By Ryan Porte, Esq.

PAGA claims continue to increase, so employers need to be prepared. California’s 2024 reforms do not provide immunity, but they can reduce civil penalties when an employer shows that it took “all reasonable steps” to comply before a claim arose or promptly after receiving notice. These protections apply to PAGA notices filed on or after June 19, 2024.

Pre-Dispute Audits Build a First-Line Defense

The strongest protection is available to employers that act before a PAGA notice arrives. Under Labor Code section 2699(g), if an employer has taken “all reasonable steps” to comply before receiving a PAGA notice or certain employee record requests, recoverable penalties generally may not exceed 15 percent of the penalties otherwise sought. That can mean an 85 percent reduction.

Labor Code section 2699(g)(2) provides a roadmap. Reasonable steps may include conducting periodic payroll audits and acting on the results, distributing lawful written policies, training supervisors on Labor Code and wage order requirements, and taking appropriate corrective action. Courts consider the employer’s size and resources, along with the nature, severity, and duration of the violations. The fact that a violation occurred does not, by itself, establish that the employer failed to take reasonable steps.

A meaningful audit should examine actual practices involving pay, breaks, timekeeping, wage statements, expense reimbursement, and employee classification. Any problems should be corrected, and the corrective action should be documented. An audit that sits on a shelf will provide little protection.

Post-Dispute Audits Can Meaningfully Reduce Penalties

An employer that was not already taking reasonable steps may still reduce its exposure. Under Labor Code section 2699(h), recoverable penalties generally may not exceed 30 percent of the penalties otherwise sought if, within 60 days after receiving a PAGA notice, the employer takes all reasonable steps to come into prospective compliance. That can mean a 70 percent reduction.

A PAGA notice cannot be placed on the back burner. The employer should promptly engage counsel, preserve and review relevant records, investigate the allegations, correct any unlawful practices, retrain supervisors, and document what was done and when. Waiting for a lawsuit may mean losing this opportunity.

Curing May Be an Option

The reforms also expanded the cure procedures, but an available cure is not necessarily easy or guaranteed. Under Labor Code section 2699.3(c)(2), an employer with fewer than 100 employees may submit a confidential cure proposal to the Labor and Workforce Development Agency within 33 days after receiving a PAGA notice. Employers of any size may use a separate 33-day process when curing only wage-statement violations. Once a lawsuit is filed, employers may also request an early evaluation conference under Labor Code section 2699.3(f), generally with or before their first response to the complaint.

In practice, curing can be time-consuming and expensive. It may require an audit, supporting records, corrected practices, and payments for wages, expenses, interest, liquidated damages, and certain fees and costs. The LWDA, employee, neutral evaluator, or court may still disagree that the cure is complete. Even so, a successful cure may resolve particular violations and avoid more expensive litigation.

Practical Takeaway

Employers should not wait for a PAGA notice to review their wage-and-hour practices. Periodic, preferably annual, audits can identify problems, guide improvements, confirm what the organization is doing well, and help establish that the employer took all reasonable steps to comply with the Labor Code. Even if a PAGA notice never arrives, an audit can provide a valuable compliance roadmap. If a notice does arrive, the employer should act immediately. The 33-day cure deadline and 60-day compliance window leave little time to investigate, correct problems, and evaluate the available options. Continuous compliance is not simply good practice, but an employer’s strongest protection against potentially costly penalties and litigation.

By Ryan Porte, Esq.

Completing a Form I-9 may seem routine, but small mistakes can create problems during a government inspection. Employers can reduce their risk by following a straightforward process for completing, reviewing, correcting, and retaining each form.

USE THE CURRENT FORM

Employers should confirm that their onboarding materials and electronic systems use a currently valid form. The current Form I-9 bears an edition date of January 20, 2025. The revised form includes minor terminology and document-list changes but does not materially change the verification process. Although the prior August 1, 2023 edition remains valid through May 31, 2027, employers should begin using the revised form as soon as practicable.

