times absent documented reason); and do not round. The California Supreme Court is currently considering rounding generally, but a recent Court of Appeal decision has already rejected rounding when recording meal periods.

    When supervisors approve time records, they should be looking for the warning signs that plaintiffs’ counsel will look for: late, short, or missing meal breaks; clock-in and clock-out times that are consistently round numbers (always 3:00 p.m., never 2:59 or 3:03); and times that exactly match the schedule. Any time edits should be documented (original time, new time, reason, who approved) and acknowledged by the employee. Rest breaks need not be recorded under California law — and an end-of-shift attestation that the employee took all rest breaks gives you a defensible record.

    Off-the-clock work is the area where good timekeeping practices most commonly break down. The rule is absolute: all hours worked by hourly employees must be compensated, even if the employee volunteers to work without pay. When you discover off-the-clock work, the response is the same every time — edit the time record with the employee’s acknowledgment, pay the time, document the correction, and discipline the employee or supervisor as appropriate. The instinct to minimize or paper over the issue is exactly the wrong one. A documented record of catching and correcting off-the-clock work shows that the policy has teeth, which is what protects the company when the issue surfaces in litigation.

    California employers should treat time records as litigation exhibits in the making and audit them with that mindset — and when off-the-clock work is identified, the only acceptable response is to pay it, document it, and correct the underlying behavior.

    5. Split shifts and reporting time pay are sleeper issues — address them at the scheduling stage.

    Split Shifts:

    A split shift exists when the employer establishes an unpaid, non-working gap (other than a bona fide rest or meal period) between two work segments — for example, an employee who works 10:00 a.m. to 1:00 p.m. and then again from 3:00 p.m. to 8:00 p.m. The DLSE’s position is that an unpaid period of more than one hour constitutes a split shift, and conservative employers cap meal periods at one hour to stay clear of the issue. The employee is owed one additional hour of pay at the minimum wage for that workday, but wages earned that day above the minimum wage can be used to offset the premium. Higher hourly rates often eliminate exposure entirely. Important distinction: the premium is only triggered when the employer establishes the gap. If the employee asks for a two-hour gap to run an errand or pick up a child, no premium is owed — but document the employee request every time.

    Reporting Time:

    Reporting time pay applies when an hourly employee reports to work as scheduled but is sent home early or not provided their full scheduled shift. The amount owed to the employee under the reporting time rule is at least half the scheduled hours, with a floor of two hours and a ceiling of four hours, at the regular rate of pay. Reporting time is not triggered when operations are disrupted by causes outside the employer’s control, when the employee is unfit or unwilling to work, when the employee was informed of the schedule change in advance, or when the employee voluntarily leaves work early.

    Three cases worth knowing. Ward v. Tilly’s, Inc. held that requiring employees to call in two hours before a potential shift can itself constitute “reporting” and trigger reporting time pay — on-call scheduling structures need to be reviewed carefully. Price v. Starbucks held that when an employer schedules a meeting of unspecified duration on an employee’s non-scheduled day, two hours of reporting time pay is owed (not half of a regular shift). Aleman v. AirTouch confirmed that when an employer schedules a meeting in advance for a specified duration (such as one hour) and the meeting lasts at least half the scheduled time, no reporting time pay is triggered — a useful structure for short, defined shifts.

    One scenario that surprises employers: if you schedule an employee for an eight-hour shift and terminate them on arrival, reporting time pay is owed because you have effectively sent them home early from a scheduled shift. The cleaner approach is to allow the employee to work at least half of the scheduled shift before delivering the termination, where the circumstances allow.

    California employers should evaluate split shift exposure and reporting time obligations when the schedule is built — not after the shift is worked, the meeting is held, or the termination is delivered.

    California employers face constant pressure to make personnel decisions quickly. Terminations, separations, performance issues, and new hires often cannot wait for a lawyer’s calendar. The most effective way to handle these routine but high-risk situations is to have a core set of documents drafted, reviewed, and approved by employment counsel in advance. When the situation arises, the employer reaches for a template counsel has already blessed rather than starting from scratch—and routine issues can be handled without burning time and legal fees on each one.

