In last week’s final scorecard on the Governor’s signing decisions, I listed SB 947, the “No Robo Bosses Act of 2026,” among the technology bills that became law. It needs a fuller treatment. Governor Newsom signed it on September 30. The law adds Part 5.5.5 to the Labor Code (§§ 1520–1526.7) and makes California the first state to require human oversight when employers use automated tools to discipline or fire employees.

This is the Legislature’s second attempt. Last October the Governor vetoed SB 7, which he called overly broad. SB 947 is narrower in four ways:

  • It covers employees only. Independent contractors and applicants are not covered.
  • It covers only discipline and termination decisions.
  • It drops the advance notice that an automated tool is in use.
  • It drops the limit on using customer ratings as a system’s primary input.

The name sounds like a ban, but it is not one. Employers can keep using scoring and analytics tools. What the law regulates is the point at which a system’s score becomes an employment decision. The law is not operative until July 1, 2027, so there is time to prepare. The catch is that many employers already use tools that meet the statute’s definition without thinking of them as “AI.” Here are five things employers need to know now.

1. The tool can recommend, but a human has to decide and check the work against the data.

The core rule is in Labor Code § 1522, and it has two levels.

  • No sole reliance. An employer may not rely solely on an automated decision system (ADS) to make a disciplinary or termination decision.
  • Primary reliance requires human corroboration. If an employer primarily relies on an ADS output to discipline or terminate, it must have a human corroborate the decision. The human must use the data that was collected or used to produce the output, or other relevant information. The statute gives examples: supervisor or manager evaluations, personnel files, work product, peer reviews, and witness interviews. The witness-interview example expressly includes relevant online customer reviews. Restaurant and hotel employers should note that one.

The corroboration requirement has real consequences. If the employer cannot corroborate the output, it may not use the output to discipline or terminate. The same is true if the human reviewer concludes the output is inaccurate, incomplete, or misleading (§ 1522(c)). A manager clicking “approve” on a system-generated recommendation will not meet this standard. The review has to be real, and it has to be documented.

One open question: the statute does not define “primarily rely.” Until there is guidance, employers should adopt an internal standard and apply it consistently. That means deciding which tools you will treat as triggering the law and which outputs are only background information, and writing down the reasoning.

2. “Automated decision system” covers far more than tools marketed as AI.

The statute defines an ADS broadly. It is any computational process derived from machine learning, statistical modeling, data analytics, or artificial intelligence that produces a simplified output, such as a score, classification, or recommendation. That output must be used to assist or replace human discretionary decision-making that materially affects people. The law excludes basic infrastructure: spam filters, firewalls, antivirus software, identity and access management tools, calculators, databases, and datasets.

The line falls between the data and the score. A database that stores attendance records is excluded. A dashboard that turns those same records into a “reliability” score on a manager’s screen is not. For restaurant and hospitality employers, consider whether any of these tools feed into discipline:

  • Timekeeping or scheduling platforms that automatically assign attendance “points” or flag tardiness
  • Speed-of-service or productivity scoring (ticket times, drive-thru times, rooms cleaned per shift)
  • Loss-prevention analytics that flag voids, comps, discounts, or cash-handling patterns at the POS
  • Guest survey or review tools that score individual employees
  • Camera or monitoring analytics that generate alerts about employee conduct

If a system’s output is the reason a manager starts or finishes a disciplinary conversation, the system belongs on your inventory.

Two coverage points also matter. First, there is no headcount threshold, and labor contractors and public employers are covered. Second, the law reaches only decisions about existing employees. Hiring tools are outside SB 947, but they are not outside the Civil Rights Council’s FEHA regulations on automated decision systems, discussed in point five.

3. The notice is due at the moment of decision, and it has to match everything else in the file.

Under Labor Code § 1524, an employer that primarily relies on an ADS to discipline or terminate must give the employee a written notice at the time it informs the employee of the decision. The notice must be a separate, standalone communication. It must be in plain language and in the language the employer routinely uses with the employee. It must:

  • State that the employer primarily relied on an ADS to make the decision
  • Confirm that a human reviewed and corroborated the ADS output
  • Provide contact information for a human who can answer questions about the decision
  • Explain the employee’s right to request a description of the employee data the ADS used
  • State that retaliation for exercising rights under the law is prohibited

That data request is the second piece employers need to plan for. Under § 1522(d), the employee may request a “meaningful, objective description” of the employee’s own data used by the ADS, and the employer must provide it. The description must also anonymize personal information about customers, coworkers, and other individuals (§ 1522(e)). That is harder than it sounds. A loss-prevention flag built on register activity, or a productivity score that ranks employees against each other, mixes the employee’s data with other people’s. Someone has to be able to separate the two.

This notice will become one of the most important documents in any later lawsuit. As I have written before, the reason for a termination has to be consistent across every document. That includes the termination letter, the Notice to Employee as to Change in Relationship, the EDD response, and eventually deposition testimony (see the key issues to address before terminating an employee). An SB 947 notice that tells a different story than the termination letter is a gift to plaintiff’s counsel. Draft a template now and add it to your termination checklist.

One more point: complying with SB 947’s notice requirements satisfies substantially similar notice provisions under other state law (§ 1526.3). That relief does not extend to the California Privacy Protection Agency’s automated decision-making technology regulations for businesses covered by the CCPA (§ 1526.4).

4. Once ADS use is shown, the burden shifts to the employer, and the statute never says how long to keep the proof.

The enforcement scheme is built around a burden shift. Under § 1526.1(c), once it is shown that an ADS was used in a disciplinary decision, the employer must prove one of two things. Either it did not primarily rely on the ADS, or it complied with the corroboration and notice requirements. The employee only has to show that a system was used. Everything after that is the employer’s to prove, with whatever records it kept at the time.

The Labor Commissioner and public prosecutors enforce the law. Violations carry a $500 civil penalty per violation, and § 1526.1(d) makes injunctive relief, punitive damages, and attorney’s fees available. The enacted law dropped the express private right of action that appeared in earlier drafts. However, the burden-shifting provision refers broadly to “any civil action or administrative proceeding brought pursuant to this part.” Expect plaintiffs’ firms to use that language to argue for a broader right to sue. Also expect them to test whether SB 947 violations can be pursued through PAGA.

Three uses are prohibited outright, and no amount of human review cures them (§ 1522(a)). An employer may not use an ADS:

  • To violate labor, safety, employment, or civil rights laws
  • To infer an employee’s protected status under Government Code § 12940
  • To predict that a worker will exercise a legal right and take adverse action on that basis

A tool that labels employees as “likely to complain” or “organizing risks” is a serious liability.

The practical problem that commentary has largely missed is records retention. Corroboration only works if the data behind the output still exists. If the raw inputs behind a six-month-old performance score have been deleted, the employer cannot corroborate that score and therefore cannot use it. And if the decision is challenged, the employer bears the burden of proving what its reviewer actually looked at. SB 947 does not set a retention period. It simply penalizes employers who do not keep the records. This is the same lesson I discussed about payroll records being your first witness: the records testify about the period before you knew you had a problem. Set a retention policy for ADS inputs, outputs, and the reviewer’s corroboration file. At a minimum, it should match how long you keep personnel files, which we recommend be at least four years after separation.

5. Use the runway: a checklist for July 1, 2027.

SB 947 is one layer of a growing California framework. The Civil Rights Council’s FEHA regulations on automated decision systems took effect October 1, 2025. They already make discrimination through automated tools actionable, including in hiring and promotion decisions that SB 947 does not reach. The CPPA’s automated decision-making technology regulations add pre-use notice, opt-out, and access obligations for significant employment decisions beginning January 1, 2027. On the same date, SB 951 requires new disclosures in Cal-WARN notices when AI or automation drives a mass layoff.

Practical steps before July 1, 2027:

  • Inventory your tools. Identify every system that generates scores, flags, or recommendations about employees, and map which ones feed into discipline or termination.
  • Set your “primary reliance” standard. Decide which tools trigger the law, document why, and apply the standard consistently across locations.
  • Ask vendors hard questions, and put the answers in the contract. What data does the tool use, and how long is it logged? Can it reconstruct how a past output was produced? Can it support a description of one employee’s data while anonymizing everyone else’s? SB 947 places the obligations on the employer, not the vendor.
  • Write a human review protocol. Specify who reviews ADS-driven discipline, what they must examine, and how they document the corroboration, including a decision not to proceed. A checkbox saying the reviewer “agreed” will not survive the burden shift.
  • Build the notice and data-request process. Prepare a template notice in every language you use for routine communications, identify the contact person by role rather than by name so the template survives turnover, and set up a workflow to respond to data-description requests.
  • Fix retention. Make sure ADS inputs, outputs, and review files are kept long enough to defend a decision.
  • Train managers. The biggest risk is a manager who treats a system alert as the decision. The output is where an investigation starts, not where it ends.
  • Review collective bargaining agreements. A CBA can waive the law only if it does so in clear and unambiguous terms, expressly provides for wages and working conditions, and provides protection from algorithmic management (§ 1526.5). Local ordinances with equal or greater protections are not preempted.

The underlying principle is not new. Good discipline and termination decisions have always required a real investigation and good documentation. SB 947 makes that a statutory requirement whenever technology drives the decision, and it puts the burden on the employer to prove the investigation happened.

Want to go deeper on SB 947 and everything else changing for California employers in 2027? Join Zaller Law Group on Thursday, October 15, 2026 at 10:00 AM Pacific for our masterclass, “New Laws and PAGA Update for 2027.” In one hour, we’ll walk through the key employment bills signed this year and their effective dates, the latest PAGA developments two years after the 2024 reforms (including cure and penalty-reduction opportunities), and the handbook, training, notice, and payroll updates to put on your 2027 compliance checklist before January 1. The program is designed for HR professionals, in-house counsel, business owners, and managers, and offers 1.0 hour of California MCLE credit and 1.0 SHRM PDC for attendees who attend the full hour. Register here.

The Governor’s last signing period is over. When I previewed the key employment bills on his desk on September 4,

 I said what he signed this month would be the law employers live with in 2027, and what he vetoed would be dead until a new governor and a new Legislature take it up. By the September 30 deadline, he had acted on all of them.

The short version: of the twenty bills we tracked, eighteen were signed and two were vetoed. The vetoes were the hotel immigration-enforcement disclosure bill (AB 2721) and the bill adding menopause to the definition of “sex” under FEHA (AB 1940). Everything else, including the immigration-related retaliation bill, the “No Robo Bosses Act,” and the bereavement leave expansion, is now law.

Unless noted, the new laws take effect January 1, 2027. This week’s Friday’s Five follows the same five themes as the preview, so you can compare the two side by side.

1. Restaurants won both of their bills. The hotel disclosure bill was vetoed.

  • AB 1640 (Restaurant Reservation Anti-Piracy Act) — Signed September 27 (Ch. 475, Stats. 2026). Reselling or transferring a restaurant reservation for more than its original price is prohibited under this law. The Attorney General, local prosecutors, and harmed restaurants and diners can all enforce it. Before January 1, update the terms on your online booking platform to reference the law, and train hosts to document suspected resales.
  • AB 2663 (Cocktails-to-go) — Signed September 30 (Ch. 829, Stats. 2026). This was an urgency bill, so it is already in effect. Restaurants with an on-sale license can keep selling prepackaged spirits and other non-beer drinks to go with a meal through December 31, 2029. If to-go cocktails are part of your revenue mix, you can plan around them for three more years.
  • AB 2721 (Hotel disclosure of ICE/CBP reservations) — Vetoed September 30. As I flagged in the preview, this was a genuine veto candidate. The hotel industry, led by the Asian American Hotel Owners Association, argued that the “knows or should have known” standard was unworkable and raised guest-confidentiality concerns. With the veto, there is no posting or check-in disclosure obligation. Hotel clients can set aside the booking-review protocol we discussed.

2. Immigration-related conduct toward workers is now a $10,000-per-employee problem.

AB 2495 was signed on September 29. I said in the preview that this is the bill I would put at the top of the training agenda for restaurant and hotel managers, and that has not changed.