WHO COMPLETES WHAT?

The employee must complete and sign Section 1 no later than the first day of work. The employee may complete Section 1 after accepting an offer but before beginning work. If a preparer or translator assists the employee, that person must complete the appropriate portion of Supplement A.

The employer, or its authorized representative, generally must complete Section 2 within three business days after the employee begins work. The employer must examine original, unexpired documents selected by the employee from the Lists of Acceptable Documents. The employee may provide either one document from List A or one document from List B together with one document from List C.

Employers should not tell employees which documents to present or request additional documents after an employee provides acceptable documentation. HR representatives are not expected to be document-verification experts, but they must determine whether the documents reasonably appear genuine and relate to the employee presenting them. U.S. Citizenship and Immigration Services offers webinars and other training resources at uscis.gov to help HR personnel properly review and record Form I-9 documentation.

Employers generally are not required to make or retain copies of the documents presented by the employee. If an employer chooses to retain copies, it should do so consistently for all employees and keep the copies with, or otherwise securely linked to, the employee’s Form I-9. Different rules may apply to employers using E-Verify or the DHS alternative procedure for remote document examination.

CORRECTING ERRORS

Only the employee, or the preparer or translator who assisted the employee, may correct Section 1. The employee should draw a line through the incorrect information, enter the correct or missing information, and initial and date the correction.

Only the employer or its authorized representative may correct Section 2 or Supplement B. The employer should similarly draw a line through the incorrect entry, provide the correct information, and initial and date the correction.

The employer should attach a written explanation describing why a correction was necessary. Do not erase information, use correction fluid, conceal changes, or backdate the form. For multiple or substantial errors, the employer may complete the affected section on a new Form I-9, or complete a new form, and attach it to the original with a written explanation. Electronic systems should maintain an audit trail showing all corrections.

CALIFORNIA’S I-9 RESTRICTIONS

California employers must comply with federal verification requirements without going beyond them. Employers generally may not:

1. Request more or different documents than federal law requires;

2. Refuse documents that reasonably appear genuine and relate to the employee;

3. Reverify an employee’s eligibility when federal law does not require reverification; or

4. Use E-Verify to check an existing employee or an applicant who has not yet received an offer, unless federal law requires or authorizes it.

If an immigration agency provides notice that it will inspect Forms I-9 or other employment records, a California employer generally must post the required notice within 72 hours. Additional notice obligations apply when the employer receives the inspection results.

POTENTIAL PENALTIES

As of 2026, substantive federal I-9 violations may result in civil penalties ranging from $288 to $2,861 for each deficient or missing form. U.S. Immigration and Customs Enforcement conducts inspections and may issue a Notice of Intent to Fine. Technical or procedural violations may be correctable after notice, but substantive violations may be penalized immediately.

Under California Labor Code sections 1019.1 and 1019.2, employers may face penalties of up to $10,000 per violation for requesting more or different documents than federal law requires, refusing documents that reasonably appear genuine and relate to the employee, or unnecessarily reverifying a current employee’s eligibility to work. These penalties may be imposed or recovered by the California Labor Commissioner.

RETAINING THE FORM

Employers must retain an employee’s Form I-9 throughout the entire period of employment. After employment ends, the employer must retain the form until the later of three years after the employee’s first day of work or one year after employment ends. For an employee who worked longer than two years, this generally means retaining the form for one year after separation.

The safest approach is simple: assign responsibility for I-9 completion, use a consistent checklist, periodically review existing forms, and correct identified errors transparently. Employers should not attempt to make an imperfect form look as though it was completed correctly from the beginning.

By Ryan Porte, Esq.

California employers that use arbitration agreements should take a fresh look at those agreements before the end of the year. On June 30, 2026, Governor Gavin Newsom signed Assembly Bill 2155, which amends California Code of Civil Procedure section 1281 and changes how California courts will evaluate certain arbitration agreements beginning January 1, 2027.