    It goes without saying that an employee handbook should be on every California employer’s list and reviewed at least annually given the volume of new statutes, regulations, and case law each year. Beyond the handbook, here are five documents every California employer should have prepared, reviewed by counsel, and ready to deploy.

    1. Performance Improvement Plan (PIP) and Discipline Template

    California is an at-will employment state, but at-will rarely wins a case standing alone. Wrongful termination, discrimination, and retaliation claims usually turn on whether the employer’s stated reason holds up under scrutiny, and that depends on contemporaneous, consistent documentation of performance concerns. A pre-approved PIP and discipline template forces managers into the right format before urgency or emotion takes over.

    A counsel-blessed template should prompt the manager to record the specific performance deficiency, the standard expected, a measurable benchmark, the timeframe for improvement, the support being offered, the consequences of failing to improve, and contemporaneous signatures from the employee and supervisor. The recurring documentation failures that show up in litigation—vague performance concerns, missing dates, no measurable goals, retroactive write-ups created after a complaint, and inconsistent application across employees—are largely eliminated when a standardized template is in use.

    Two additional considerations are worth building into the template. First, when a known or suspected disability is in play, a PIP cannot substitute for the interactive process under FEHA. The template should include a checkpoint reminding the manager to assess whether an accommodation discussion is required before the PIP is issued. Second, consistency matters as much as content. Disparate discipline across protected classes is one of the most common pretext theories plaintiffs raise, so a brief HR or counsel sign-off step for higher-risk situations is worth including.

    Bottom line: A pre-approved PIP and discipline template turns documentation from a manager’s afterthought into a defensible, repeatable practice.

    2. Arbitration Agreement

    A current, enforceable arbitration agreement remains one of the most effective risk-management tools available to California employers, but only if it has been updated to reflect the rapid evolution of case law in this area. The Supreme Court’s decision in Viking River Cruises v. Moriana, the California Supreme Court’s response in Adolph v. Uber Technologies, and the Ninth Circuit’s resolution of AB 51 in Chamber of Commerce v. Bonta have each reshaped what an enforceable agreement looks like.

    Adolph in particular changed how PAGA representative actions interact with individual arbitration, and Iskanian-era language that was state-of-the-art a few years ago can now create more problems than it solves—especially where severability clauses fail to carry their weight. Federal Arbitration Act preemption issues, jury waiver language, attorney’s fees provisions, class action waivers, and the scope of claims covered all warrant regular review.

    Employers should also remember that an arbitration agreement is only as good as the implementation around it. Tracking who signed, when, and which version was in force is a recurring weak point that surfaces when motions to compel arbitration are filed years after the agreement was executed.

    Bottom line: An arbitration agreement is a living document. It should be revisited at least annually and rewritten whenever a major decision shifts the legal landscape.

    3. Offer Letter and New Hire Packet

    The offer letter is just the cover sheet. California stacks a series of mandatory disclosures and notices on top of every new hire, and the new hire packet is where those obligations are met. A complete, counsel-reviewed packet typically includes the Labor Code section 2810.5 wage notice, paid sick leave information, the sexual harassment prevention pamphlet, the workers’ compensation rights notice, EDD pamphlets, the CRD’s discrimination and harassment notice, and the SB 294 emergency contact opportunity that took effect in 2026.

    The offer letter itself also needs current eyes. SB 642 redefined “pay scale” to mean the wage range the employer reasonably and in good faith expects to pay for the position upon hire, which may narrow the ranges employers post and quote. AB 692 broadly bans most “stay-or-pay” provisions in employment contracts entered into on or after January 1, 2026, which directly affects relocation reimbursement language, sign-on bonus clawbacks, and tuition assistance arrangements—areas that previously could be handled with boilerplate.

    A pre-approved offer letter and new hire packet ensures hiring decisions can move at the speed the business needs without creating compliance gaps that surface years later in a class or PAGA claim.

