California Employment Law: The 2025–2026 Term in Review

Arbitration: two decisions and a settled federal overlay

The term’s defining theme was the Supreme Court’s continued insistence — after Quach v. California Commerce Club, Inc. (2024) 16 Cal.5th 562 — that arbitration agreements are contracts, no better and no worse. In Hohenshelt v. Superior Court (2025) 18 Cal.5th 310 (decided Aug. 21, 2025), the Court resolved the fate of Code of Civil Procedure section 1281.98’s thirty-day arbitration-fee deadline: rather than the rigid automatic-forfeiture reading that had split the Courts of Appeal and drawn FAA-preemption fire, the Court construed the statute to permit relief where a drafting party’s late payment results from good-faith mistake, inadvertence, or excusable neglect, reserving forfeiture for willful or otherwise inexcusable nonpayment. (See our full analysis.) The construction preserved the statute; the open question it left — whether an agreement’s designation of the FAA imports federal preemption of sections 1281.97–1281.99 regardless of interstate commerce — is now before the Court in Barbosa v. Sierra Pacific Orthopaedic Center Medical Group, Inc., S294710.

Six months later, Fuentes v. Empire Nissan, Inc. (2026) 19 Cal.5th 93 (decided Feb. 2, 2026) clarified where a contract’s physical format fits in unconscionability doctrine: tiny, blurry, nearly illegible print bears on procedural unconscionability (surprise), not substantive unfairness — but a high degree of procedural unconscionability obligates courts to closely scrutinize the terms of the agreement for one-sidedness, construing ambiguities against the drafting employer, with no interpretive presumption favoring arbitration. (Fuentes, at pp. 100, 107, 110.) The 6–1 decision (Guerrero, C.J., dissenting) reversed the Court of Appeal, disapproved Davis v. TWC Dealer Group‘s font-size reading of Kho‘s “fine-print terms,” and remanded for a fresh look at whether paired confidentiality agreements created a one-sided Armendariz carveout. (See our full analysis, which replaced our note on the now-reversed Court of Appeal opinion.)

Meanwhile the federal Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act (9 U.S.C. §§ 401–402) hardened into settled California doctrine. The appellate line — Kader v. Southern California Medical Center, Inc. (2024) 99 Cal.App.5th 214 (a “dispute” arises when a right is asserted and resisted, not when the conduct occurs); Doe v. Second Street Corp. (2024) 105 Cal.App.5th 552 (continuing violations reach pre-Act conduct); Liu v. Miniso Depot CA, Inc. (2024) 105 Cal.App.5th 791 (one qualifying claim exempts the entire case); and Casey v. Superior Court (2025) 108 Cal.App.5th 575 (choice-of-law clauses cannot contract around the Act) — is now beyond realistic challenge: the Supreme Court denied review in Liu (Dec. 31, 2024, S287882) and Casey (May 14, 2025, S289841), and the United States Supreme Court declined the whole-case question (Oct. 6, 2025). Any motion to compel in a case with sexual-harassment allegations must now be evaluated against the EFAA first. (See our forthcoming EFAA practice guide.)

PAGA: the headless question, held over

The largest unresolved question of the term is whether a PAGA plaintiff may plead a purely representative — “headless” — action with no individual component for an employer to compel to arbitration. The Second District said no: “every PAGA action necessarily includes an individual PAGA claim.” (Leeper v. Shipt, Inc. (2024) 107 Cal.App.5th 1001, 1005, review granted Apr. 16, 2025, S289305.) The Fifth District said yes, finding the statutory “and” ambiguous and construing it in service of PAGA’s enforcement purpose (CRST Expedited, Inc. v. Superior Court (2025) 112 Cal.App.5th 872, 883, review granted Sept. 17, 2025, S292005), and the Fourth District held courts must take the complaint as pled rather than compel arbitration of “a claim [the plaintiff] had never chosen to assert” (Rodriguez v. Packers Sanitation Services, Ltd., LLC (2025) 109 Cal.App.5th 69, 80, review granted May 14, 2025, S290182, held for Leeper). The Supreme Court took Leeper on its own motion; a decision is expected in 2026, and because the operative “on behalf of the employee and other current or former employees” formula survives in the current statute, the answer will govern post-reform notices as well. (See our full analysis of the split.) All three opinions carry rule 8.1115(e)(1) caveats while review pends.

Wage and hour: diligence becomes the price of “good faith”

In Iloff v. LaPaille (2025) 18 Cal.5th 551 (decided Aug. 21, 2025), a unanimous Court held that an employer invoking the good-faith defense to the otherwise mandatory liquidated-damages award for minimum-wage violations must prove it “made an attempt to determine what the law required that was reasonable under the circumstances and a good faith effort to comply” — ignorance of the law, and even the parties’ mutual expectation of an unpaid work-for-rent arrangement, are “legally insufficient.” (Iloff, at pp. 561, 567–568.) The Court also held employees may raise Paid Sick Leave law claims for the first time in the de novo trial that follows an employer’s Berman appeal. (Id. at p. 575.) Together with Naranjo v. Spectrum Security Services, Inc. (2024) 15 Cal.5th 1056’s objective-reasonableness standard for waiting-time and wage-statement penalties, the two decisions give “good faith” a shared floor: an employer that never investigated its obligations has neither defense. (See our full analysis.) Still pending: whether neutral time-rounding survives at all (Camp v. Home Depot U.S.A., Inc., S277518). And from the Legislature, wage judgments left unpaid for 180 days now carry a penalty of up to three times the judgment. (Lab. Code, § 238.05, added by SB 261 (2025), eff. Jan. 1, 2026.)