Effective January 1, 2027, Labor Code section 1019 reaches beyond the familiar list of immigration-related practices (demanding more or different documents than the I-9 requires, misusing E-Verify, threatening to contact immigration authorities). It now also covers any other conduct related to a person’s perceived immigration status that would reasonably tend to discourage a worker from exercising rights under any local, state, or federal law. Three features matter most in practice:

  • Actual immigration status is irrelevant. The question is what the employer perceived and what the conduct would tend to do.
  • The penalty is significant. Liability is up to $10,000 per employee or person for each violation, on top of existing remedies.
  • Coverage is broad. It protects applicants and former employees as well as current employees, and covers rights under any law, not just the Labor Code. The law excludes conduct undertaken at the express and specific direction of the federal government.

What this means in practice: an offhand comment about someone’s paperwork during a scheduling dispute, a performance conversation, or a wage complaint is now exactly the kind of fact that turns into a tag-along claim in a wage-and-hour or PAGA case. Before January 1:

  • Update the anti-retaliation policy to specifically address immigration-related comments, questions, and threats.
  • Retrain managers and anyone involved in hiring or I-9 verification.
  • Pair the training with the Workplace Know Your Rights notice (SB 294) you have been distributing since February.

3. Technology: every workplace AI and surveillance bill on our list was signed.

The Governor signed all four technology bills we tracked on September 30. Here is what employers need to know, including one correction to the preview.

  • SB 947 (No Robo Bosses Act) — Signed; operative July 1, 2027. This is the narrower version that came back after last year’s SB 7 veto. Under the enrolled text:
    • Sole reliance is prohibited. If an employer primarily relies on an automated decision system to discipline or terminate, a human must corroborate the decision using the underlying data or other supporting information. If the output can’t be corroborated, or the reviewer finds it inaccurate, incomplete, or misleading, the employer can’t use it.
    • Notice and data access. The employer must give written notice after the fact, in plain language, and the employee may request up to 12 months of the employee’s own data the system used.
    • Prohibited uses. Employers may not use these systems to violate employment, safety, or civil rights laws, to infer an employee’s protected status under FEHA, or to predict and take adverse action against workers for exercising their legal rights.
    • Enforcement. The Labor Commissioner and public prosecutors enforce it, with a $500 civil penalty per violation, and there are anti-retaliation protections for employees who exercise these rights.

A correction to the preview: I wrote that the bill banned systems predicting a worker’s personality or emotional state and included a private right of action. The enacted law is narrower. The emotional-state ban is in AB 1883 (below), and reporting on the final bill indicates the stand-alone right for workers to sue and coverage of contractors were removed during negotiations. The definition of “employee” in the enrolled text is limited to persons employed by the employer.

The homework is the same as before, just with a firm date: inventory every tool that scores or flags employees (attendance-point systems that auto-generate write-ups, scheduling software that flags “unreliable” workers, camera analytics), and build a documented human review step before any of those outputs becomes discipline. You have until July 1, 2027.

  • AB 1331 (No surveillance in bathrooms) — Signed. Employers may not monitor employees in workplace bathrooms, and employees may leave surveillance devices outside when they go in. Check camera fields of view near restrooms and locker areas, and update device policies.
  • AB 1883 (No emotion recognition or neural data) — Signed. Employers may not use workplace surveillance tools that collect neural data or purport to read an employee’s emotional state. Ask your camera-analytics and call-monitoring vendors whether any feature scores “sentiment” or “engagement,” and turn it off for employees.
  • SB 951 (AI-driven layoffs and Cal-WARN) — Signed. When a covered mass layoff, relocation, or termination results from AI or automation, the Cal-WARN notice must describe the number, location, and types of jobs displaced and the kind of technology involved. The existing 60-day notice period is unchanged. EDD will publish summaries and report on technology-related displacement.

For context, the Governor did draw a line elsewhere. He vetoed AI bills aimed at specific sectors and public employers, including SB 903 (AI and mental health professionals), AB 2575 (health care workers and AI recommendations), and AB 2656 (notice to public employees about AI performing their work).

4. Leave, discrimination, and training: one veto changes the handbook list.

  • SB 1149 (Bereavement leave for a “designated person”) — Signed September 27. Employers with five or more employees must now allow bereavement leave for the death of a designated person. That is someone related to the employee by blood, or whose association with the employee is the equivalent of a family relationship. Extended relatives (aunts, uncles, cousins) and chosen family are now covered. Employers may limit employees to one designated person per 12-month period, and the existing documentation rules still apply. Update the bereavement policy and leave-request form before January 1.
  • AB 1940 (Menopause under FEHA) — Vetoed September 30. This is the second year running that the Governor has vetoed menopause legislation. According to reports on the veto message, he viewed the change as unnecessary under existing law and likely to invite litigation. The practical advice from the preview still stands, though. Menopause-related symptoms can already implicate sex discrimination and disability accommodation obligations. Temperature relief, break flexibility, and uniform adjustments remain sensible accommodations to cover in interactive-process training.
  • AB 2563 (Sex discrimination: scope) — Signed September 30. The companion bill did become law. It directs that sex and gender discrimination laws be liberally construed and defines sex discrimination to include actual or perceived conformity to sex or gender stereotypes. Dress codes, grooming standards, and uniform policies that differ by gender are the place to look first.
  • AB 1803 (Anti-hate speech training) — Signed September 27; operative January 1, 2028. The biennial harassment prevention training for employers with five or more employees must add practical guidance on recognizing, reporting, and confronting workplace speech that vilifies, humiliates, or incites hatred based on protected characteristics. It does not add to the existing one- and two-hour minimums. Nothing changes for the 2027 cycle, but confirm your training vendor will have the module ready.
  • AB 1697 (Stay-or-pay delay) — Signed September 30. This urgency bill took effect on signature. The operative date of last year’s stay-or-pay ban (AB 692) is now January 1, 2027, with new exemptions for grant-funded recruitment and retention bonus programs, repayment of advanced PTO on voluntary separation, and certain securities and insurance affiliation agreements. Review every training repayment agreement, sign-on bonus clawback, and advanced-PTO repayment term before January 1.

5. Enforcement and narrower-impact bills: all signed.

  • AB 2321 (Cal/OSHA criminal referrals). Expands Bureau of Investigations referrals, requires immediate notice to the district attorney for incidents involving five or more serious injuries or a fatality, and makes it a misdemeanor to willfully resist or interfere with an inspector. You can still ask for a warrant, but managers should never obstruct. Now is the time to review the Injury and Illness Prevention Program and workplace violence prevention plan.
  • AB 1961 and AB 2179 (Workplace violence restraining orders). Employers can seek an order protecting all employees at a location without naming each one, and courts must allow remote appearances and electronic filing for these petitions. Both are useful tools when a former employee or patron becomes a threat.
  • SB 690 (Website-tracking lawsuits). Limits enforcement of the CIPA “pen register” provision for websites and apps to the Attorney General. It does not touch the wiretap provision (Penal Code section 631) that most demand letters cite, so keep the cookie banner and privacy policy in place.
  • SB 1237 (Pay data penalties). The penalty for a subsequent failure to file the California pay data report rises from $200 to up to $1,000 per employee. Employers with 100 or more employees (or 100 or more workers through labor contractors) should treat the May 2027 filing as a priority.
  • AB 1776 (COMPETE Act). Extends the Cartwright Act to single-firm monopolization and monopsonization under a “substantial market power” standard. Enforcement is limited to the Attorney General and district attorneys, and independently owned California businesses with 100 or fewer employees and $10 million or less in average gross receipts are exempt.
  • AB 2646 (Agricultural minimum wage). Sets a $19.75 hourly minimum for approved agricultural employees (H-2A workers and their domestic counterparts), indexed annually. Expect legal challenges.

These join SB 1444 (individual recovery of civil penalties for willful misclassification under Labor Code section 226.8) and SB 1316 (barring employers from introducing records at Labor Commissioner retaliation hearings that they withheld when asked), which the Governor signed on August 27.

The bottom line: the 2027 compliance calendar.

  • Now: Review stay-or-pay agreements (AB 1697 is in effect, and the ban becomes operative January 1). Cocktails-to-go continues through 2029.
  • By January 1, 2027: Handbook updates covering bereavement leave for a designated person, anti-retaliation with immigration-specific language, bathroom surveillance and device policies, and gender-differentiated dress and grooming rules. Manager training on immigration-related conduct and Cal/OSHA inspections. Booking-platform terms for reservation resales. Vendor check on emotion-recognition features.
  • May 2027: Pay data report for employers with 100 or more employees, with five times the penalty exposure for a repeat miss.
  • By July 1, 2027: Inventory of every tool that scores or flags employees, and a documented human-review step before any ADS output becomes discipline or termination.
  • January 1, 2028: Anti-hate speech component in harassment prevention training.

This was Governor Newsom’s final signing period. The next session will bring a new governor and, very likely, the return of bills that died this year. I’ll keep tracking them. As always, if you have questions about how any of these new laws affect your business, please reach out.

Earlier this month I presented a program for the Beverly Hills Bar Association titled “Defending Businesses to Minimize Litigation Exposure.” The material was built around the questions I get from business owners and HR teams every week: where is the liability actually coming from in 2026, what quietly creates it, and what can an employer do now that will still matter when a claim arrives. I covered a lot in an hour — the PAGA and class action landscape, meal and rest breaks, overtime and regular rate math, classification, records, terminations, and disability accommodations. Rather than try to reproduce the whole outline, this week’s Friday’s Five pulls out the points that generated the most questions and that I think employers will find most useful.

1. Wage and hour claims don’t require a bad actor — only an imperfect system. That is why they scale, and the 2026 numbers show it.

Not every employee experiences harassment or discrimination, thankfully. But every employee gets a paycheck, and a wage and hour claim does not need a supervisor who did something wrong. It needs a payroll setting, a scheduling habit, or a policy gap that repeats across the workforce. That is the structural reason these claims dominate California employment litigation, and the data we track in our settlement database (full disclosure: I co-founded Scaled Comp, the software we use to track and analyze it) bears it out:

  • PAGA notices are running at roughly 849 per month, which puts 2026 on pace to be the biggest filing year since PAGA took effect — and that is after the June 2024 reform.
  • Tracked PAGA and class settlements reached $1.3 billion in the first half of 2026 alone. We triple-checked that number.
  • Roughly half of those settlements resolved for under $500,000, and 44% involved employers with fewer than 200 employees. This is no longer a Fortune 500 problem; it is a small and mid-sized employer problem.
  • The top five plaintiffs’ firms account for about 40% of the volume. This is a concentrated, specialized practice on the other side.
  • The average timeline from PAGA notice to settlement is running about two years, which means the first settlements under the reformed statute are only now being approved and hitting the database.

I discussed some of these figures in the mid-year 2026 PAGA update, and the trend has not softened since. The practical takeaway I gave the audience: before the reform, the question in a PAGA case was whether a violation occurred. After the reform, the question that matters is what the employer did to prevent and correct it. Policies, training, audits, and consistent enforcement used to be compliance hygiene. Now they are defense evidence with a dollar value attached (see point five).

2. Most wage and hour litigation originates at the termination. How you let someone go determines whether they call a lawyer.

This is the connection I most wanted the audience to draw between the two halves of the program. A departing employee goes to see a lawyer about one grievance — the way the termination was handled, a final paycheck that was late, a comment a manager made — and leaves that office with a PAGA notice being drafted against the employer on behalf of the entire workforce. The termination was the trigger; the wage and hour claims were what the lawyer found when they looked.