    Bottom line: A new hire packet is not a stack of paper. It is the employer’s first compliance checkpoint, and California adds new layers to it nearly every year.

    4. Short-Form Release and/or Severance Agreement

    A pre-approved short-form release agreement allows employers to handle routine separations on a same-day basis instead of waiting for counsel to draft custom language for each situation. The savings compound quickly: a counsel-blessed template can convert what would otherwise be a two-week lawyer engagement into a same-day decision for routine matters where modest separation pay is offered in exchange for a release of claims.

    The legal scaffolding has shifted significantly. The Silenced No More Act (Code of Civil Procedure section 12964.5) restricts confidentiality and non-disparagement provisions covering claims of harassment, discrimination, and retaliation. AB 749 limits no-rehire clauses. The Older Workers Benefit Protection Act still requires the 21-day consideration and 7-day revocation periods for releases involving employees age 40 and over, and group reductions in force trigger additional disclosure obligations. Civil Code section 1542 waivers must be expressly invoked, and several categories of claims—workers’ compensation, unemployment, certain whistleblower retaliation, and indemnification rights, among others—cannot be waived even with the cleanest release language.

    Templates also benefit from clear instructions on when they can be used as-is and when counsel involvement is required. Routine voluntary separations with low-risk profiles often fit the template; situations involving recent complaints, leaves of absence, suspected protected activity, or larger payouts should always come back to counsel.

    Bottom line: A counsel-approved short-form release pays for itself the first time it lets the employer close a routine separation in hours instead of weeks.

    5. Employee Separation Packet

    Final pay timing under Labor Code sections 201 through 203 is one of the most common—and most preventable—sources of waiting-time penalty exposure. A pre-built separation packet, organized to be ready on the day of termination or the next business day in the case of a resignation without notice, eliminates most day-of mistakes.

    A complete packet typically includes the final paycheck reflecting all wages earned, accrued vacation, and any required premium pay; the EDD’s “For Your Benefit” pamphlet; the change-in-relationship notice; COBRA and Cal-COBRA continuation notices; the HIPP notice; benefits termination information; final expense reimbursement; return-of-property documentation; and, where applicable, the short-form release described above. The separation packet is also where post-employment obligations such as confidentiality, trade secrets, and any enforceable restrictive covenants are confirmed in writing.

    Bottom line: A separation packet is the difference between a clean exit and a section 203 waiting-time penalty claim or other litigation exposure.

    Closing Thoughts

    These five documents—the PIP and discipline template, arbitration agreement, offer letter and new hire packet, short-form release, and separation packet—cover moments when employers most often need to act quickly and where the cost of getting it wrong is highest. Having them prepared, reviewed by counsel, and ready to deploy is not a substitute for legal advice on novel or high-stakes matters; it is what frees counsel to focus on those matters when they arise. For employers managing day-to-day personnel decisions across a California workforce, this small library of pre-approved documents is one of the highest-leverage investments available.

    July 1 is just around the corner, and with it comes another wave of local minimum wage increases across Southern California. For employers operating in multiple jurisdictions—particularly those with hotel, hospitality, or healthcare workers—the compliance landscape continues to grow more complex. Beyond the day-to-day importance of paying the correct rate, accurate wage compliance is now a frontline defense issue: under the 2024 PAGA reform, an employer’s documented “reasonable steps” toward compliance can cap penalties at 15% (or 30% if the steps are taken after notice). Getting wage rates right—and being able to prove it—has never carried more weight.

    Below is a breakdown of the new rates, followed by a five-step compliance checklist tailored for California employers.

    Minimum Wage Increases in Southern California (Effective July 1, 2026)

    • Los Angeles County (Unincorporated Areas): $18.47/hour (up from $17.81)
    • City of Los Angeles: $18.42/hour (up from $17.87)
    • Pasadena: $18.57/hour (up from $18.04)
    • Santa Monica: $18.47/hour (up from $17.81) (Santa Monica’s general minimum wage is aligned with the unincorporated Los Angeles County rate)
    • West Hollywood: Non-hotel workers: $20.25 (no increase from the January 1, 2026 increase), Hotel Workers: $20.87/hour (up from $20.22).
    • City of San Diego: $17.75/hour (effective January 1, 2026, no July 1, 2026 increase scheduled).
    • City of Malibu: $17.91/hour (up from $17.27/hour for the 2025-2026 year).

