Subscribe now

The measures stem from legislation enacted during the 2025 legislative session as well as previously adopted statutes with inflation-indexed thresholds and delayed implementation timelines. For employers, the cumulative effect increases compliance requirements across payroll administration, workforce documentation, and litigation risk management. Key laws that take effect in 2026 include:

Minimum wage increase

California’s statewide minimum wage increased to $16.90 per hour beginning January 1 under the state’s automatic inflation-adjustment framework. The increase applies to employers of all sizes and raises the minimum salary threshold for most exempt employees to $70,304 annually, reflecting the requirement that exempt salaries equal at least twice the minimum wage for full-time work.

Workplace Rights Notice Requirement

New employee notice obligations took effect under SB 294 (California Workplace Know Your Rights Act), which requires employers to provide workers with a stand-alone annual notice summarizing workplace rights.

The notice must explain protections related to workers’ compensation coverage, immigration-related workplace protections, the right to organize and participate in union activity, and constitutional rights during interactions with law enforcement in the workplace.

Restrictions on “Stay-or-Pay” Agreements

AB 692 (California stay‑or‑pay employment contract restrictions) restricts the use of employment agreements that require workers to repay training costs, hiring bonuses, or other expenses if they leave a job before a specified period.

The law generally prohibits such “stay-or-pay” provisions except in limited circumstances involving bona fide educational programs or training primarily benefiting the employee.

Collective Bargaining Framework for Rideshare Drivers

Under AB 1340 (transportation network company driver collective bargaining framework), certain rideshare drivers working for transportation network companies may organize and engage in collective bargaining under a state-established process. The statute creates procedures for representation and negotiations between driver organizations and platform companies.

Expanded Training Recordkeeping

SB 513 (workplace training documentation requirements) requires employers to retain detailed documentation for workplace training programs.

Employers must maintain records identifying the training provider, dates and duration of instruction, and participating employees for programs required under state law or company policy.

Expanded Layoff Notice Requirements

Changes to California’s Worker Adjustment and Retraining Notification (WARN) framework took effect under SB 617 (California WARN notice information expansion), which requires employers issuing layoff notices to include additional information about workforce assistance programs.

The notices must reference coordination with local workforce development boards and provide information on public benefits such as CalFresh that may be available to affected workers.

Compliance Implications

Taken together, the 2026 employment law changes continue California’s expansion of workplace regulation across wage policy, labor rights, employment contracts, and workforce-reduction procedures.

For employers operating in the state, the new requirements will require updates to employee notices, employment agreements, training documentation systems, and layoff-notification practices as companies adapt to the evolving regulatory framework governing California workplaces.

The Ninth Circuit’s holding impacts the trucking industry’s business model, which depends on independent contractors. The requirement for California trucking owner-operators to comply with the law could slow the flow of interstate commerce and further exacerbate supply chain issues. The CTA warned of the “irrevocable damage eliminating independent truckers will have on interstate commerce and communities across the state.”

Subscribe now

California Trucking Association Challenge

In 2019, the California Trucking Association sued to stop enforcement of AB5 on the grounds that the FAAAA preempted the law. The FAAAA expressly preempts state laws “related to a price, route, or service, of any motor carrier.” A federal district judge issued a preliminary injunction to enjoin enforcement of the law after finding that the FAAAA likely preempted the “B” prong of the ABC test. The Ninth Circuit reversed the decision. The CTA then brought its challenge to the Ninth Circuit’s ruling to the U.S. Supreme Court. With the Supreme Court’s refusal to review the decision, the case reverts back to the district court to hear the CTA’s challenge that the law violates the Commerce Clause of the U.S. Constitution.

AB5 and the ABC Test

AB5 codifies the so-called ABC test for determining whether a worker is an employee or an independent contractor. This was previously governed under California law by the multi-factor test in S.G. Borello & Sons, Inc. v. Department of Industrial Relations, 769 P.2d 399 (Cal. 1989). Under the law, a worker is an employee and not an independent contractor, unless all three conditions of the ABC test under Cal. Labor Code § 2750.3(a)(1) are met:

1. The person is independent of the hiring organization in connection with the performance of the work, both under the contract for the performance of the work and in fact.

2. The person performs work that is outside the hiring entity’s business.

3. The person is routinely doing work in an independently established trade, occupation, or business that is the same as the work being requested and performed.

The California legislature passed AB 5 after the California Supreme Court held in the 2018 Dynamex case that the ABC test applied to claims under state wage orders. The state Supreme Court later ruled that the ABC test applies retroactively to employee misclassification cases pending at the time of the Dynamex decision and (2) claims involving conduct that occurred before the Dynamex decision but that have not yet been filed. It is now clear how the ABC test applies to of a franchisor-franchisee relationship. There have been several exceptions to the law, most notably Proposition 22, which created an exception for app-based transportation and delivery companies.

Before the decision, most carriers treated truckers that are independent owner-operators as independent contractors. This allowed for flexibility, as owner-operators could bid on jobs and carriers could expand operations as needed without the large capital investment required to own and maintain their own trucks. Under AB5, a trucker that is an independent owner-operator generally cannot satisfy the second prong of the test because they are working for the carrier’s business and would therefore be an employee of a carrier.