That is why I am such a proponent of treating every termination as respectfully and professionally as possible. The employee may not agree with the decision, but they should not leave feeling disrespected or feeling that the only way to be heard is to talk to a lawyer. The mechanics matter too, and they are where I see employers get tripped up:

  • Document the true reason, at the time, in concrete terms. The classic mistake is calling a for-cause termination a “layoff” to be kind. That kindness becomes the case: when the real story comes out in litigation, the inconsistency is pretext evidence. And “bad attitude” in a file is useless — three documented instances, with dates, of what the employee did or said is what wins motions.
  • Run a red-flag review before the decision. Recent protected leave, wage complaints, accommodation requests, workers’ compensation claims. Under SB 497, an adverse action within 90 days of protected activity is presumptively retaliatory, so if a red flag exists, document why the termination reason is independent of it and note who made the decision. If the same person who hired the employee is making the termination decision, the same-actor inference is a strong defense.
  • Stay consistent across every form. The change-of-relationship notice, the termination letter, the EDD response, and eventually deposition testimony all need to state the same reason.
  • Plan the final paycheck in advance. Out-of-state employers often cannot cut a check from the California location on the day of termination, so it has to be arranged ahead of time. And an existing direct deposit authorization is not enough for the final wages — get a fresh written authorization (an email or text from the employee works) if you want to pay the final check by direct deposit. Waiting time penalties under Labor Code § 203 run at the employee’s daily rate for up to 30 days; at $200 a day, that is $4,000 per employee for a paycheck that was simply late.
  • Have a severance agreement ready before you need it. The call to counsel usually comes the day before, or the day of, a difficult termination. A standard agreement — with the 21-day consideration and seven-day revocation periods for employees 40 and older — should already be on the shelf.

For a deeper dive on the termination decision itself, see the key issues to address before terminating an employee.

3. The liability usually hides in a setting or a calculation, not a policy. Here are the ones I told the audience to audit.

As employers have gotten better at tracking meal breaks and paying premiums, plaintiffs’ firms have shifted to more technical arguments. These are the ones I see most often, and each of them can turn a single configuration error into a class-wide claim:

  • The daily overtime toggle. National employers whose payroll platform was configured for the FLSA’s weekly-only overtime are a recurring problem, but employers need to ensure that all of their California locations have the correct settings in the timekeeping software. It is very hard to catch and very expensive when it is not.
  • Premiums paid at the base rate. Under Ferra v. Loews Hollywood Hotel, LLC (2021), meal and rest premiums are paid at the regular rate of compensation, including non-discretionary bonuses. Most payroll systems default to the base hourly rate. And because Naranjo v. Spectrum Security Services, Inc. (2022) held that premiums are wages, one unpaid or underpaid premium becomes a wage statement claim under § 226 and a waiting time claim under § 203 as well.
  • The flat-sum bonus divisor. Alvarado v. Dart Container Corp. (2018) requires a flat-sum bonus (in that case, a $15 attendance bonus) to be divided by the employee’s non-overtime hours to get the per-hour value that flows into the overtime rate — not by total hours, which is the federal method. Ask your payroll provider which method it uses.
  • The “major fraction” rule for rest breaks. Employees earn a 10-minute rest break for every four hours worked “or major fraction thereof,” and Brinker defined a major fraction as anything over two hours. So a 6.5-hour shift earns two rest breaks, not one. Employers who hear “a break every four hours” routinely get this wrong.
  • Late, not missed. One of the most common meal period violation we find in audits is not a missed lunch; it is a lunch that started at five hours and one minute. California has no de minimis defense (Troester v. Starbucks Corp. (2018)), so it comes down to the minute. Written meal waivers for shifts of six hours or less — signed once at onboarding and kept in the file — are enforceable and underused, particularly in restaurants and hospitality where employees on short shifts do not want to clock out and lose tips.
  • Rounding. Camp v. Home Depot is fully briefed before the California Supreme Court on whether time rounding remains permissible at all. I rarely predict outcomes, but having already held in Donohue v. AMN Services, LLC (2021) that rounding cannot be applied to meal punches, I expect the Court to extend that reasoning to timekeeping generally. Employers should review rounding policies, if not stop rounding altogether, so there is nothing to change when the decision comes out.

And one to calendar for January 1, 2027: the state minimum wage increases to $17.40 per hour, which raises the minimum salary for the executive, administrative, and professional exemptions from $70,304 to $72,384 per year ($1,392 per week). Employers covered by the fast food minimum wage under AB 1228 are already at a higher threshold of $83,200 per year. An exempt employee paid a dollar under the line is non-exempt, full stop — and, as I reminded the audience, an exempt title does not survive a duties test if the manager spends 60% of the day running the register.

4. Two letters deserve more thought than they usually get: the records request and the “litigation hold.”

A request for an employee’s payroll records under Labor Code § 226 or personnel file under § 1198.5 is not routine paperwork. It is very often a plaintiffs’ firm looking for a wage violation, and under the reformed PAGA it can be the event that closes the window for the 15% penalty cap (more on that below). The deadlines are tight — 21 days for payroll records, 30 days for the personnel file — so the employer should get the request to counsel immediately, have counsel review the records for violations before they go out the door, and start on corrective action in parallel.

The second letter usually arrives with the first: the notice that the firm is “contemplating litigation” and that the employer must preserve everything under the sun or face a spoliation claim. Employers tend to treat it as boilerplate and either ignore it or over-comply. I do neither, and carefully craft a response about what documents the employer will be preserving.

5. The strategy that limits exposure has two parts: an arbitration agreement with a class action waiver, and a documented reasonable-steps file.

I closed the wage and hour portion of the program with the combination I recommend to most employers of any size, with the caveat that it is not right for every business and should be discussed with counsel.

The first part is an enforceable arbitration agreement with a class action waiver. Viking River Cruises, Inc. v. Moriana (2022) and Adolph v. Uber Technologies, Inc. (2023) confirmed that these agreements are enforceable in the employment setting and can waive class claims, though not the employee’s ability to bring a PAGA claim. That is still a very good trade. The waiver eliminates the four-year class period and narrows the fight to PAGA’s one-year limitations period; the employee’s individual claim is compelled to arbitration, where the employer has a real chance of winning, and under the reformed statute the employee must prove they personally suffered each violation to pursue it on behalf of others.

The second part is the reasonable-steps defense under the 2024 reform. An employer that took all reasonable steps to comply before receiving a PAGA notice or records request caps penalties at 15% of the maximum; an employer that takes those steps within 60 days after the notice caps them at 30%. The statute lists what counts — periodic payroll audits with action taken on the results, lawful written policies, supervisor training, and corrective action including discipline of non-compliant supervisors. Two things I stressed to the audience: the caps are not automatic, and they are proven with documents. A ten-minute meeting with managers about meal breaks is a reasonable step if there is a dated memo or sign-in sheet; an audit that nobody wrote down did not happen.

Put the two together and the math changes. A one-year PAGA period instead of a four-year class period, an employee who has to prove their own injury in arbitration first, and a 15% cap on whatever penalties survive is a very different case than the one the plaintiffs’ firm filed. Once a notice arrives, the first 60 days should go to an exposure analysis run on the employer’s own data, corrective action documented for the 30% cap, and a push toward early mediation — which, given the two-year average timeline, also stops the pay periods from accumulating while the case sits.

I did not have room here for the disability and accommodation portion of the program — the broader FEHA standard, why one fact pattern generates three independent claims, extended leave as an accommodation after protected leave expires, and how to run the interactive process by letter — and will cover that in a future column.

Every wage and hour case that comes into our office starts the same way. Before we talk strategy and long before mediation, we ask the client for one thing: the raw time and payroll data. Not a summary. The punch-level time records, the payroll register with every pay code, and the wage statements. That data is going to testify in the case whether the employer likes it or not, and I would rather hear what it has to say before the plaintiff’s lawyer does.

I have written before about what executives should demand from their defense counsel once a lawsuit lands. This week I want to go behind the desk and show what we actually do with an employer’s records in the first days of a case using the Scaled Comp software, because that process reveals — better than any policy memo — which records matter, why speed matters, and what “reasonable steps” looks like when it is being tested rather than described. Full disclosure: I co-founded Scaled Comp, and Zaller Law Group uses it as a tool under counsel’s direction in our litigation and audit work. More on that at the end.

1. The clock may already be running before the PAGA notice arrives — and your records are the first thing it measures.

Under the 2024 PAGA reform, an employer that took “all reasonable steps” to comply before receiving a PAGA notice can have its penalties capped at 15% of the maximum, and an employer that takes those steps within 60 days after the notice can cap them at 30%. What many employers miss is that the statute ties the 15% cap not only to the PAGA notice but also to the employer’s receipt of a request for personnel or payroll records under Labor Code §§226, 432, or 1198.5 — whichever comes first. The innocuous letter from an employee’s attorney asking for a “copy of my client’s personnel file and pay records” is very often the starting gun, and by the time the PAGA notice follows, the window for the 15% cap may have already closed.

That is why one of the very first things we do is pull the records, and the first thing we learn is whether they exist in usable form. California requires employers to keep payroll records for at least three years (Labor Code § 1174(d)), to keep copies of wage statements for three years (§ 226(a)), and — under the Wage Orders — to record meal periods. When a client cannot produce a clean, punch-level export going back three years, that is the first finding of the case, and it is a bad one: under Hernandez v. Mendoza (1988) 199 Cal.App.3d 721, once an employee shows the employer’s records are inadequate, the burden shifts and the employee’s own recollection of hours worked can carry the day. An employer with no records is not defending a case; it is negotiating a surrender.

2. Within days — not months — we know the actual compliance rate, and that changes every decision that follows.

Here is what the software does once the data is loaded. It measures every shift against the rules: was a meal period started by the end of the fifth hour, was it at least 30 minutes, was a second meal provided by the end of the tenth hour, and — if rest breaks are recorded — were they provided based on hours worked. It flags each late, short, or missed break. It then does the step that most employers never do on their own: it matches each flagged shift against the payroll register to see whether a meal or rest premium was actually paid for that day. The output is a compliance rate — by location, by manager, by pay period — along with the count of pay periods and workweeks in the limitations period and an exposure model built on the employer’s actual numbers rather than the plaintiff’s assumptions. It also keeps two numbers that are easy to confuse: for PAGA penalty purposes, a shift with three flags is still one violation, while premium pay liability is calculated per missed break. Both numbers matter, and they are not the same.

The traditional way to get this analysis was to retain a damages expert months into the case, wait several more months for a report, and pay a fee that could rival a small settlement. The reason we built the software was to compress that to days. And the speed is not a convenience — it is the whole point. The 60-day window for the 30% cap is meaningless if you do not know where the violations are until day 90. The decision whether to push for early mediation — which, as I discussed in the mid-year 2026 PAGA data, cuts off the accrual of pay periods that otherwise add to the exposure every month — depends on knowing the number. A case where 3% of shifts show a late meal period with no premium paid is defended, budgeted, and settled completely differently than one where the figure is 35%. In the first week, we know which case we have.

3. Premium payments are the evidence — record them as though they will be Exhibit A, because they will be.

Under Donohue v. AMN Services, LLC (2021) 11 Cal.5th 58, time records showing a late, short, or missed meal period raise a rebuttable presumption that a violation occurred. That presumption is rebutted with evidence — that the employee was provided the break and chose to skip it, or that the employer recognized the issue and paid the premium. This is where the payroll register becomes the employer’s best witness or its worst. When the analysis shows a late meal punch on a given day and a § 226.7 premium paid on that same day, the story is that the employer’s system caught the problem and paid for it. That does not erase the underlying issue for every purpose, but it eliminates the unpaid-premium claim, it cuts off the derivative wage statement and waiting time claims that Naranjo v. Spectrum Security Services, Inc. (2022) 13 Cal.5th 93 makes available when premiums go unpaid, and it is the single strongest piece of evidence that the employer’s compliance program is real rather than aspirational.

But the software can only give the employer credit for what it can match. Three recordkeeping practices determine whether that credit is available:

  • Code premiums separately. Meal premiums and rest premiums should be their own pay codes and their own line items on the wage statement. Naranjo held that premium pay is wages that must be reported on wage statements; premiums buried in “other pay” or “adjustments” are invisible to the analysis and to the court.
  • Pay premiums at the regular rate, not the base rate. Ferra v. Loews Hollywood Hotel, LLC (2021) 11 Cal.5th 858. A premium paid at the wrong rate is a documented underpayment on every day it appears.
  • Tie the premium to the day. A lump-sum “true up” at the end of the month cannot be matched to the shift it was meant to cover. Pay it in the pay period of the missed break.