AB 2155’s text is short, but its practical effect may be significant. California law has long provided that written agreements to arbitrate are generally valid, enforceable, and irrevocable, subject to ordinary contract defenses. The new law adds that a written agreement to arbitrate is not enforceable under California law to the extent the agreement is not enforceable under the Federal Arbitration Act.

In plain English, AB 2155 limits the ability to use the California Arbitration Act as a backup when the Federal Arbitration Act does not permit arbitration. That issue most commonly arises where an agreement falls within one of the FAA’s exclusions, including the transportation-worker exemption or the federal exclusion for certain sexual assault and sexual harassment claims.

For employers, the transportation-worker exemption may be the most immediate concern. The FAA excludes certain employment contracts involving transportation workers engaged in foreign or interstate commerce from the FAA’s arbitration requirements. Courts have interpreted that exemption in ways that may reach beyond traditional long-haul truck drivers. Depending on the facts, employees involved in delivery, logistics, warehouse movement, or other work connected to the movement of goods in interstate commerce may argue that they fall within the exemption.

AB 2155 raises the stakes because, beginning January 1, 2027, if an arbitration agreement is unenforceable under the FAA because one of the FAA’s exclusions applies, the employer may no longer be able to rely on the California Arbitration Act as an alternative basis to compel arbitration. AB 2155 also references federal exclusions applicable to sexual assault and sexual harassment disputes. Under the federal Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act, individuals asserting covered sexual assault or sexual harassment claims may elect to proceed in court rather than arbitration, even if they previously signed an arbitration agreement. AB 2155 reinforces that California law cannot be used as an alternative route to compel arbitration where federal law makes the agreement unenforceable.

The new law does not prohibit all employment arbitration agreements in California. Employers may still use arbitration agreements in many circumstances. However, AB 2155 is a reminder that arbitration agreements are not “set it and forget it” documents. Agreements that were drafted several years ago may contain FAA and California Arbitration Act language that should be reviewed in light of the new statute.

Before January 1, 2027, employers should consider reviewing:

a) Which employee groups may be transportation-adjacent, including drivers, delivery employees, warehouse employees, yard hostlers, and logistics personnel.

b) Whether the arbitration agreement relies on California law as a fallback if the FAA does not apply.

c) Whether the agreement properly addresses representative PAGA claims, class action waivers, and claims that cannot be compelled to arbitration under federal law.

d) Whether the company’s rollout and signature process supports enforceability.

AB 2155 does not eliminate employment arbitration in California, but it narrows an important enforcement argument. Employers that rely on arbitration agreements should use the remainder of 2026 to review existing agreements, identify higher-risk employee groups, and update agreement language where appropriate.

By Ryan Porte, Esq.

Husband v. Target Corp. (May 21, 2026, B342334) Cal.App.5th [2026 WL 1430244] (certified for publication, official reporter citation pending).

A new California Court of Appeal decision gives HR managers useful guidance on a difficult issue: when does unusual workplace conduct put an employer on notice of a mental disability?

In Husband v. Target Corp., the employee worked for Target for approximately 20 months without incident. Then, over a short period of time, he engaged in several troubling workplace incidents. He became upset with employees, made irrational comments, yelled at coworkers, appeared shaky and distraught, and made statements suggesting he believed he had harmed others through his words. A supervisor was concerned for his mental state and recommended that he seek medical or psychological help. Target later terminated him for violating its workplace violence policy.

The employee sued for disability discrimination, failure to accommodate, and failure to engage in the interactive process under FEHA. He alleged that his conduct was caused by bipolar disorder. The trial court granted summary judgment for Target, and the Court of Appeal affirmed.

The central issue was knowledge. Under FEHA, an employer generally cannot be liable for disability discrimination, failure to accommodate, or failure to engage in the interactive process unless the employer knew of the employee’s disability. Here, the employee had not disclosed his bipolar disorder before the termination decision, had not requested an accommodation, and no medical provider, family member, or other source had informed Target of the diagnosis.

