Beginning on January 1, 2026, California employers will be required to comply with a slate of new laws that affect employment practices and regulatory obligations. These include prohibition of certain content for employment contracts and enhanced requirements for pay equity, Warn Act notices and personnel record-keeping. Employers should be proactive to ensure compliance and avoid penalties. 

A significant change is brought about by AB 692, which makes it unlawful for employers to include terms in an employment contract that require an employee or prospective employee to pay any penalty, liquidated damages or fee for leaving employment or for any alleged misconduct or contract breach. Neither can employers require workers to repay costs or expenses incurred by the employer on the employee’s behalf, such as training costs or recruiting fees, as a condition of continued employment.

In general, legitimate business expenses, wages or debts lawfully owed by the employee to the employer are not affected, as long as they are not structured as punishment for resignation, disciplinary issues or contract breach. AB 692 does not prohibit standard clawback provisions involving bonuses, equity or other forms of compensation that are conditioned on future service. The law also does not interfere with repayment of bona fide loans or lawful agreements for advanced commissions or bona fide relocation expenses, provided such terms are not structured as penalties or liquidated damages. 

Violations of AB 692 can expose employers to lawsuits for actual damages, statutory penalties and attorneys’ fees. An offending provision may be found unenforceable, and an employer’s attempts to collect barred fees or costs can subject them to additional liability.

Employers should review all employment agreements — including offer letters, training repayment agreements and commission plans — and remove any terms that appear to require penalties, fees or repayments inconsistent with AB 692. Legal counsel should be tasked with reviewing contracts and other binding documents so that exceptions are carefully structured and documented. Human resources departments should be trained to update onboarding documents and procedures accordingly.

Other important new laws effective January 1, 2026 are as follows:

• SB 642 revises the Equal Pay Act by requiring pay equity between employees who perform substantially similar work, extending coverage to more protected categories and strengthening enforcement mechanisms. Employers should conduct regular pay audits to ensure compliance.

• SB 617 expands the information employers must provide in WARN Act notices, including enhanced detail about the reasons for facility closures or mass layoffs, the number and classification of affected employees and certain demographic and workplace information, ensuring that affected workers and government agencies are adequately informed.

• SB 513 requires employers to retain and maintain personnel records not only of employee performance and grievances, but also any training and education records related to the employee. This means employers must now keep records of safety certifications, compliance trainings, and job-related educational achievements as part of the personnel file.

Garcia & Gurney A Law Corporation ALC in Pleasanton guides Bay Area businesses on negotiating, reviewing and drafting employment contracts and on implementing effective programs for compliance with state and federal law. To set up a consultation, contact us at 925-468-0400 or contact us online.