4. The analysis becomes the defense at every stage of the case — not just a number for mediation.

Employers sometimes assume the exposure analysis is a one-time exercise to set a settlement authority. It is not. The same data set is reused at nearly every stage:

  • The 60-day window. Location- and manager-level results tell the employer exactly where to direct corrective action within the 60 days after the notice, and the documentation of that action is the 30%-cap file.
  • Arguing the penalties down. The reform gives courts discretion to reduce penalties that would be unjust or oppressive, and provides a reduced penalty where a violation resulted from an isolated, nonrecurring event of short duration. Neither argument can be made in the abstract; both require showing the court what the records actually reflect.
  • The mediation brief. Compliance rates and the pay-period and workweek counts, benchmarked against comparable settlements on a per-pay-period and per-workweek basis, are the difference between negotiating from data and negotiating from fear.
  • Opposing certification. When compliance varies widely by location and manager, that variation is evidence that liability cannot be determined on a class-wide basis without individualized inquiries.
  • Rebutting the plaintiff’s expert. The plaintiff’s damages model will typically treat every 5:01 punch as a violation and ignore premiums paid, waivers, and shifts short enough that no meal period was required. Our analysis identifies each of those categories shift by shift.

Two structural notes. First, the analysis is run through counsel and at counsel’s direction so that it is protected as attorney work product; an employer that runs the same analysis on its own, outside of counsel, may be creating a discoverable document. Second, the report does not decide the legal questions — whether the employer’s conduct amounts to reasonable steps, and which cap applies, are judgments for counsel and ultimately the court. The data gives counsel something to argue with.

5. Run the same analysis when nobody is suing you. That is what “reasonable steps” looks like on paper.

The statute’s list of reasonable steps starts with “conducting periodic payroll audits and taking action in response to the results of the audit,” followed by disseminating lawful written policies, training supervisors, and taking corrective action with regard to supervisors — evaluated under the totality of the circumstances, including the employer’s size and resources and the nature, severity, and duration of the violations. I have covered the action items under the reform before. The point I want to make here is narrower: the audit the statute describes and the litigation analysis described above are the same analysis. The only difference is when it is run and who is asking.

An employer that runs it on a recurring basis — monthly or quarterly, depending on size — gets a report by location and manager, acts on it (retraining a manager, fixing a scheduling practice, paying the premiums the audit identifies), documents the action, and then runs it again. The trend line is the reasonable-steps story: 12% of shifts at one location showed late meal periods with no premium paid in the first quarter, the manager was retrained and the scheduling template changed, and the figure was 3% the next quarter. That is a narrative a court can evaluate, and it is far more persuasive than a declaration that the company “takes compliance seriously.”

The audit also does something the penalty caps do not: it reduces the exposure itself. Every violation caught and corrected is a premium paid now rather than a premium, a wage statement penalty, and a PAGA penalty litigated later. And because PAGA penalties accrue per aggrieved employee per pay period, shrinking the number of employees who experienced any violation directly shrinks the case a plaintiff’s firm can bring. Two cautions: the audit will identify premiums that are owed, and the employer needs to be prepared to pay them — that is the point of the exercise, not a reason to avoid it. And reasonable steps are proven with documents. The audit report, the memo directing corrective action, the training sign-in sheet, and the follow-up audit are the file. A sincere belief that the company was compliant is not.

The bottom line: in every PAGA case, the employer’s payroll records testify first, and they testify about the period before the employer knew it had a problem. The employers who fare best are the ones whose records already tell the right story — punch-level data that exists and can be exported, premiums that are paid, coded, and matched to the day they cover, a rest break reporting mechanism that leaves a trail, and a recurring audit with documented corrective action behind it. Get those in place now, and the first week of the case looks very different.

Scaled Comp’s August Settlement Pulse recorded about 225 California PAGA and wage-and-hour settlements totaling $157.4 million. The medians tell you where the market sat. They don’t tell you why one employer paid six times what another did for nearly the same number of pay periods, what a $6.5 million fund is actually buying, or whether the 2024 PAGA reform’s signature employer protection is showing up in settlement papers at all.

So we reviewed the documents. This week’s five points come from five settlements in the August cohort, each chosen because it answers a question the headline number can’t: the largest, the smallest, a matched pair, one that shows how the reform’s penalty cap is being argued in practice, and — across three months and more than 650 settlements — a count of how often that cap appears anywhere in the record. (Full disclosure: I co-founded Scaled Comp, and Zaller Law Group uses it as a tool in our litigation and audit work. More on that at the end.)

A word on method. Each settlement is de-identified. Each description reflects allegations and stated settlement terms, not findings of liability or final court-approved distributions. Figures come from the agreements and approval papers, using the stated caps and estimates.

1. The largest settlement bought a release, not a workforce.

The biggest settlement in August’s records was $6.5 million, resolving claims for roughly 10,500 hourly employees of a fuel and convenience-store operator across a class period running from early 2022 through March 2026. It settled at a multiple of what the filing plaintiff firm typically resolves cases for.

The size of the workforce explains some of that. The release explains more.

The agreement describes two separate plaintiffs’ proceedings and identifies several other pending actions the settlement could affect. It calls for an amended complaint and notice incorporating additional theories that surfaced during mediation — sick pay and indemnification among them. The employer wasn’t paying $6.5 million to close one case. It was paying to close a category.

The agreement also includes a clause that has become standard in larger settlements: if the actual workweek count exceeds the estimate by more than ten percent, the fund grows or the release period shortens. More on that in point three, because it appears in three of the five cases.

The PAGA allocation was $150,000 — about 2.3% of the gross — small, because this was fundamentally a class resolution. Attorneys’ fees were set at $2.275 million. After fees, costs, administration, service awards, and the PAGA carve-out, roughly $3.9 million was left for the class.

The lesson: if you are facing more than one action, or one action with more theories waiting in the wings, the settlement is your chance to close all of it at once. Global peace costs more than settling one case, but it is almost always cheaper than settling the same workforce twice. Ask counsel early whether the release can reach the related actions and the unpleaded claims — and expect the headline number to reflect that scope, not just the headcount.

2. Same pay periods, six times the price.

Two August settlements had nearly identical PAGA pay-period counts: an engineering and design consultancy with 9,323, and a demolition and construction-waste contractor with 8,500 — less than ten percent apart.

The engineering firm settled for $1.81 million. The demolition contractor settled for $306,000.

The documents explain most of the gap, and it isn’t compliance. It’s scope.

The engineering settlement resolves both class claims and PAGA claims, with a class period reaching back to mid-2019 and roughly 34,700 class workweeks on top of the PAGA count. The demolition case started as a class action too — but the parties stipulated to dismiss the class claims, and the operative complaint was narrowed to PAGA only before approval was sought. The $306,000 buys a PAGA release. It does not buy a class-wide wage release. A pay-period count prices the PAGA claim; it says nothing about the rest of the lawsuit.

There’s a second difference worth noticing. In the demolition case, a review of the employer’s time and pay records showed a meal-period violation rate of about 10.8%, with a portion of those covered by meal waivers and some premium payments already made — and the approval papers concede the exposure turned out to be “less than initially believed.” In the engineering case, the plaintiff’s analysis produced a purported violation rate of 83.8% — but only by assuming a 100% violation rate for every shift over five hours.

Those two figures are not comparable — different methods, different cases. What is comparable is the posture. In one case, the employer’s own records produced the number, and it was low. In the other, the employer was arguing against a number the plaintiff constructed from an assumption. The documents don’t prove the first employer was more compliant, and I recognize that. What they show is that when the records are clean enough to speak for themselves, they set the terms of the discussion; when they aren’t, the plaintiff’s model does. This is the point I made recently about using your time records as a proactive tool rather than just evidence against you, and here it is playing out in the approval papers.

The engineering case also took the long road: a failed first mediation, continued discovery, and a second mediator before it resolved.

The lesson: pay periods price the PAGA claim, not the lawsuit. And an employer that can put a high compliance rate on the table is negotiating from a different position than one that can’t.

3. Your workweek count is a settlement term.

Three of the five settlements — the convenience-store case, the engineering case, and the demolition case — contain what the agreements call an escalator: the employer represents a total workweek or pay-period count, and if the true figure exceeds it by more than a stated threshold, the price goes up proportionally or the release period is cut short.

The convenience-store agreement uses a ten percent workweek threshold. The engineering agreement benchmarks against a stated workweek figure. The demolition agreement ties the threshold to pay periods.

This is easy to skim past. It shouldn’t be.

Every one of these employers made a representation about its own headcount and time data, and put money behind it. Get the number right, and the settlement is what you negotiated. Get it wrong by more than the threshold, and plaintiff’s counsel has a contractual right to more. It is the most direct link between data accuracy and dollars anywhere in these agreements — and it applies before anyone argues about violation rates.

The lesson: know your denominators. Workweeks, pay periods, headcount by period. If those numbers are estimates when you sign, the settlement price is an estimate too.

4. The reform’s penalty cap is an argument, not yet a ruling.

The 2024 PAGA reform gave employers a specific protection: take “all reasonable steps” toward compliance, and the civil penalty is capped — at 15% of the potential penalty for steps taken before a PAGA notice or records request, or 30% for steps taken within 60 days after the notice. Labor Code § 2699(g)(1)–(2). It was the reform’s headline concession to employers, and I’ve written about the action items it created before.

We searched the documents for settlements in the June, July, and August cohorts — 652 in all — for any invocation of it. Here is what turned up:

  • June: 191 settlements reviewed; 3 referenced reasonable steps (1.6%). We could not find one that used the cap in the negotiated valuation.
  • July: 236 reviewed; 8 referenced it (3.4%). Four incorporated the cap into the settlement valuation.
  • August: 225 reviewed; 9 referenced it (4.0%). One — the steel case discussed below — actually used the cap in valuing the PAGA claim. Three mentioned it in passing. Five were plaintiff-side boilerplate: language in the plaintiff’s own notice or complaint acknowledging that the cap might apply if the employer qualifies, and disputing that it does.

“Used in the valuation” means defense counsel built the cap into the settlement math — not that a court found the employer qualified.

The clearest example of the cap doing real work is a July settlement for $130,500. Counsel expressly applied the 15% cap to roughly $144,700 in potential penalties, then took a further 70% litigation-risk reduction, arriving at about $6,500 in estimated PAGA exposure. The agreement allocated $5,000 to PAGA — under 4% of the gross. That is the reform working the way it was written: the compliance record shrank the PAGA piece of the case to a rounding error.

Compare an August steel-fabrication settlement for $287,500. A signed amendment changed the PAGA allocation split from the pre-reform 75/25 to the reformed 65/35 — without changing the $28,750 PAGA total or the gross. The approval motion cites the 15% and 30% caps and notes the employer revised its meal-period timekeeping in 2025. It even runs the math: “Were the fifteen percent cap applied, Defendant’s maximum PAGA exposure would be approximately $52,215.” Then the actual valuation applies a general 80% litigation discount instead, arriving at a higher figure than the cap would have produced. The cap was argued. It was priced as risk. It was not applied.

Two honest caveats. First, the documents include approval motions or declarations for only about half the cases; the rest are agreements alone, and a cap argument could sit in a brief we don’t hold, in negotiations, or in a confidential mediation submission. “No mention” means no mention in the documents we have. Second, a 2026 settlement month doesn’t establish that the underlying PAGA notice was filed after the reform’s June 19, 2024 effective date, so some of these cases may simply be pre-reform matters to which the cap never applied.

Even with those caveats, the picture is consistent. More than two years after the reform, its flagship employer protection appears in a few percent of settlements, and mentions are creeping up rather than climbing. The data doesn’t show a steady increase in actual use, and it doesn’t show that the cap generally produces smaller settlements. What it shows is that in the handful of cases where the employer had a compliance record to point to, counsel used it — and in the July example, it worked.