Discrimination: federal convergence questions

The term’s most consequential discrimination developments were federal. In Ames v. Ohio Department of Youth Services (2025) 605 U.S. 303 (decided June 5, 2025), a unanimous United States Supreme Court held that Title VII imposes no heightened “background circumstances” burden on majority-group plaintiffs — reverse-discrimination claims are pleaded and proved like any other. California courts applying FEHA’s McDonnell Douglas framework will now confront whether anything in state doctrine ever justified a different rule. That question joins the still-open Muldrow problem — Title VII now requires only “some harm” from a challenged personnel action (Muldrow v. City of St. Louis (2024) 601 U.S. 346), while FEHA’s Yanowitz standard asks whether the action “materially affects” terms, conditions, or privileges of employment — a divergence California appellate courts have yet to resolve. (See our Muldrow analysis and our new § 12940(h) retaliation guide.)

The 2025 legislative session: what took effect January 1, 2026

The session’s centerpiece for litigators is SB 642 (Stats. 2025, ch. 468), which rewrote the Equal Pay Act: Labor Code section 1197.5 now reaches pay disparities against “another sex,” defines “wage rates” to include stock, stock options, profit sharing, bonus plans, insurance, vacation and holiday pay, allowances, and benefits, and allows recovery across the entire period of the violation up to six years, with suit filed within three years of the last occurrence; section 432.3’s posted “pay scale” is now the “good faith estimate” of the range expected “upon hire.” (See our full statutory analysis.) AB 692 (Bus. & Prof. Code, § 16608; Lab. Code, § 926) voids employment-conditioned debt — training-repayment and similar “stay-or-pay” clauses — in contracts executed on or after January 1, 2026, with narrow tuition and signing-bonus exceptions and a private right of action ($5,000-per-worker floor plus fees). AB 250 extended the Code of Civil Procedure section 340.16 sexual-assault revival window to December 31, 2027, expressly reaching related wrongful-termination claims. Employers also face expanded personnel-file obligations (training records, SB 513), immigration-rights notices (SB 294, from Feb. 1, 2026), and expanded pay-data reporting (SB 464); paid-family-leave wage replacement for “designated person” care arrives July 1, 2028 (SB 590, Stats. 2025, ch. 772).

Two fronts remain contested. SB 399, the captive-audience ban (Lab. Code, § 1137), is preliminarily enjoined on NLRA-preemption and First Amendment grounds (California Chamber of Commerce v. Bonta, E.D. Cal., Sept. 30, 2025), with the appeal pending in the Ninth Circuit (No. 25-6874); AB 288, which would let PERB take over stalled NLRA cases, drew a federal suit from the NLRB itself (NLRB v. California, E.D. Cal., filed Oct. 15, 2025) with a preliminary-injunction motion pending as of late 2025. And one notable non-event: SB 7, the “No Robo Bosses Act,” was vetoed October 13, 2025 — workplace-AI regulation in California continues to run through the Civil Rights Council’s FEHA automated-decision system regulations (eff. Oct. 1, 2025) and, from January 1, 2027, the CPPA’s separate ADMT rules. (See our ADS practice guide.)

The docket ahead

The 2026–2027 term is already loaded. Besides Leeper (headless PAGA), Camp (rounding), and Barbosa (FAA designation), the Court will decide whether a terminated employee may sue for defamation that contributed to the discharge or is confined to wrongful-discharge theories (Hearn v. Pacific Gas & Electric Co., S289581 — our pending-review analysis); whether the ministerial exception categorically bars ministers’ wage claims (Lorenzo v. San Francisco Zen Center, S294565); the burden framework for forum-selection clauses that threaten unwaivable rights (Lathrop v. Thor Motor Coach, Inc., S287893); appellate scrutiny of across-the-board fee reductions (Cash v. County of Los Angeles, S291827); and the validity of two-option section 998 offers (Gorobets v. Jaguar Land Rover North America, LLC, S287946). Issue statements, lower-court citations, and status for each are maintained on our Employment Docket page, updated on each release of the Court’s official Issues Pending compilation.

Scope and sources

This survey covers decisions and enactments from August 2025 through July 1, 2026, plus the immediately preceding developments necessary to frame them. Every citation was verified against the official opinion text (via the official reporters and the Court’s own filings), the official Issues Pending compilations (Jan. 9 and Apr. 24, 2026), or the current statutory text at leginfo.legislature.ca.gov, as of July 1, 2026. Opinions under review are cited with review-granted status and carry persuasive value only. (Cal. Rules of Court, rule 8.1115(e)(1).)