The Court held that Target was not charged with knowledge of the disability merely because the employee’s behavior was unusual, irrational, or disturbing. Where a disability has not been disclosed, knowledge may be imputed only where disability is the only reasonable interpretation of the known facts, or where the disability is obvious. That standard was not met. The employee’s conduct could reasonably have been attributed to other causes, including substance use, medication effects, sleep deprivation, or other non-disability-related explanations.

For HR managers, the case is helpful, but it should not be read too broadly. It does not mean employers should ignore signs that an employee may need assistance. Rather, it confirms that employers are not required to diagnose employees or assume that every out-of-character incident is caused by a protected disability.

The better practice is to separate three issues: safety, performance/conduct, and possible accommodation. If an employee’s behavior raises safety concerns, address the immediate safety issue first. Remove the employee from the situation if necessary, document what occurred, and apply workplace violence or conduct policies consistently. Avoid medical assumptions and labels such as “unstable,” “crazy,” or “having a breakdown.”

At the same time, managers should be trained to use neutral, open-ended language. For example: “Is there anything affecting your ability to perform your job or comply with workplace expectations?” or “Is there anything you need from the company to help you perform your job safely and effectively?” If the employee identifies a medical condition, work restriction, or need for assistance, HR should evaluate whether the interactive process has been triggered.

The practical takeaway is this: employers do not have to be mind readers, but they do need disciplined managers. When unusual conduct occurs, document the facts, avoid medical assumptions, apply policies consistently, and involve HR early.

By Ryan Porte, Esq.

Artificial intelligence (“AI”) tools are quickly becoming part of everyday workplace life. Employees and managers use them to draft emails, polish complaints, prepare timelines, draft policies, prepare talking points, and respond to employee concerns, just to name a few use cases. As such, the legal landscape surrounding their use is largely undecided. However, in a very recent case entitled United States v. Heppner (1) , filed in the Southern District of New York, the court issued some perhaps unsurprising guidance: AI conversations are not automatically privileged communications.

Although Heppner was decided in New York, it is likely that other jurisdictions, including California, will eventually follow suit. This matters for employers and HR professionals for two reasons. First, AI prompts and outputs may become discoverable in litigation. Second, HR and management personnel may unintentionally disclose sensitive or privileged information by entering it into public AI tools. In other words, employers should treat AI as a useful workplace tool, but not as a confidential legal advisor.

The Heppner Case

In United States v. Heppner, a criminal defendant used Claude, a generative AI platform operated by Anthropic, after receiving a grand jury subpoena and learning he was the target of a federal investigation. According to the court, he used Claude to generate reports discussing facts and law that he anticipated the government might raise in a potential indictment. He later shared those reports with his attorney, which were obtained by the government during a search of Heppner’s home.

Why Heppner’s Claim of Privilege Failed

The foundation of the attorney-client privilege is the principle that any communications made between a client and its attorney for the purpose of seeking or providing legal advice are strictly confidential. As the definition suggests, the communications must be between a lawyer and the lawyer’s client. In analyzing whether Heppner’s communications were privileged, the court identified several issues precluding privilege:

First, Claude is obviously not a lawyer. Second, the communications were made to an AI platform whose privacy terms allowed it to collect data from users’ inputs and Claude’s outputs and, in certain circumstances, disclose information to third parties, including governmental authorities. That undermined any reasonable expectation that the communications were confidential. Third, Heppner did not use Claude at the specific direction of his own attorney. The court noted that if counsel had directed Heppner to use Claude in a particular way, the analysis might have been different. In that circumstance, Claude might arguably have functioned as an agent assisting counsel, similar to a professional consultant or paralegal. However, in this scenario, that was not what happened. Heppner acted on his own. Finally, sharing the Claude reports with counsel after the fact did not transform them into privileged documents because non-privileged communications do not become privileged simply because they are later sent to an attorney.

The Court’s bottom line was simple: AI may be new, but traditional privilege rules still apply, and Heppner’s use of Claude did not satisfy them.