The lesson: the cap is real, but nobody is handing it out. The employer who wants it has to have built the compliance record before the notice arrives. After the notice, it’s one argument among several, discounted like the rest — unless the record is strong enough that counsel can make it the starting point of the valuation instead.

5. The smallest settlement is not the smallest cost.

The smallest recorded fund in August was $10,000, a PAGA-only resolution covering about 38 massage and esthetician workers at a spa.

The number understates what the employer agreed to. In most agreements, the administrator’s fee comes out of the gross settlement. Here it’s the reverse: settlement administration, capped at $4,000, is expressly “paid by Defendants separate from the Gross Settlement Amount.” So the $10,000 splits three ways — fees of about $1,840, costs of about $4,430, and PAGA penalties of about $3,730 — and the employer’s cash commitment is closer to $14,000 before its own legal fees.

More interesting than the money is what else the employer promised. The agreement contains a section of non-monetary terms in which the employer represents and warrants that its piece-rate calculation and pay practices comply with California law, that there are no barriers to employees clocking in and out when they actually arrive and leave (as opposed to only during scheduled shift times), and that its handbook reflects compliant pay practices. Those are written representations about how the business operates, negotiated alongside a fund small enough that they may have been the more consequential part of the deal.

And a footnote worth noticing: this case was filed in October 2023, before the reform took effect, so the reasonable-steps cap was never on the table. The employer made forward-looking compliance representations without getting the statutory credit an employer in the same position today could claim — if it had built the record first.

The lesson: the gross is not the cost, and a small settlement can carry commitments that reshape how a business operates. Read the warranties.

The bottom line: four of the five lessons come back to the same place. The employer that knows its own data before a notice arrives is in a different negotiation than the one that doesn’t. Know your denominators, because the escalator clause is waiting for you to get them wrong. Know your compliance rate, because if you don’t put a number on the table, the plaintiff will. And build the compliance record before the notice, because after it the reform’s cap becomes one discounted argument among many.

That first step — knowing what your own records show before anyone else does — is the reason I founded Scaled Comp. The software reviews timekeeping and payroll data at scale to surface meal-period and rest-break compliance, so that the employer is the party in the room who actually knows what the records show — with the documented compliance record the reform now rewards.

A note on Scaled Comp: I co-founded Scaled Comp, and Zaller Law Group uses its software as a tool in our litigation and compliance audit work. The settlement data described above comes from Scaled Comp’s Settlement Pulse and is drawn from available data; it is de-identified and reflects stated settlement terms, not findings of liability.

The Legislature adjourned on Monday night, August 31, 2026, and everything it passed is now on Governor Newsom’s desk. He has until September 30 to sign or veto each bill. This is his last signing period before his term ends in January, so there is no next year for him to reconsider anything — what he signs this month is the law employers will be living with in 2027, and what he vetoes is dead until a new governor and a new Legislature take it up.

I have reviewed bills that I thought would impact California employers the most, with a particular eye toward restaurants and hotels. There are more than five, so this week’s Friday’s Five is organized by theme rather than by bill. Unless a bill carries an urgency clause or sets its own date, anything signed takes effect January 1, 2027.

1. Three bills aimed squarely at restaurants and hotels.

AB 1640 — California Restaurant Reservation Anti-Piracy Act. This bill prohibits selling or transferring a restaurant reservation for more than what was originally paid to get it. It gives enforcement authority to the Attorney General, county counsel, city attorneys, and restaurants and diners who are harmed, and it creates a state fund to hold penalties recovered by the Attorney General. It passed the Assembly 78–0 on final concurrence and was backed by the California Restaurant Association. For full-service operators who have watched their prime-time tables get scalped on third-party apps, this is welcome. If it is signed, update the terms on your online booking platform to reference the law and train hosts on how to document suspected resales.

AB 2663 — Cocktails-to-go extended through 2029. The pandemic-era authority for restaurants (bona fide public eating places with an on-sale license) to sell manufacturer-prepackaged spirits and other non-beer alcoholic beverages for off-premises consumption with a meal was set to expire December 31, 2026. AB 2663 extends it to December 31, 2029. It is an urgency bill, so it takes effect immediately on signature. No employment changes here, but if to-go cocktails are part of your revenue mix, watch for the signature so you are not planning around a program that lapses at year end.

AB 2721 — Hotels must disclose federal immigration-enforcement reservations. This one is specific to hotels and was hard-fought. A hotel operator that knows, or should know, that ICE or CBP has reserved rooms would have to post a notice to hotel workers identifying the agency and the duration of the stay, and would have to disclose the potential agency presence to guests at check-in. Violations are actionable under the Unfair Competition Law, with liability capped at $5,000, and the provisions sunset January 1, 2029. The Asian American Hotel Owners Association, which represents a majority of California’s hotels, opposed it on the ground that the “knows or should have known” standard is impossible to administer. The Governor has signaled reservations about several immigration-enforcement bills this session, so this is a genuine veto candidate. Hotel clients should draft a booking-review protocol now but hold implementation until the Governor acts.

2. Immigration-related conduct toward workers just got much more expensive.

AB 2495 — Unlawful immigration-related practices. Of everything on this list, this is the bill I would put at the top of the training agenda for restaurant and hotel managers. Labor Code section 1019 already prohibits immigration-related retaliation — threatening to call ICE, requesting more or different documents than the I-9 requires, and the like. AB 2495 expands the prohibition to any conduct “related to any person’s perceived immigration status” that would reasonably tend to dissuade a worker from exercising rights under any local, state, or federal law, or that coerces a worker into doing something the worker could lawfully refuse. The worker’s actual immigration status is irrelevant. And the bill adds a new civil penalty of up to $10,000 per employee per violation, payable to the worker, on top of existing remedies. It passed the Assembly 60–13 with no registered opposition, which usually means it gets signed.

What this means in practice: a comment about someone’s paperwork during a scheduling dispute could become $10,000-per-employee exposure, and it might show up as a tag-along claim in PAGA and wage cases. If this is signed by the Governor, employers must update the anti-retaliation policy to specifically address immigration-related comments and threats, retrain managers, and pair it with the Workplace Know Your Rights notice (SB 294) that has been required since February.

3. Technology in the workplace: AI decisions, surveillance, and layoffs.

SB 947 — The “No Robo Bosses Act.” The Governor vetoed a broader version of this bill (SB 7) last year, citing the notice burdens. Senator McNerney came back with a narrower version that passed the Assembly 53–14 and the Senate 28–10. If signed, beginning July 1, 2027, employers may not rely solely on an automated decision system to discipline or discharge a worker — a human being must make the final decision with corroborating evidence. The bill also bans systems that predict a worker’s behavior, beliefs, personality, or emotional state, that infer protected characteristics, or that identify workers who exercise legal rights. When an employer primarily relies on such a system in a discipline or termination decision, it must provide written notice to the worker after the fact and allow the worker to obtain the data the system used. Enforcement is by the Labor Commissioner and public prosecutors with a $500 civil penalty per violation, and there is a private right of action.

Most restaurant operators do not think of themselves as using “AI” in HR, but attendance-point systems that automatically generate write-ups or terminations, scheduling software that flags unreliable employees, and camera analytics that score productivity all fall within the definition. The homework for 2027 is an inventory of every tool that scores or flags employees, and a human review step before any of those outputs turn into discipline.

AB 1331 — No surveillance in bathrooms. This started in 2025 as a broad restriction on workplace surveillance and was narrowed to something everyone can agree with: employers may not monitor or surveil employees in a workplace bathroom, and employees may leave surveillance devices (wearables, tracking apps, location-enabled radios) behind when they go in. Labor Commissioner enforcement, up to $500 per violation. Check your camera fields of view near restrooms and locker areas, and make sure any device policy allows employees to leave devices outside.

AB 1883 — No emotion recognition or neural data. Prohibits employers from using AI-based surveillance tools that collect neural data or claim to recognize an employee’s emotional state. Same $500 penalty structure. Ask your camera-analytics and call-monitoring vendors whether any feature scores employee “sentiment” or “engagement,” and turn it off for employees.

SB 951 — WARN notices for AI-driven layoffs. When a mass layoff, relocation, or termination results in whole or substantial part from AI or automation replacing positions, the Cal-WARN notice must include specified information about the job functions being automated, and EDD will publish summaries and report to the Legislature by 2028. Earlier versions of the bill would have required 90 days’ notice and lowered the trigger to 25 employees; the final version works within the existing 60-day Cal-WARN framework. This matters for larger hospitality groups rolling out kiosks, AI drive-throughs, or automated back-office functions across a covered establishment.

4. Leave, discrimination, and training: the handbook updates for 2027.

SB 1149 — Bereavement leave for a “designated person.” California already requires employers with five or more employees to allow up to five days of bereavement leave for the death of a family member. SB 1149 adds a “designated person identified by the employee” to that list, following the same concept already in CFRA and paid sick leave. Employers may limit an employee to one designated person per 12-month period. If passed, employers will need to update the bereavement policy and the leave-request form.

AB 1940 — Menopause protections under FEHA. Adds perimenopause, menopause, postmenopause, and related medical conditions to the definition of “sex” under FEHA, which brings them within the discrimination, harassment, and reasonable-accommodation framework. The Civil Rights Department must update its workplace poster by July 1, 2027. A companion bill, AB 2563, directs that all sex and gender discrimination laws be liberally construed and defines sex discrimination to include actual or perceived conformity to sex or gender stereotypes. In restaurants, the practical accommodations are temperature relief, break flexibility, and uniform adjustments — add it to manager training on the interactive process.

AB 1803 — Anti-hate speech component in harassment training. Beginning January 1, 2028, the biennial sexual-harassment prevention training that employers with five or more employees already provide must include an anti-hate speech component addressing workplace speech that vilifies, humiliates, or incites hatred based on protected characteristics. Nothing to do for the 2027 training cycle, but if it is signed, confirm your training vendor will have the module ready for 2028.

AB 1697 — Stay-or-pay ban delayed one year. Last year’s AB 692 made most “stay-or-pay” provisions — training-cost repayment, retention bonus clawbacks, and similar terms — unenforceable as of January 1, 2026. AB 1697 is an urgency bill that pushes the operative date to January 1, 2027 and adds exemptions for grant-funded recruitment and retention bonus programs, repayment of advanced PTO on voluntary separation, and certain securities and insurance affiliation agreements. Employers who advance vacation or use sign-on bonus clawbacks get a partial safe harbor, but every repayment agreement still needs to be reviewed before January 1.

5. Enforcement, litigation, and the bills that touch a narrower group of employers.

AB 2321 — Cal/OSHA criminal referrals. Requires the Bureau of Investigations to investigate any serious injury, illness, or exposure where a willful violation is cited, requires immediate notice to the district attorney for incidents involving five or more serious injuries or a fatality, allows trade-secret information gathered in an inspection to be shared with prosecutors, and makes it a misdemeanor to willfully resist or interfere with a Cal/OSHA inspector. Managers should never obstruct an inspector, but the right to ask for a warrant remains. This is a good reason to dust off the Injury and Illness Prevention Program and the workplace violence prevention plan.

AB 1961 and AB 2179 — Workplace violence restraining orders. AB 1961 lets an employer seek a workplace violence restraining order protecting all employees at a specific location without naming each one. AB 2179 requires courts to allow remote appearances and electronic filing for those petitions. Both are useful tools for restaurants and hotels dealing with a threatening ex-employee or patron.

SB 690 — Fewer website-tracking lawsuits. Businesses have been on the receiving end of a wave of demand letters under the California Invasion of Privacy Act over tracking pixels, session-replay tools, and analytics on their websites and online-ordering pages. SB 690 limits enforcement of the “pen register” provision (Penal Code section 638.51) to the Attorney General when the conduct involves a website or app, and applies to pending claims filed within two years before the effective date. It passed the Senate 39–0. It does not touch the wiretap provision (section 631) that most of these cases are actually filed under, so keep the cookie banner and privacy policy in place.

