As we approach 2026, California continues to push forward in labor and employment law. Some changes take effect immediately, others phase in, and some are still being finalized. Below is a summary of the most important developments that employers, HR teams, and employees should monitor (or act on) for 2026

Minimum Wage & Exempt Salary Thresholds Increases

One of the most consequential changes on the horizon is the increase in California’s statewide minimum wage, and the corresponding impact on salary thresholds for exempt employees.

Beginning on January 1, 2026, the state minimum wage for all employers will increase to $16.90 per hour (up from $16.50 in 2025). This increase is driven by the state’s inflation adjustment formula.

Because California links the minimum salary for many exempt classifications to the state’s minimum wage, beginning on January 1, 2026, the annual salary threshold for exempt executive, administrative, and professional employees must be at least $70,304 (or $5,858.67/month).

Employers will need to review pay structures for exempt employees to ensure compliance under the higher threshold.

Your action items in this category: 

• Identify workers currently treated as exempt and confirm whether their salaries will meet the new threshold in 2026. Some roles may need reclassification to non-exempt, or salary increases to maintain exemption status.
• Adjust payroll systems and budget for increased wage costs.
• Watch for local minimum wage ordinances (cities and counties may have higher rates) that may further impact wage obligations.

Ban on “Stay-or-Pay” Provisions/Training Repayment Agreements

A key development from the California Legislature in 2025 (with effective timing to watch) is a law targeting “stay-or-pay” agreements, which commonly appear in training repayment or employee mobility clauses.

The Legislature passed a new law, AB 692, that seeks to ban many “stay-or-pay” contracts (i.e., agreements that require an employee to remain employed for a certain period or repay training costs). The law carves out some exceptions, including tuition reimbursement agreements and retention bonus repayment clauses.

Employers must review their existing agreements to determine whether they fall within the ban, and if not, whether they comply with the permitted frameworks. Some older or overbroad repayment or claw back provisions may become unenforceable or need redesign.

Your action items in this category: 

• Inventory all training repayment, educational assistance, and retention bonus repayment agreements.
• Revise or eliminate prohibited stay-or-pay terms, or rework them into permissible forms (e.g., conditional repayment schedules, pro rata repayment, caps, and safe harbor language as may be prescribed).
• Ensure future agreements are compliant under the new law.

Changes to PAGA/“Private Attorney General” Enforcement

Although not exclusively slated for 2026, recent amendments to the Private Attorney General Act (PAGA) in California are affecting how labor law violations are litigated.

California lawmakers cleared significant amendments to PAGA in 2024 aimed at reducing frivolous claims and giving employers more opportunities to cure violations before facing lawsuits. Key changes include increasing the share of civil penalties employees can retain (from 25% to 35%), requiring plaintiffs to show actual violations they personally experienced, and providing greater room for employers to remedy issues before a claim proceeds.

The reforms apply to cases filed on or after the effective date (i.e., after the law is signed) — so, in effect, for many PAGA claims in 2026, the new framework will govern.

Your action items in this category: 

• Reassess your potential exposure under PAGA. With a more constrained regime, some claims may become less viable, but diligence is still critical.
• Ensure compliance programs are in place (e.g., audits, correction protocols, documentation) to reduce the risk of violation in the first place.
• Monitor case law and regulatory guidance on how aggressively courts interpret the new PAGA rules.

Implementation Tips and Risk Mitigation

To stay ahead of compliance challenges in 2026, here are some recommended steps:

• Update your employee handbooks, training programs, and written policies (e.g., repayment agreements, wage practices) now to reflect upcoming changes.
• Bring together HR, legal, finance/payroll, and operations teams to assess the impact of wage increases and classify adjustments.
• Anticipate increased labor costs (especially wages) and build them into your 2026 budgets. In some sectors (healthcare, fast food, covered facilities) escalations may be steeper.
• Strengthen internal audits (wage-hour, exempt/nonexempt, overtime compliance) and ensure prompt remediation practices to reduce exposure, especially in light of the reformed PAGA rules.
• Many California cities/counties have minimum wage or labor ordinance floors above the state rate. Employers must comply with whichever is higher.
• As courts and agencies interpret new laws (especially PAGA changes, stay-or-pay limits, automated decision systems), their rulings will inform best practices.

As always, Shaw Law Group is here to help. Be sure and register for our upcoming webinars, California Employee Handbook Update (2026) and Annual Employment Law Update (2026) to ensure you are on top of these developments.

About Shaw Law Group 

At Shaw Law Group, we do more than practice employment law—we partner with employers to build compliant, respectful, and productive workplaces. From day-to-day advice and counsel to impartial workplace investigations, proactive HR audits, dynamic training programs, and sensitive pre-litigation matters, our experienced team helps clients stay ahead of the curve—and out of court.