    In addition, several Southern California cities have enacted hospitality-specific minimum wages that take effect or escalate on July 1, 2026—addressed in Step 4 below. Other jurisdictions throughout California also have their own minimum wage ordinances. Employers should verify all applicable rates based on each employee’s work location.

    5-Step Compliance Checklist for Employers

    1. Identify All Applicable Jurisdictions

    Determine where your employees are performing work. Local minimum wage ordinances are based on work location, not where the business is headquartered or where the employee resides. In most ordinances, an employee who performs as little as two hours of work within the city or county boundary in a workweek is entitled to that jurisdiction’s minimum wage for those hours. For employees who work across multiple cities, the highest applicable minimum wage controls.

    Employer takeaway: Map your workforce by physical work location—including remote employees and field staff—before July 1 so payroll runs the right rate from day one.

    2. Update Wage Notices, Pay Stubs, and Workplace Postings

    Three compliance items must be addressed simultaneously:

    • Notice to Employee Forms (Labor Code 2810.5): Update wage rate notices for all non-exempt employees affected by the increase.
    • Pay Stubs: Confirm pay stubs accurately reflect the new hourly rate, including overtime calculations and any premium pay.
    • Workplace Postings: Most jurisdictions require employers to post the official local minimum wage notice in a conspicuous location at each worksite. The Cities of Los Angeles, Pasadena, and Santa Monica, along with Los Angeles County, all publish updated posters annually. Make sure your postings are current, legible, and posted in any language spoken by 5% or more of your workforce.

    Employer takeaway: A missed posting or stale wage notice is among the easiest violations to spot in a Labor Commissioner audit or PAGA notice—and among the easiest to fix before July 1.

    3. Audit Multi-Jurisdiction Work

    For employees who perform work in more than one city or county—delivery drivers, traveling technicians, sales staff, and increasingly remote employees splitting time between locations—your payroll system must calculate wages based on the higher applicable rate for each pay period.

    Employer takeaway: Build a process to track work locations week-by-week, not just on hire. Remote work has made this issue dramatically harder—and dramatically more important.

    4. Review Industry-Specific Rates

    Several sectors have minimum wage rates that exceed any local ordinance and are also changing on or around July 1, 2026:

    • Hotel Workers in the City of Los Angeles: Under the Citywide Hotel Worker Minimum Wage Ordinance, hotel workers at properties with 60 or more guest rooms must be paid at least $25.00/hour effective July 1, 2026, plus a new $8.15/hour health benefit (paid as additional wages if equivalent benefits are not provided). The rate will rise to $27.50 in 2027 and $30.00 in 2028.
    • Santa Monica Hotel Workers: Tied to the City of Los Angeles hotel worker rate, projected to increase to $25.00/hour effective July 1, 2026.
    • West Hollywood Hotel Workers: $20.87/hour effective July 1, 2026 (through June 30, 2027).
    • City of San Diego Hospitality Workers: A new ordinance takes effect July 1, 2026, requiring $19.00/hour for covered hotels and amusement parks (150+ guest rooms or designated venues) and $21.06/hour for covered event centers, with phased increases reaching $30.00/hour by July 2030.
    • Healthcare Workers: Under SB 525, healthcare worker minimum wages step up again on July 1, 2026. Most large hospitals, integrated systems, and dialysis clinics move to $25.00/hour. Most other covered facilities, including skilled nursing facilities, move to $23.00/hour. The rates vary by facility classification, so verify your specific category.
    • Fast Food Workers: The statewide rate remains $20.00/hour for covered national fast food chain establishments. The Fast Food Council retains authority to adjust this rate.