SB 1237 — Pay data reporting penalties. Raises the maximum penalty for a repeat failure to file the annual California pay data report from $200 to $1,000 per employee. Only employers with 100 or more employees (or 100 or more workers through labor contractors) file, but for those who do, the May 2027 filing just became more important.

AB 1776 — Cartwright Act expansion. Extends California antitrust law to single-firm monopolization using a “substantial market power” standard. Enforcement is limited to the Attorney General and district attorneys, small businesses (roughly 100 or fewer employees and $10 million or less in revenue) are exempt, and it is not a predicate for Unfair Competition Law claims.

AB 2646 — Agricultural minimum wage. Sets a $19.75 hourly minimum for approved agricultural employees (H-2A workers and their domestic counterparts), indexed annually. It is expected to draw legal challenges if signed.

Already signed. Two employment bills were signed on August 27 and did not get much attention. SB 1444 allows an individual employee, not just the Labor Commissioner or a prosecutor, to recover the civil penalties for willful independent-contractor misclassification under Labor Code section 226.8. SB 1316 bars employers from introducing records at a Labor Commissioner retaliation hearing that they did not produce when the Labor Commissioner asked for them, so respond completely to those document requests the first time.

What did not make it. For those keeping score, the bills that died this session include AB 1898 (an annual inventory and disclosure of every workplace AI tool), AB 2095 and AB 2064 (expanded criminal-history protections in hiring), AB 1234 (a penalty of up to 30% on Labor Commissioner orders), AB 1018 (the broad Automated Decisions Safety Act), and the state “no tax on tips” conformity bills (SB 984 and AB 1550), which were held in committee.

The bottom line: the Governor’s decisions by September 30 will set the 2027 compliance agenda. If the bills above are signed, the January 1 to-do list for employers is a handbook update (bereavement leave, FEHA protected characteristics, anti-retaliation with immigration language, device and surveillance policy), manager training on immigration-related conduct and Cal/OSHA inspections, and an inventory of every piece of software that scores or flags employees ahead of the July 1, 2027 operative date for SB 947. I will publish a follow-up once the Governor has acted. As always, this article is a general overview — if you have questions about how any of these bills affect your business, please reach out.

Our 5th Annual “Sign or Veto” Contest

To make this season of legislative suspense a little more fun, we invite you to participate in the 5th Annual Zaller Law Group “Sign or Veto” Contest. This is the Governor’s final signing period, so it is also the final round against Governor Newsom — here is your chance to test your knowledge of California politics and workplace trends:

  • Review the list of key employment bills we’ve picked (with a few non-employment curveballs included).
  • Make your picks: Will Governor Newsom sign the bill into law, or exercise his veto power?
  • Submit your entry before Friday, September 25 at midnight.

Prizes:

  • Champion: Zaller Law Group Yeti cooler backpack
  • 2nd & 3rd place: Exclusive Zaller Law swag
  • All participants: Bragging rights for your California political and employment law expertise

How to Play:

  1. Register your predictions here.
  2. Submit your entry by September 25, 2026.
  3. If there are any ties, the order will be determined by time of entry with the earliest entry winning.

Winners will be announced after the Governor’s September 30 deadline!

Most executives operate on a comfortable assumption: the company is the employer, so the company bears the wage and hour liability. Form the entity correctly, keep your corporate housekeeping in order, and your personal assets stay out of the line of fire. In California, that assumption is wrong. Labor Code section 558.1 allows a plaintiff — or the Labor Commissioner — to reach past the corporation and pursue owners, officers, directors, and managing agents personally for certain wage and hour violations. The corporate shield that protects you in most commercial disputes has a wage-and-hour-shaped hole in it.

This is not a theoretical risk. Plaintiffs’ firms routinely name individual executives in class action and PAGA complaints, and California’s appellate courts have steadily made clear that individual liability is real, enforceable, and — once the elements are met — not something a sympathetic judge can simply wave away. Here are five things every California executive should understand about when the exposure attaches and how to stay off the list.

1. Section 558.1 does not create new violations — it expands who is liable for the ones that already exist.

Added by Senate Bill 588 and effective January 1, 2016, section 558.1 was a response to a specific problem: business owners who racked up wage judgments, dissolved or bankrupted the company, and reopened down the street — leaving workers with a paper judgment against an empty shell. The Legislature’s fix was to let liability follow the people who control the conduct, not just the entity.

The statute provides that any employer “or other person acting on behalf of an employer” who violates, or causes to be violated, specified wage provisions may be held liable as the employer. It defines that “other person” narrowly — a natural person who is an owner, director, officer, or managing agent of the employer. “Managing agent” is not everyone with a manager title or hiring authority; it has the same meaning as in Civil Code section 3294, subdivision (b), and generally means someone who exercises substantial independent authority and judgment over decisions that ultimately determine corporate policy.

Two points matter here. First, section 558.1 does not invent new substantive obligations — it attaches individual liability to violations of existing ones, including minimum wage and the IWC Wage Order hours provisions, and Labor Code sections 203 (waiting time penalties), 226 (wage statements), 226.7 (meal and rest premiums), 1193.6 (Labor Commissioner enforcement of unpaid minimum wage and overtime), 1194 (unpaid minimum wage and overtime), and 2802 (business expense reimbursement). Second — and this is the part that surprises executives — it operates independently of alter ego doctrine. A plaintiff does not have to prove unity of interest, undercapitalization, or that you abused the corporate form to pierce the veil. Section 558.1 creates direct statutory liability, which means the usual corporate-separateness defenses simply do not apply.

2. Your title alone will not make you liable — but your conduct can.

The good news for executives is that section 558.1 is not strict liability by rank. A CEO is not automatically on the hook for every wage violation in the company simply because of the seat they occupy. The analysis turns on conduct, not hierarchy.

The foundational case is Atempa v. Pedrazzani (2018) 27 Cal.App.5th 809. There, the owner, president, secretary, and director of a restaurant corporation was held personally liable for civil penalties tied to overtime and minimum wage violations. The court rejected the argument that a corporate officer is categorically immune, holding that “the business structure of the employer is irrelevant” — an individual who causes the violation can be reached regardless of the corporate form. (Atempa was decided under the closely related penalty statutes, sections 558 and 1197.1, but its reasoning — that the corporate form is irrelevant once the statute names an “other person” who caused the violation — is the foundation later section 558.1 cases build on.)

Usher v. White (2021) 64 Cal.App.5th 883 is the decision that actually construes section 558.1’s causation requirement — and it cuts in the employer’s favor on the facts. The court held that a corporate title, standing alone, is insufficient. To “cause” a violation, the individual must either (1) have been personally involved in the violation, or (2) had sufficient participation in the activities of the employer — including, for example, over those responsible for the violations — that they may be deemed to have contributed to it. Applying that standard, the court declined to hold the owner personally liable, because she lacked that involvement in the pay practices at issue.

Espinoza v. Hepta Run, Inc. (2022) 74 Cal.App.5th 44 is the other published construction of that causation test, and it is less comforting. The Second District agreed with Usher that title is not enough and that some affirmative conduct beyond mere status is required. It then held that day-to-day operational involvement is not required, and that the individual need not have authored the challenged policy or specifically approved each implementation of it. Approving a compensation policy that violated the Labor Code was enough. The court put the line this way: to be held personally liable, the individual must have had “some oversight of the company’s operations or some influence on corporate policy that resulted in Labor Code violations.”

The practical line, then, runs through what you personally touch — including at the policy level. An executive who sets broad corporate strategy but stays out of wage-and-hour decisions has a genuine argument against liability. An executive who personally approves a policy that denies compliant meal periods, directs that final wages be withheld, controls payroll practices, or drives a misclassification decision is squarely in the causation zone. After Espinoza, policy-level approval can put you there even if you never touch payroll day to day. The difference is not your title — it is your fingerprints.

3. Once your conduct is established, the court has no discretion to let you off.

This is the development that the standard treatment of section 558.1 tends to underplay, and it is the one executives most need to understand. The statute says a qualifying individual “may be held liable.” It is tempting to read “may” as leaving room for a judge to decline — to impose individual liability only where it seems fair. That reading is wrong.

In Seviour-Iloff v. LaPaille (2022) 80 Cal.App.5th 427, the Court of Appeal held that section 558.1 provides employees a private right of action — they do not have to wait for the Labor Commissioner to pursue an individual — and, critically, that the word “may” does not give courts discretion over whether to impose liability. The discretion belongs to the plaintiff: “may” reflects the plaintiff’s choice of whether to pursue the individual at all (they might not need to, if the company pays the judgment). But once a plaintiff establishes that a qualifying owner, officer, director, or managing agent caused a covered violation, the court is obligated to impose personal liability. There is no judicial safety valve.

A note on where this case stands, because the history is worth understanding. The California Supreme Court granted review and issued its decision in Iloff v. LaPaille (2025) 18 Cal.5th 551 — but it limited review to two separate questions: what an employer must show to establish the good-faith defense to liquidated damages for minimum wage violations, and whether a paid-sick-leave claim can be pursued in a de novo wage-claim trial. The high court did not take up the section 558.1 personal-liability holding. On remand, in Iloff v. LaPaille (2025) 117 Cal.App.5th 404, the Court of Appeal once again reversed the trial court’s refusal to hold LaPaille personally liable and reaffirmed that “may” confers no judicial discretion. In other words, through a full trip up to the Supreme Court and back, the individual-liability analysis has held. The takeaway for executives is blunt: do not plan around the hope that a judge will decline to hold you personally responsible. If the conduct is there, the liability follows.

4. The exposure is personal, it survives the company, and it stacks.

Three features make individual liability more dangerous than the raw statute suggests.

First, it reaches your personal assets. This is not corporate money — it is your money, exposed to satisfy a wage judgment.

Second, it survives the death of the company. The whole point of section 558.1 was to defeat the disappear-and-reopen playbook, and the cases bear that out. In Atempa, the corporate employer filed for bankruptcy while the appeal was pending and dropped out of the case — leaving the individual owner as the plaintiffs’ path to recovery. A company bankruptcy does not erase the individual’s exposure; in many cases it is precisely what motivates the plaintiff to pursue the individual in the first place.

Third, it stacks with the company’s liability. A single compliance failure — say, a meal-period practice that violates section 226.7 — can generate the underlying wage/premium claim against the company, PAGA civil penalties against the company (accruing per employee, per pay period), and individual section 558.1 liability against the executive who approved the practice. One decision, multiple layers of exposure, some of it landing on you personally. Independent-contractor misclassification is a particularly common trigger, because a single classification call made at the executive level can drive violations across an entire workforce.

5. The compliance discipline that protects the company is what protects you personally.

The reassuring through-line of the case law is that individual liability tracks individual conduct — which means it is manageable. The same “reasonable steps” program that caps a company’s PAGA penalties is also what keeps an executive out of the causation crosshairs, and it is worth thinking about your personal exposure as one more reason to build it properly. (I have written before about documenting your reasonable steps to comply with the Labor Code before a PAGA notice ever arrives.) A documented compliance program is not a statutory defense to section 558.1 the way it can cap PAGA penalties. What it does is support the argument that you did not cause the violation.

A few concrete moves:

  • Know which wage-and-hour decisions you personally touch. Meal and rest break policy, overtime and regular-rate practices, final-pay procedures, and worker classification are the high-risk categories. If you are the one approving or ratifying them, you are the one who “causes” a violation if they are wrong.
  • Do not personally approve or direct a practice you have not vetted. The executive in Atempa was liable in part because he sat atop the pay decisions; the owner in Usher escaped because she did not; the owner in Espinoza was liable because he approved the unlawful pay policy, even without day-to-day operations. Where you have doubts about a policy, get advice of counsel before you sign off, not after the demand letter.
  • Build and document the program. Compliant written policies, recurring payroll and timekeeping audits, supervisor training, and prompt corrective action when a problem surfaces are what demonstrate that you did not cause or permit violations — and they are the same records that cap the company’s penalties.
  • Document delegation. If wage compliance genuinely lives with HR or a payroll team and not with you, the paper trail showing that structure supports the argument that you lacked the personal involvement section 558.1 requires.