Why This Matters for Employers

Although Heppner was a criminal case, its practical lessons apply directly to employment disputes. Prompts to AI and AI’s responses may be highly relevant in later litigation. For example, in a retaliation case, AI communications could show when the employee first characterized an issue as protected activity. In a harassment case, prompts and responses might reveal whether the employee described conduct differently before filing a formal complaint. In a wage and hour case, prompts could show assumptions used to estimate unpaid wages or penalties.

The discovery issue cuts both ways. Employers, managers, and HR professionals may also be tempted to use AI tools for sensitive workplace matters. Someone might enter facts about an employee complaint and ask AI whether the company has exposure. A manager might upload a draft termination notice and ask AI to make it more defensible. HR might paste witness statements from a harassment investigation into an AI tool and ask it to summarize credibility issues. Those uses may disclose confidential employee information to a third-party platform, create discoverable documents that are not privileged, or generate inconsistent explanations that can later be used to challenge the employer’s stated reason for discipline or termination. Uploading attorney advice, investigation materials, or litigation strategy into a public AI tool may also risk waiver or create a privilege fight that could have been avoided.

That does not mean every AI communication will be discoverable in every case. Ordinary relevance, proportionality, privacy, privilege, and work product objections still apply. But Heppner is a reminder that parties should not assume AI communications are protected simply because they involve legal questions.

The legal landscape with AI is undergoing constant evolution as well. Several potential pieces of legislation are currently pending in California. For example, AB 1898 would require employers to provide written notice when a workplace AI tool is used to assist in employment-related decisions or to surveil workers and would require employers to maintain and annually provide workers with an updated list of workplace AI tools in use. Similarly, SB 947 would regulate automated decision systems in employment, including by limiting how such systems may be used in discipline, termination, or deactivation decisions, requiring human review in certain circumstances, and giving workers access to certain ADS-related data. These proposals do not directly address attorney-client privilege, but they reinforce the practical point: workplace AI use is becoming something employers may need to document, disclose, preserve, and defend.

Practical Takeaways for HR

Most HR personnel, managers, and employees already understand that emails, text messages, and Microsoft Teams chats can become evidence in litigation, and employers should train them to treat AI prompts and outputs the same way. To that end, employers should adopt clear AI use policies so personnel understand what they may and may not enter into AI platforms. At a minimum, they should avoid entering confidential personnel information, medical information, employee complaints, wage records, investigation notes, attorney advice, or litigation strategy into public AI tools unless specifically authorized.

Bottom Line

AI tools are not lawyers, and prompts entered into AI platforms are not automatically protected by attorney-client privilege or the work product doctrine. Instead, AI prompts and outputs, at least according to the Heppner Court, are to be treated as non-privileged third-party disclosures, and not attorney-client communications. For HR professionals, the lesson is practical: do not put sensitive workplace information into public AI tools, do not assume AI-generated legal analysis is privileged, and do not overlook AI prompts and outputs as a potential source of evidence in employment litigation.

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(1) United States v. Heppner, No. 25 Cr. 503 (JSR), 2026 BL 52143, 2026 Us Dist. Lexis 32697 (S.D.N.Y. Feb. 17, 2026), Court Opinion.

By Ryan Porte, Esq.

Hello again from your CCSHRM Legislative Director. In case you missed it, I will be presenting at the next CCSHRM lunch on April 23, 2026, where I will be discussing California class and representative action claims and steps employers can take to harden their organizations against potential claims and legal liability. Since we are focusing on these types of claims, I wanted to discuss some potential legislative updates to the Private Attorneys General Act (PAGA) currently being proposed by the Labor and Workforce Development Agency (LWDA).

For years, employers have faced a surge of high-volume, boilerplate PAGA notices that often provided little meaningful detail about alleged violations. The LWDA’s own rulemaking materials acknowledge that a small group of attorneys has driven a disproportionate share of filings using template-based allegations, undermining the purpose of the statute’s pre-litigation notice requirement and limiting the Agency’s ability to evaluate claims effectively. In response, both the legislative reforms of 2024 and the proposed regulations of 2026 aim to increase agency oversight, require more detailed and fact-specific notices, and expand early resolution opportunities so that workplace issues can be corrected without lengthy litigation.

