Through new legislation and shifting enforcement priorities, California continues to challenge common workplace practices, including collectible wage judgments and binding employment agreements. Employers must understand how new rules on wage judgment penalties, stay-or-pay provisions, and arbitration agreements affect risk and strategy.

Below is what employers need to know for 2026.

Wage Judgment Enforcement Is Getting Serious

Senate Bill 261 significantly increases the consequences of failing to pay a wage judgment within 180 days. Employers who do not pay judgments on time now face penalties that can amount to three times the unpaid amount plus interest. In addition, the employee or the Labor Commissioner may recover attorney fees and costs associated with enforcement.

This law emphasizes the importance of promptly resolving and paying wage claims. Delays that may have been part of internal planning or appeals processes in the past now carry real financial risk.

Restrictions on Stay-or-Pay Contracts

Assembly Bill 692 limits an employer’s ability to enforce stay-or-pay provisions in employment agreements. These clauses typically require repayment of signing bonuses or educational benefits if the employee terminates before a defined period.

Under AB 692, employers must satisfy strict criteria for these agreements to remain enforceable. The agreement must be in writing and separate from any offer letter or handbook. Employees must be able to either receive the bonus immediately or decline it and avoid repayment obligations.

There are no industry-specific carve-outs at this time, so employers in healthcare, technology, trades, and other sectors must review existing stay-or-pay clauses carefully.

Arbitration Is Not a One-Size-Fits-All Strategy

Many employers rely on arbitration agreements to reduce litigation risk and avoid costly court litigation. Arbitration can speed resolution and limit exposure in certain instances, like in class or representative actions when agreements include valid waivers.

However, arbitration also incurs costs that accrue more quickly than in court, including arbitrator fees paid upfront by the employer. There are limits on appealing an adverse decision, and employers must be consistent in enforcing these agreements or risk waiving their rights.

California courts have steadily narrowed certain arbitration doctrines and may treat selective enforcement as a waiver. Because arbitration law evolves quickly, employers should evaluate the benefits and risks with legal counsel before adopting or revising arbitration policies.

Conclusion

The combination of harsher wage-judgment enforcement penalties, limitations on stay-or-pay contracts, and complexities around arbitration agreements requires careful planning. Employers should review existing wage judgments, contract language, and dispute-resolution mechanisms now and update their policies to align with current law.