None of this makes an executive bulletproof, but it changes the story a plaintiff can tell. The difference between “the CEO personally approved a policy stripping employees of meal breaks” and “the CEO built a documented compliance program and delegated wage administration to trained staff” is, quite literally, the difference between personal liability and a viable defense.

The Bottom Line

California is one of the few states with an express statute that lets a wage and hour claim follow an executive home without proof of alter ego. Section 558.1 does not impose liability by title — a CEO is not on the hook merely for being a CEO — but it does impose liability by conduct, including policy-level approval, and once that conduct is shown, Seviour-Iloff and the 2025 Iloff remand confirm the court has no discretion to excuse it. The exposure reaches personal assets, survives a company bankruptcy, and stacks on top of the entity’s PAGA and wage liability. The defense is the same discipline that protects the company: know which pay decisions you personally control, vet them before you approve them, and build the documented compliance record that shows you caused no violation. On this issue, the executives who fare best are the ones who treat wage-and-hour compliance as a personal risk — because in California, it is.

As we move through 2026, it remains the perfect time for California employers to return to the fundamentals. With evolving employment laws, local ordinances, aggressive enforcement, and high volumes of wage-and-hour and PAGA claims, getting the basics right continues to separate smooth operations from costly litigation and penalty exposure.

The 2024 PAGA reforms remain central: employers that can document “reasonable steps” to comply with the Labor Code before (or promptly after) a PAGA notice can significantly cap penalties. Routine audits of core wage-and-hour practices are one of the clearest ways to build that record.

This article focuses on five common wage-and-hour issues California employers should routinely audit. Whether you are scaling a team or managing a long-standing workforce, use this as a practical checklist to stay compliant and protect the business.

1. Payroll Compliance: The Foundation

Payroll is more than issuing paychecks on time. Employers must ensure systems and practices meet California’s detailed requirements:

  • Established Workweeks and Paydays: Workweeks must be clearly defined, and paydays consistently scheduled within the required timelines.
  • Wage Statements: Itemized wage statements must meet all statutory requirements under Labor Code section 226. Common problems include missing or inaccurate hours worked, incorrect rates, omitted employer name/address, or incomplete information.
  • Sick Leave Accruals and Balances: Each pay period must include written notice of available paid sick leave (or paid time off provided in lieu of sick leave) on the wage statement or in a separate writing provided on the payday, as required by Labor Code section 246(i). State minimums (generally 40 hours/5 days) still apply, and many local city and county ordinances impose additional or more generous requirements—employers must follow the most protective applicable rule.
  • Vacation Tracking: Vacation policies must be documented, accurately tracked, and accrued benefits properly reflected. Unused vested vacation is wages that must be paid out on termination.

2. Wages and Deductions: Avoiding Costly Errors

Errors in deductions or reimbursements frequently generate penalties and PAGA exposure.

  • Permitted Deductions: California allows only a narrow list of deductions. Err on the side of caution and consult counsel before withholding anything beyond taxes, authorized benefits, or other specifically permitted items.
  • Expense Reimbursement: Employees must be reimbursed for necessary work-related expenses (uniforms, personal cell phone use for work, mileage, tools, etc.) under Labor Code section 2802.
  • Final Paychecks: On termination (voluntary or involuntary), final pay must include all earned wages and accrued but unused vacation and must be provided within the strict timelines required by California law.

3. Employee Classification: Exempt vs. Nonexempt (and Independent Contractors)

Misclassification remains a top litigation trigger.

  • Exempt Status Review: Duties and salary must satisfy California’s specific tests. Titles alone never determine exemption. As of January 1, 2026, the minimum salary for the executive, administrative, and professional exemptions is generally $70,304 annually ($1,352 per week)—twice the statewide minimum wage of $16.90 per hour. (The statewide minimum wage is scheduled to rise to $17.40 on January 1, 2027, which will further increase the exempt salary threshold.) Local minimum wages and industry-specific rates (fast food, healthcare, etc.) may also affect the analysis. Re-test classifications regularly.
  • Independent Contractors: Continue to apply the ABC test under AB 5 and related law with caution. True independent contractor status remains difficult to establish in many common arrangements.

4. Timekeeping: Precision Prevents Problems

Timekeeping issues remain among the most frequently litigated wage-and-hour claims.

  • Overtime Tracking: Nonexempt employees must be paid correctly for all overtime (daily after 8 hours, weekly after 40, seventh-day rules, etc.). Policies should clearly prohibit unauthorized off-the-clock work.
  • Training Managers: Managers must be trained to identify and prevent off-the-clock work and understand the consequences of ignoring or encouraging violations. Documented training supports “reasonable steps” under the reformed PAGA.
  • Time Rounding: If rounding is used, the policy must be neutral and not result in underpayment over time. Meal-period time punches cannot be rounded (Donohue v. AMN Services). Whether California employers may continue to use neutral time-rounding policies for total hours worked—especially when electronic systems already capture time to the minute—is under review by the California Supreme Court in Camp v. Home Depot. Employers are strongly cautioned about relying on rounding given the evolving case law and technological ability to record exact time. Paying for actual time recorded is the safer approach in most cases.

5. Meal and Rest Breaks: Small Breaks, Big Liability

Meal and rest break violations remain a primary driver of class actions and PAGA claims.

  • Handbook and Reminders: Policies must be clearly documented in the handbook and regularly communicated to employees.
  • Timely Breaks and Premium Pay: Breaks must be timely provided. Missed, late, or short meal or rest periods require premium pay (one hour of pay at the regular rate) that is properly recorded and shown on wage statements.
  • Recordkeeping and Training: Employees should record meal breaks. Managers must be trained to monitor compliance, address issues promptly, and escalate problems. Time records showing noncompliant meal periods create a rebuttable presumption of violations.

Under the 2024 PAGA reforms, employers that can prove they took “reasonable steps” to comply before receiving a PAGA notice may significantly cap penalties (as low as 15% in appropriate cases). For meal and rest breaks, this typically means documented regular audits of break compliance, clear written policies, supervisor training with records retained, prompt corrective action when issues surface, and follow-up verification that fixes were implemented.

For a deeper discussion of what “reasonable steps” actually look like in practice in 2026—and how they can reduce both PAGA and broader employment litigation exposure—see What “Reasonable Steps” Really Mean in 2026.

Final Thought: Routine Audits Are a Must

Employment laws and enforcement priorities do not stand still—and neither should compliance practices. Schedule at least a semiannual (or more frequent) audit of these core areas, or partner with employment counsel to review them. Document the steps you take. Under the 2024 PAGA reforms, a well-documented program of reasonable compliance efforts can materially reduce penalty exposure.

A proactive approach in 2026 reduces risk, strengthens operations, and demonstrates a genuine commitment to treating employees fairly while protecting the business.

Join us for an upcoming webinar:

On Thursday, August 27 from 10:00 AM – 11:00 AM, Harri and Zaller Law Group will present “All Reasonable Steps”: The New Standard That Decides Who Wins a PAGA Claim. California rewrote the rules of PAGA—the employers who come out ahead in 2026 won’t be the ones who avoid every violation; they’ll be the ones who can prove they built the systems to catch and fix them. We’ll break down the reform (AB 2288 and SB 92), how courts and the LWDA evaluate “reasonable steps,” the four pillars of a defensible program (audits, policies, training, and accountability), what to do in the 60-day window after a notice arrives, and what the 2026 filing landscape signals for what’s next. Register now and get ahead of the reasonable-steps standard before it gets ahead of you.

Getting served with a wage and hour class action or PAGA lawsuit is one of the worst days a California business owner or executive can have. The complaint typically alleges nearly every wage and hour violation in the Labor Code, claims to be brought on behalf of every employee you have had over the last four years, and threatens penalties that can look like an existential number. I have written before about the immediate action items after being named in a PAGA or class action lawsuit, but this week I want to step back and address something more fundamental: what executives need to understand about how these cases actually work, and how to be an informed participant in your own defense.

That last point is the theme of this article. Too many employers hand the case to their lawyer and passively wait for updates and invoices. These cases are defensible, and the decisions made in the first 60 to 90 days often determine the outcome. You have a say in those decisions — but only if you understand the framework. Here are five things every business facing one of these lawsuits needs to know:

1. Understand how class actions and PAGA cases work — and the difference between the two.

Executives do not need to become procedural experts, but they do need a working understanding of the two vehicles plaintiffs’ lawyers use, because the defenses, the exposure, and the settlement dynamics are different for each. Many complaints assert both, and treating them as one undifferentiated lawsuit is a mistake.

A class action is a procedural device that allows one or more employees to sue on behalf of a larger group of “similarly situated” employees. The critical battleground is class certification: the plaintiff must convince the court that the claims can be tried on a class-wide basis with common proof, and cases can be won or lost at this stage — as I explained in my discussion of the Allison v. Dignity Health decertification decision. Class claims seek the underlying unpaid wages and related damages, and can reach back four years under California’s unfair competition law. For a refresher on the basics, my earlier article on five common questions about class actions every employer should understand still holds up.

A PAGA action is a different animal. Under the Private Attorneys General Act, a single “aggrieved employee” can step into the shoes of the state and seek civil penalties — not wages — on behalf of all allegedly aggrieved employees, with 65% of the penalties going to the State of California and 35% to employees. There is no class certification requirement, which is a large part of why plaintiffs’ firms favor PAGA, and the statute of limitations period is generally one year. The stakes and mechanics of PAGA are worth understanding in detail, as are the penalty caps created by the June 2024 reform — 15% if the employer took all reasonable steps toward compliance before receiving the PAGA notice, and 30% if it takes them within 60 days after — which I covered in my article on key action items under the PAGA reform law. Why does the distinction matter to an executive? Because the leverage points differ: class claims can be defeated or narrowed at certification and can be sent to arbitration, while PAGA claims turn on penalty caps, manageability arguments, and the reasonable-steps defenses. A defense strategy that does not distinguish between the two is not a strategy.

2. Know your realistic liability early — and do not assume you need expensive experts to get there.

The single most important thing you can do as an executive is insist that your defense counsel conduct a realistic exposure analysis early in the case — not on the eve of mediation a year and a half later. That analysis should answer concrete questions: What do our time and payroll records actually show? What are our meal break compliance rates? How many pay periods and workweeks are at issue? Which claims have real exposure, and which are boilerplate? You cannot make intelligent decisions about early mediation, arbitration strategy, or litigation budgets without those answers, and you should expect your counsel to walk you through them — this is a business decision, and you have a say in it.

Here is where many companies waste money: they assume this analysis requires retaining an expensive testifying expert at the outset of the case. It does not. A testifying expert may become necessary if the case proceeds toward class certification or trial, but you do not need one to analyze your own time records and calculate compliance rates in the first months of the case. This is exactly the kind of work we built Scaled Comp to do — it is why I founded the company — analyzing time and payroll data to produce meal break compliance rates and exposure models at a fraction of the cost of an expert. Whatever tool your counsel uses, the point is the same: the data exists in your own records, the analysis can be done early and affordably, and an employer who knows its actual compliance rates negotiates from knowledge while everyone else negotiates from fear.

3. Understand your arbitration agreement — its enforceability, its class action waiver, and how many employees actually signed it.

For many employers, the arbitration agreement is the single most important document in the case. Since the U.S. Supreme Court upheld arbitration agreements with class action waivers in the employment context, a well-drafted agreement can take the class claims out of court entirely and require the named plaintiff to arbitrate individually. And under the framework following Adolph v. Uber Technologies, the plaintiff’s individual PAGA claim can be compelled to arbitration as well, with the representative component stayed in the meantime — a sequencing that fundamentally changes the settlement dynamics of the case.