As many of you are aware, 2024 brought some of the most comprehensive reforms to PAGA since its inception in 2004. These changes included enhanced cure procedures, limiting claims to violations the plaintiff actually experienced, and caps on liability where employers can demonstrate they took reasonable steps to comply with the Labor Code. However, implementation of these provisions has proven challenging for both parties and courts, particularly where the statute left open questions about how these new processes should work in practice.

For 2026, the LWDA has issued proposed regulations designed to put the 2024 reforms into practice and provide structure to how these reforms are applied in real-world cases. A central focus of the regulations is tightening the PAGA notice process. The proposals require employees to provide more detailed, fact-specific descriptions of alleged violations and introduce standardized notice requirements intended to eliminate boilerplate filings. The proposed regulations also include certification requirements and additional scrutiny for high-frequency filers, including potential designation as “vexatious filers,” which could subject certain attorneys to prefiling review by the Agency. 

In addition, the proposed regulations provide more structure around the expanded cure and early resolution procedures created in 2024. Employers are given clearer guidance on how to submit cure proposals, what information must be included, and how the LWDA will evaluate whether alleged violations have been adequately addressed. These changes are intended to make early resolution a more realistic and efficient alternative to litigation, particularly for common claims involving wages, meal and rest periods, and reimbursements. 

The proposed regulations also significantly increase the LWDA’s role in overseeing PAGA litigation after a case is filed. Proposed regulations expand reporting requirements and require additional materials to be submitted to the Agency in connection with settlements. They also introduce new procedures aimed at improving transparency and coordination across multiple PAGA actions involving the same employer. Taken together, these proposed changes signal a shift toward a more actively managed, agency-driven system rather than one primarily controlled by the parties.

Not all aspects of the proposed regulations have been well received. In formal comments submitted during the rulemaking process, a coalition led by the California Chamber of Commerce (CalChamber), with support from SHRM California, has raised concerns that certain provisions may go beyond what the statute requires and create unnecessary burdens for employers. In particular, the proposal to require notice to other employees or attorneys with pending PAGA claims, along with a required 45-day review period before settlement approval, has drawn criticism. The coalition argues these particular proposed regulations conflict with existing case law and may delay resolution rather than improve it. Instead, CalChamber and its partners, including SHRM, are urging more targeted revisions that preserve meaningful oversight while avoiding added procedural complexity or delay.

At the same time, opposition is also expected from the plaintiffs’ bar, although for different reasons. Plaintiff-side attorneys have historically relied on broader pleading standards and more flexible notice requirements to bring representative PAGA claims. The proposed tighter notice standards, expanded cure provisions, and increased agency oversight may limit the scope of claims and reduce leverage in litigation. As a result, the final version of the regulations will likely reflect competing pressures from both employer groups seeking efficiency and plaintiffs’ attorneys seeking to preserve their ability to bring claims. 

For employers, the LWDA’s proposed regulations signal that PAGA is becoming a more compliance-focused and agency-driven enforcement tool. While the proposed regulations may create new opportunities to challenge insufficient notices and resolve claims earlier, they also introduce additional steps that will require close attention.

By Ryan Porte, Esq.

Arbitration agreements have long been one of the most effective tools employers use to manage litigation risk, as these agreements often include class action waivers that limit the ability of an employee to pursue claims on a class-wide basis. In addition, arbitration can provide a faster and more streamlined forum than open court and can offer some protection against excessive jury verdicts because the final decision rests with the arbitrator rather than a jury. The major downside to arbitration is cost, as the employer is generally required to pay for the arbitration forum, and popular arbitration services such as the American Arbitration Association (AAA) and Judicial Arbitration and Mediation Services (JAMS) have become increasingly expensive.