    Employer takeaway: If you operate in hospitality or healthcare, the industry-specific rate almost always controls over the local rate—and the gap is widening every year.

    5. Document Your Compliance Steps and Communicate with Your Workforce

    Two pieces here, and both matter under the post-reform PAGA framework. First, communicate the changes to your workforce in advance—when the change takes effect, what the new rate is, and what employees should expect to see on their pay stubs.

    Second—and equally important—document the steps you took. The 2024 PAGA reform made an employer’s “reasonable steps” toward compliance a central component of the penalty calculation, with caps at 15% (proactive) or 30% (after notice) for employers who can demonstrate good-faith compliance efforts. Keep records showing when you identified applicable jurisdictions, when you updated payroll, when you posted new notices, and when you communicated the changes. If a PAGA notice arrives twelve months from now, that documentation is your defense.

    Employer takeaway: Compliance isn’t just doing it right—it’s being able to prove you did it right. Build the record now.

    Bottom Line for Employers

    • Confirm the correct July 1, 2026 minimum wage rate for every work location, including remote employees.
    • Update Labor Code 2810.5 wage notices, pay stubs, and workplace postings before July 1.
    • Audit multi-jurisdiction work and confirm your payroll system applies the highest applicable rate.
    • Verify whether industry-specific rates (hotel, airport, healthcare, fast food) apply to any portion of your workforce.
    • Communicate the changes to employees in writing in advance.
    • Document every compliance step taken—dates, decisions, and verifications—to support a “reasonable steps” defense under PAGA.

    California’s patchwork of local wage laws continues to grow more complex, and the consequences of getting it wrong are no longer just back wages—they are PAGA penalties, and class action exposure. By reviewing your policies and procedures now, you can avoid last-minute headaches and ensure you’re on solid legal footing well before the July 1 deadline.

    Mandatory fees added to customer checks have become one of the more aggressively litigated areas in California consumer and employment law. Restaurants are the most visible target, but the issue reaches any California business that adds a line-item charge to customer invoices — event venues, hotels, salons, fitness studios, delivery services, and beyond. The framework is layered: local ordinances, a statewide gratuity statute interpreted broadly by the Court of Appeal, and the Consumers Legal Remedies Act as amended by SB 478 and SB 1524. Here are five considerations for California employers.

    1. Raising menu (or service) prices is the cleanest path.

    The cleanest legal approach is generally to raise prices rather than add a separate fee to customer checks. Price increases are not subject to local service-charge ordinances, are not covered by the gratuity analysis under O’Grady v. Merchant Exchange Productions, Inc. (2019) 41 Cal.App.5th 771, and avoid the disclosure traps of SB 478. Economically, the approach achieves the same result as an across-the-board house-retained fee without the regulatory exposure. The Santa Monica City Attorney’s office has publicly identified price increases as the safest path.

    Bottom line: If the goal is to recover costs across the board, building those costs into the listed price is materially less risky than collecting them through a separate fee.

    2. Several California cities require mandatory service charges to be paid to employees — and the coverage rules reach beyond city-based employers.

    Santa Monica (SMMC § 4.62.040), West Hollywood (WHMC § 5.130.050), Berkeley (BMC § 13.99), and Oakland (OMC § 5.92), for example, each have ordinances requiring mandatory service charges to be distributed to non-managerial employees who contributed to the chain of service. Santa Monica treats violations as strict liability. Both Santa Monica and West Hollywood apply their ordinances to any employee performing as little as two hours of work per week within city limits, regardless of where the employer is headquartered — a coverage trigger that catches employers operating across Los Angeles County. West Hollywood goes further on healthcare-related surcharges: within seven days of collection, the surcharge revenue must either be deposited into employee-controlled accounts (FSAs, HSAs, or POP cafeteria plans) or paid directly to employees as wages, and the employer cannot retain any portion.

    Bottom line: Employers with operations in any of these jurisdictions should assume that mandatory service charges will need to be distributed to non-managerial employees and must understand these heightened regulations.