But three questions need answers in the first weeks of the case, not months in. First, is the agreement enforceable? Courts continue to scrutinize these agreements closely, and drafting details matter — the Ninth Circuit’s decision in O’Dell v. Aya Healthcare Services is a recent reminder of how enforceability fights play out. Second, does it contain a valid class action waiver? An agreement without one may accomplish far less than you think — and a poorly drafted agreement can get you more than you bargained for. Third — and this is the one employers almost never know off the top of their head — how many current and former employees in the proposed class actually signed it? If 95% of the workforce signed, the realistic class shrinks dramatically and your leverage increases accordingly. If the rollout was inconsistent and only half signed, that is a very different case. Get the signature count early; it drives everything from the motion to compel strategy to the settlement number.

4. Understand what cases like yours actually settle for — and do not rely on anyone’s gut feeling.

At some point in nearly every one of these cases, the conversation turns to settlement, and the first question every executive asks is: what do cases like this settle for? Do not accept “in my experience, these cases usually settle around…” as the answer. The data exists. As I detailed in my mid-year review of the 2026 PAGA and class action settlement data, we are now tracking thousands of settlements pulled from public filings and court records through Scaled Comp, and the numbers tell a much more precise story than gut feel ever could.

The key is comparing apples to apples. The headline settlement amount tells you very little — what matters is the dollars per workweek for class claims and dollars per pay period for PAGA claims, benchmarked against settlements involving similar claims, similar industries, and similarly sized workforces. Armed with genuine comparables, you can evaluate whether a mediator’s proposal is in the market range or an outlier, and your counsel can make a data-backed argument for why your case should resolve below the median — because your compliance rates are strong, because your arbitration coverage is high, or because the plaintiff’s theory is weak. This is another analysis Scaled Comp performs, and whether you use our data or another source, insist that any settlement recommendation you receive comes with comparable settlements attached. You would not price any other multi-hundred-thousand-dollar business transaction on instinct; do not price this one that way either.

5. Understand the settlement terms — and know which ones are negotiable.

Finally, when a settlement does come together, the total dollar figure is only the beginning of the negotiation. The structure and terms of the agreement can shift meaningful value, and executives should understand which levers exist rather than treating the long-form agreement as boilerplate. I walked through many of these in detail in my recent article on five things California employers should understand about a PAGA settlement, and the same discipline applies to class action settlements.

A few examples of what is on the table: the scope of the release (what claims and what time period are actually being released, and who is covered); the allocation of the settlement between class claims and PAGA penalties, which affects both the release and the portion paid to the state; whether the settlement is non-reversionary or whether unclaimed funds return to the company; the payment schedule, including whether the settlement can be paid in installments; the treatment of employer-side payroll taxes; and the mechanics of the workweek or pay period caps and escalator clauses that protect you if the class turns out to be larger than represented. None of these terms negotiate themselves. An executive who understands the framework can push counsel on each of them — and the difference between a well-negotiated agreement and a signed-as-drafted one is real money.

The bottom line: a wage and hour class action or PAGA lawsuit is a serious event, but it is a manageable one — and the employers who fare best are the ones who engage as informed participants rather than passive check-writers. Most of what determines the outcome happens in the first sixty days, which is why we treat defending a wage and hour class action and PAGA claim as one strategic problem rather than two. Understand the vehicles being used against you, demand a data-driven liability analysis early, know exactly where your arbitration agreement stands, benchmark any settlement against real comparables, and negotiate the terms — not just the number. Do those five things and you will have taken control of the case instead of letting the case take control of you.

At our recent masterclass, “Exiting with Confidence: Best Practices for Lawful Terminations and Litigation Prevention,” Anne McWilliams, Caylee Scott, and I went back to basics on one of the highest-risk moments in the employment relationship: the termination. We debated whether a back-to-basics topic would draw interest, but preparing for it reminded me why it is worth revisiting — the forms, the severance rules, and the practical landscape around terminations keep changing, and a process that was compliant a few years ago may not be today.

Two themes ran through the entire presentation. First, the obligations are immediate: the moment you end the relationship, the clock starts running on final pay and required notices. Second, treat the employee with respect. An employee will rarely like the decision in the moment, but an employee who is treated with dignity, paid everything owed on time, and handed a clean set of paperwork is far less likely to spend the drive home calling a plaintiff’s lawyer. Here are five key issues from the masterclass that every California employer should have dialed in:

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

It sounds simple, but it is remarkable how often litigation arrives and there is no documentation of the reason for the termination. If the termination is for cause — performance, behavior, a policy violation — say so and document it that way. Do not take the easy route and call it a “layoff” to soften the conversation. That is the employee who sues, and now the company’s real defense is not documented anywhere, the paperwork says something different, and the shifting explanation becomes a credibility problem that a plaintiff’s lawyer will use to argue pretext.

Be concrete. “Bad attitude” in a file means nothing. Three documented instances where the employee talked back to a supervisor during coaching, called a coworker a name, or made an inappropriate comment in a meeting tells a story a jury can follow. If a written policy was violated, identify the specific policy, the key dates, and the prior coaching or discipline. And your handbook should be reviewed annually so the conduct you are terminating for is actually addressed in your policies — though keep in mind you do not need a written policy for every conceivable infraction to terminate for misconduct.

Before the termination is final, run a red-flag audit of the entire personnel file. Has the employee recently complained about wage and hour issues? Recently returned from a protected leave? This matters more than ever: California law now creates a rebuttable presumption of retaliation when an employer takes an adverse action within 90 days of an employee engaging in certain protected activity. The presumption can be rebutted — but what rebuts it is the contemporaneous documentation in your file. If the timing looks bad, that is exactly when to get advice of counsel before pulling the trigger. Also document who made the termination decision: if the same person who hired the employee is the one terminating them, the “same actor” inference can be a helpful defense.

2. Have the end-of-employment packet ready — four documents are critical.

Just as employers use a new-hire packet, we recommend building a standing end-of-employment packet, because California requires certain documents to be provided at termination.

First, the Notice to Employee as to Change in Relationship, required under the Unemployment Insurance Code. It applies to terminations, layoffs, and leaves of absence (not voluntary quits or promotions), and it must be given at the time of the termination. Critically, the reason listed on this form must match what you tell the employee and what is in the file — an inconsistency here creates a presumption against you in litigation.

Second, the EDD’s “For Your Benefit” pamphlet explaining California’s unemployment insurance programs. It runs over twenty pages, and you are permitted to email it to the employee rather than printing it every time — just think through your distribution method in advance.

Third, the applicable health coverage continuation notice — a federal COBRA notice for employers with 20 or more employees, or a Cal-COBRA notice for employers with 2 to 19 employees. Your health insurance carrier typically prepares these; you do not need to reinvent the wheel, but you do need to confirm they actually go out.

Fourth, the HIPP notice issued by the California Department of Health Care Services regarding the Health Insurance Premium Payment program — a state form, not to be confused with federal HIPAA. This is the one employers forget most often, so build it into the packet.

Beyond these documents, employers should consider other optional documents, such as: a termination letter clearly stating the reason for the separation, and a final-pay acknowledgment form itemizing everything included in the final check, which the employee signs to confirm timely payment. If the employee refuses to sign, do not force the issue — give them the documents and the final pay anyway, and note on your copy that it was presented and the employee declined to sign.

3. Final pay is due immediately — and “final wages” means more than you think.

The timing rules are simple, but they are the most common compliance failure we see. For a termination or layoff, all final wages are due immediately, at the time and place of termination. For an employee who quits with at least 72 hours’ notice, final pay is due on the last day; with less notice, within 72 hours of the notice of quitting.

Final wages include everything owed and calculable at separation: earned regular and overtime wages, all accrued but unused vacation and vested PTO (which California treats as earned wages), commissions and bonuses to the extent they can be calculated, and unreimbursed business expenses. Accrued paid sick leave is not paid out at separation — but remember it must be reinstated if the employee is rehired within a year. If a commission or bonus has not yet vested and cannot be calculated, advise the employee in writing that it will be paid when calculable.

The penalty for getting the timing wrong is severe: waiting time penalties of one full day’s wages for each day the final check is late, up to 30 days. For an employee earning $200 per day, a check that is 20 days late generates a $4,000 penalty — and untimely final pay is a favorite add-on claim in class and PAGA actions precisely because it is so easy to prove. A few practical traps from the masterclass: a direct deposit authorization signed at hire is not valid for the final check — you need a fresh written authorization to direct deposit final wages. If the employee asks you to mail the check, get that authorization in writing with the address; the check is then deemed paid on the date of mailing. And do not forget the reporting time pay trap — if you bring an employee in for a scheduled shift and terminate them at the start of it, you owe reporting time pay (generally half the scheduled shift, no less than two and no more than four hours). The cleanest approach for an hourly employee: prepare the final check the day before and simply pay for the full final day, rather than trying to predict exactly when the meeting will end.

4. Conduct the meeting the “Moneyball” way — and assume you are being recorded.

We opened the masterclass with the viral video of an employee who, knowing her termination was coming, recorded the meeting and posted it online — what I have been calling “TikTok terminations.” California is a two-party consent state, so recording a confidential conversation without everyone’s consent is unlawful and likely inadmissible — but that will not keep the clip off the internet. The practical rule: conduct every termination meeting, especially remote ones, as though it will be played back later. Be professional, be consistent, and never say anything you would not want a jury or the internet to hear. (And a note on a question we get more and more: should the employer record the meeting itself, with everyone’s consent? My thinking has shifted — much like police body cameras, your own accurate recording can protect you if your process is done right.)

The most damaging moment in that video was the answer to “why am I being let go?” The company representatives did not have the reason ready and offered to circle back later with data. Do not let that happen. Have the reason locked down before the meeting, state it, and stick to it. This is where the Moneyball approach comes in: in the movie, Billy Beane teaches his young assistant how to cut players — keep it direct, deliver the decision, avoid over-explaining and over-apologizing, and do not get drawn into a debate. The decision has been made; the meeting is to deliver it, not to relitigate it. That said, do not swing to the other extreme and be robotic about it — this is a hard, human moment, and handling it with dignity is one of the most cost-effective forms of litigation prevention there is. Have a second management witness present who takes notes, so the person delivering the news can stay engaged with the employee. And train for it: role-play these meetings with your managers before they ever have to conduct one, using videos like the one we reviewed as training material. How would your manager answer “why am I being let go?” Find out in a practice session, not in a recorded meeting.

5. Get the severance agreement right, keep the right records, and work from a checklist.

Severance is not required under California law, but when you pay an employee anything beyond what is owed in final wages — whether to mitigate risk on a difficult termination or to recognize a long-term employee in a layoff — get a release of claims in exchange. A properly drafted release covers all claims, known and unknown, through the date of signing, and it is worth obtaining even for a modest payment. There is no set formula for the amount; one to two weeks of pay is common for hourly employees, but it varies with tenure and risk.

The drafting rules keep changing, which is why your template needs regular updating. For employees 40 and older, releasing a federal age claim requires giving the employee 21 days to consider the agreement and 7 days after signing to revoke — which means do not pay the severance until the revocation period expires, and explain that timing to the employee up front. Separately, California now requires giving employees at least five business days to consider a severance agreement and written notice of their right to consult an attorney. An old template can leave you having paid the money without a valid release.

Finally, records and process. Keep payroll records for at least four years — the Labor Code requires less, but wage claims can reach back four years, and never rely solely on a payroll vendor to store them; download and maintain your own copies, because switching vendors can mean losing access precisely when a lawsuit needs them. Personnel files should likewise now be kept for at least four years after separation. Establish a strict reference protocol — verify dates of employment and job title, nothing more, through one designated person — to avoid defamation and privacy claims. And put all of it on a written termination checklist: reason documented, red-flag audit done, final pay calculated (including vacation, commissions, and any reporting time pay), required notices assembled, property return and system access handled. A termination is an emotional, high-pressure event for everyone in the room, including the manager conducting it. A checklist built in advance is what keeps a hard conversation from becoming an expensive one.

Terminations will never be easy, but they can be clean. Document the honest reason, hand over the required paperwork, pay everything owed on time, deliver the decision directly and with dignity, and paper the exit properly. Do those five things consistently and you have turned one of the riskiest events in the workplace into one of your best-defended ones.