As a labor and employment attorney, I’ve received questions from many of my clients’ HR managers regarding whether arbitration agreements can be made mandatory for their workforce and what exceptions apply in 2026. The short answer is yes. Arbitration agreements remain lawful and widely used in California, but there are important limitations employers should understand.

California’s Attempt to Ban Mandatory Arbitration (AB 51)

In 2019, California enacted Assembly Bill 51, which attempted to prohibit employers from requiring employees or job applicants to sign arbitration agreements as a condition of employment. The law specifically targeted agreements that required employees to waive their right to pursue claims under the Labor Code or the Fair Employment and Housing Act in court. AB 51 immediately faced legal challenges because the Federal Arbitration Act (FAA) strongly favors enforcement of arbitration agreements. After several years of litigation, the Ninth Circuit ultimately held that AB 51 is preempted by federal law to the extent it interferes with arbitration agreements governed by the Federal Arbitration Act.

As a practical matter, this means employers can still require mandatory arbitration agreements for their workforce. However, because AB 51 unsettled the legal landscape for several years, many employers removed arbitration agreements from their onboarding process and never reintroduced them after 2022 when AB 51 was ruled preempted by the FAA. HR departments should periodically review their arbitration agreements to ensure they remain compliant with current law.

Federal Limits: Sexual Harassment and Sexual Assault Claims

Although arbitration agreements remain enforceable in most circumstances, Congress created an important exception in 2022 through the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act (EFAA). This federal law allows employees bringing claims involving sexual assault or sexual harassment to choose whether to proceed in arbitration or in court, even if they previously signed an arbitration agreement. The decision belongs to the employee, not the employer. Courts have also recognized that when a lawsuit includes a sexual harassment claim along with other employment claims, the entire case may proceed in court rather than being divided between arbitration and litigation, at the employee’s election. See Quilala v. Securitas Security Services USA, Inc., 117 Cal. App. 5th 75 (2025), Doe v. Second Street Corp., 105 Cal. App. 5th 552 (2024).

In practice, this means arbitration agreements cannot be used to force arbitration of sexual harassment claims. An employee who pleads a sexual harassment or sexual assault claim cannot be compelled to arbitrate those claims even if they signed an otherwise valid arbitration agreement.

Arbitration and PAGA Claims

Another area where arbitration agreements intersect with constantly changing California employment law involves claims brought under the Private Attorneys General Act (PAGA).  PAGA allows employees to bring lawsuits on behalf of the State of California for alleged Labor Code violations. For many years, California courts held that PAGA claims could not be compelled to arbitration because they are considered representative actions brought on behalf of the state.

In Viking River Cruises v. Moriana, the United States Supreme Court clarified that arbitration agreements are enforceable as to an employee’s individual PAGA claim. This allows an arbitrator to determine whether the employee personally experienced a Labor Code violation and therefore qualifies as an “aggrieved employee” for purposes of representative action standing. If the employee cannot establish that they personally experienced a Labor Code violation, they lack standing to pursue representative PAGA penalties on behalf of other employees.

If the employee cannot establish an individual violation, the representative PAGA claims may fail entirely. Even when representative claims continue in court, requiring arbitration of the individual claim can narrow the issues and significantly change the structure of the litigation. For employers facing PAGA exposure, arbitration agreements remain an important procedural tool.

Unconscionability: The Most Common Enforcement Problem

Even though arbitration agreements are generally enforceable, courts regularly refuse to enforce them when the agreement itself is found to be either procedurally or substantively unconscionable.

Procedural unconscionability focuses on how the agreement was presented to the employee. Issues may arise if the agreement is hidden in onboarding paperwork, written in confusing language, or presented without a meaningful opportunity for review. Substantive unconscionability focuses on the terms of the agreement itself. Courts are particularly skeptical of provisions that appear overly one-sided or that limit employees’ statutory rights. Examples include agreements that limit damages available under employment statutes, shorten statutes of limitation, impose excessive arbitration costs on employees, unreasonably limit discovery, or allow only the employer to pursue certain claims in court.