    3. The O’Grady “reasonable customer” test still applies statewide.

    The O’Grady decision held that a mandatory service charge can constitute a “gratuity” under Labor Code § 351 — meaning the employer must distribute it to non-managerial employees — if a reasonable customer would believe the charge is for the server’s work. The court rejected the prior view that mandatory service charges are categorically not gratuities, and emphasized that the analysis turns on the customer’s reasonable expectations rather than the label. Plaintiffs’ firms have since filed putative class actions and PAGA claims against California restaurants and hospitality employers asserting that house-retained fees are gratuities under O’Grady. The risk is not limited to jurisdictions with local ordinances.

    Bottom line: O’Grady establishes a statewide gratuity exposure for any mandatory fee a customer might reasonably believe is for the employee’s service — regardless of what the fee is called or where the business is located.

    4. If a fee is retained, the label and structure have to do real work.

    A business that adds a mandatory fee and retains it must navigate both the local ordinances (where applicable) and the O’Grady test. Labels suggesting the fee compensates employee service — “service charge,” “auto-gratuity,” “kitchen appreciation fee,” “living wage fee,” “hospitality fee,” “healthcare surcharge,” “benefits surcharge” — fall directly within the local ordinance definitions and are highly likely to be treated as gratuities under O’Grady. A retained fee has a meaningful chance of surviving challenge only if (i) it is described with specificity as offsetting a defined non-labor cost (for example, credit card processing or a specific non-labor regulatory cost), (ii) it is actually used for that stated purpose — not commingled with payroll, (iii) it is disclosed clearly and conspicuously before the customer orders, on menus, online ordering pages, and receipts, and (iv) the disclosure expressly disclaims being for employee services. Internal accounting should track fee revenue against the disclosed purpose.

    Bottom line: A retained fee is defensible only if the label, the disclosure, the actual use of the funds, and the recordkeeping all align — the label alone will not save it.

    5. SB 478 and SB 1524 add a separate statewide transparency layer that reaches beyond restaurants.

    Effective July 1, 2024, SB 478 amended the Consumers Legal Remedies Act (Civ. Code § 1770(a)(29)) to prohibit advertising or listing a price that does not include all mandatory fees and charges, often referred to as drip pricing, with limited exceptions for government taxes and reasonable shipping. The law applies to virtually every California business that sells goods or services to consumers — not just restaurants. Restaurants, bars, and certain food businesses received a carve-out under SB 1524, but only if mandatory fees are clearly and conspicuously displayed with an explanation of their purpose on any menu, advertisement, or other display showing the price of a food or beverage item. As of July 1, 2025, the “clear and conspicuous” disclosure must meet the technical standards in Civil Code § 1791(u) — text in larger or contrasting type, font, or color, or otherwise visually set off from the surrounding text. Violations of SB 478 can be enforced as CLRA claims, including on a class basis, with damages of the greater of actual damages or $1,000 per violation, plus restitution, punitive damages, and attorneys’ fees.

    Bottom line: Any California business — restaurant or otherwise — adding mandatory fees to customer transactions should review its pricing displays, online checkout flows, and menu disclosures against SB 478 and the July 1, 2025 technical requirements to avoid a CLRA class action layered on top of the underlying service-charge exposure.

    Mandatory fees are now subject to a complex analysis in California: local service-charge ordinances, the statewide O’Grady gratuity test under Labor Code § 351, and the SB 478/SB 1524 transparency framework under the CLRA. Each layer carries its own private right of action. Employers should periodically review their customer-facing fee structures, disclosures, and internal accounting against this framework.

    On April 1, 2026, the Ninth Circuit handed California employers a meaningful win in O’Dell v. Aya Healthcare Services, Inc., No. 25-1528. The court reversed a Southern District of California ruling that had used a procedural doctrine—non-mutual offensive collateral estoppel—to invalidate arbitration agreements for more than 250 opt-in plaintiffs based on two prior arbitrator decisions finding the employer’s agreements unconscionable.