California courts frequently rely on the standards established in Armendariz v. Foundation Health when evaluating employment arbitration agreements. Under those standards, enforceable agreements typically provide for neutral arbitrators, allow adequate discovery, require written decisions, and require the employer to pay arbitration costs beyond what an employee would pay in court.

Conclusion

Despite California’s attempts to restrict arbitration agreements, they remain a lawful and effective tool for managing employment disputes. Employers may still require arbitration agreements as a condition of employment when the agreements are governed by the Federal Arbitration Act.  However, employers should understand several key limitations. Sexual harassment and sexual assault claims cannot be forced into arbitration. The arbitration forum itself can be costly. Finally, arbitration agreements must be carefully drafted to avoid unconscionable provisions that could make the agreement unenforceable.

For HR professionals, the best approach is to periodically review arbitration agreements with counsel to ensure they reflect current legal developments and comply with the standards courts use when evaluating unconscionability.

By Ryan Porte, Esq.

Following last month’s overview of new California employment laws taking effect in 2026, I have received a number of questions regarding compliance with SB 294, commonly referred to as the Workplace Know Your Rights Act. This update is intended to provide a practical overview of the law and outline the specific administrative steps employers must take to ensure compliance.

SB 294, codified at California Labor Code sections 1550 through 1559, is designed to ensure that all California employees are informed of certain workplace rights, regardless of immigration status. Importantly, the statute does not create new substantive rights. Instead, it requires employers to affirmatively notify employees of existing rights through a standardized notice published by the California Department of Industrial Relations (“DIR”).

The DIR Notice summarizes, among other things, the following employee rights:

• California labor laws apply to all employees regardless of immigration status.

• Employers are prohibited from retaliating against employees for filing complaints with government agencies.

• Employees have the right to receive notice of an immigration agency’s inspection of employment records, including immigration records.

• Employers may not threaten immigration-related action in response to employees exercising workplace rights.

• Employees have the right to designate an emergency contact to be notified if the employee is arrested or detained at work.

• Employees have the right to organize or participate in a labor union.

• Constitutional rights, including the right to remain silent, the right to be free from unreasonable searches and seizures, and the right to record law enforcement activity in public spaces.

• Access to legal representation if charged with a crime. 

• Eligibility for workers’ compensation benefits for work-related injuries.

To comply with SB 294, employers must provide the Know Your Rights notice to all current employees no later than February 1, 2026, and must do so annually thereafter. The Act also requires employers to maintain records demonstrating compliance, which in practice means obtaining a signed acknowledgment confirming receipt of the notice.

In addition, employers must provide current employees with the opportunity to designate an emergency contact no later than March 30, 2026. Employers are required to notify the designated emergency contact if the employee is arrested or detained while at work, which includes employee detention by immigration authorities. This emergency contact designation must also be offered to all new hires going forward.

Failure to comply with SB 294 can result in significant civil penalties. Employers may be assessed penalties of up to $500 per employee, per day, capped at $10,000 per employee, making timely compliance an important risk-management consideration.

From a practical standpoint, compliance is relatively straightforward. Employers should distribute the official Know Your Rights notice published by the DIR, which is available online at the following links:

English: https://www.dir.ca.gov/dlse/Know-Your-Rights-Notice/Know-Your-Rights-Notice-English.pdf

Spanish: https://www.dir.ca.gov/dlse/Know-Your-Rights-Notice/Know-Your-Rights-Notice-Spanish.pdf

I recommend that employers have employees sign an acknowledgment of receipt of the Know Your Rights notice at the same time they complete their emergency contact designation. Combining these steps reduces administrative burden while creating clear documentation of compliance.

If your organization has not yet distributed the Know Your Rights Notice to current employees, HR teams should do so promptly to avoid the potential for penalties, as well as incorporate the Notice, and an internal acknowledgment, and emergency contact designation into all future onboarding procedures to ensure ongoing compliance.