    The decision matters because it closes off a tactic that could have allowed a small number of adverse arbitration outcomes to wipe out an employer’s entire arbitration program in a collective or class action. For California employers who have invested in arbitration agreements as a risk-management tool, the ruling reaffirms a foundational principle: each arbitration agreement stands or falls on its own terms.

    Here are five practical takeaways for California employers.

    1. Arbitration agreements must be evaluated individually, not in bulk.

    The district court in O’Dell allowed two arbitrator rulings—each involving a different employee and a different arbitrator—to preclude Aya from enforcing hundreds of other arbitration agreements signed by opt-in plaintiffs. The Ninth Circuit rejected that approach, holding that the Federal Arbitration Act requires courts to enforce arbitration agreements according to their terms and that applying non-mutual offensive collateral estoppel in this context conflicts with the FAA’s core principle of consent.

    For California employers facing collective or class actions—particularly under the California Labor Code —this means that a single adverse arbitration ruling against one employee does not automatically bind the employer as to every other employee. Each agreement is its own contract, and each employee consented to arbitration on an individualized basis.

    2. Delegation clauses remain powerful.

    The Aya arbitration agreements contained delegation clauses that sent questions of the agreement’s validity to the arbitrator rather than the court. That structure was central to what happened next: when the initial four plaintiffs challenged the agreements, arbitrators—not judges—decided the unconscionability questions.

    California employers should consider having clear, express delegation clauses in their arbitration agreements. A well-drafted delegation clause keeps gateway issues (validity, enforceability, scope) in the arbitral forum and reduces the number of issues courts can use to deny a motion to compel. O’Dell is a reminder that the architecture of the agreement—not just the substance—matters.

    3. Split arbitrator results do not doom the rest of the program.

    In Aya’s case, the arbitrators divided two-to-two on whether the agreements were unconscionable. The district court gave preclusive effect only to the two decisions finding the agreements invalid—turning a split into a sweeping defeat. The Ninth Circuit correctly observed that this approach transformed individualized arbitrations into something like an unauthorized bellwether class action that the parties never agreed to.

    The lesson for employers: inconsistent arbitrator outcomes are a fact of life in large workforces. O’Dell confirms that adverse decisions in a handful of arbitrations are not a basis for invalidating agreements with other employees. Employers can continue to enforce their agreements on an individual basis, even when some arbitrators reach unfavorable results.

    4. The ruling does not cure substantively flawed arbitration agreements.

    O’Dell is a procedural win. It does not insulate employers from the substantive unconscionability challenges that remain the bread-and-butter of plaintiffs’ attacks on arbitration in California. The Armendariz factors can still apply, and California courts continue to scrutinize fee-splitting provisions, venue clauses, limitations on remedies, discovery restrictions, and presentation issues—as recent cases like Fuentes v. Empire Nissan (arbitration agreement in nearly unreadable font) illustrate.

    Two of the four arbitrators in O’Dell found Aya’s agreements unconscionable because of their fee and venue provisions. That is a reminder that even a structurally sound arbitration program can be undone by one-sided terms. Employers should not read O’Dell as a reason to delay a substantive review of their agreements.

    5. California employers should use this as a reminder to audit their arbitration programs.

    Now is a good time for California employers to conduct a focused audit of their arbitration agreements. Key items to review include:

    • Consider implementing a delegation clause assigning gateway issues to the arbitrator.
    • Fee allocation consistent with Armendariz—the employer bears the costs unique to arbitration.
    • A reasonable, neutral venue that does not impose unfair burdens on the employee.
    • Mutual remedies and mutual coverage (both sides bound to arbitrate).
    • A severability or savings clause that allows the agreement to survive if a specific provision is found unenforceable.
    • Presentation that passes a readability check—legible font, clear headings, separate signature, and no buried consent.
    • A carve-out framework that properly addresses PAGA and sexual harassment claims consistent with current California and federal law.

    The Ninth Circuit has reaffirmed that arbitration programs built on individualized consent will be enforced on an individualized basis. Employers who pair that protection with a substantively defensible agreement are in the strongest possible position heading into the remainder of 2026.