California Legislature Sends Wage Enforcement Bill to Governor

Quick Hits

• The California Legislature recently passed legislation that would enhance the enforcement of wage laws.
• Senate Bill 261 would introduce significant penalties for unpaid wage judgments, including up to three times the outstanding amount and attorneys’ fees, to ensure compliance and deter nonpayment.
• Employers may want to promptly resolve wage claims, set up payment plans, and audit wage practices to avoid severe penalties under the new law.

Purpose of the Law

According to the legislature, many California workers who win wage theft claims never recover their money. Studies estimate that only about 12 percent of judgments were fully collected between 2018 and 2023. The legislature determined that existing penalties are not enough to deter nonpayment, allowing some employers to ignore final wage judgments.

SB 261’s main goal is to make wage-related judgments more enforceable and to strongly incentivize employers to pay. The bill would:

• impose a civil penalty of up to three times the outstanding judgment (including interest) if a final wage judgment remains unpaid 180 days after the appeal period ends;
• require courts to award reasonable attorneys’ fees and costs to prevailing plaintiffs in enforcement actions, whether brought by the employee, labor commissioner, or a public prosecutor;
• split any penalty: 50 percent to affected employees, 50 percent to the Division of Labor Standards Enforcement (DLSE) for enforcement and education; and
• extend joint and several liability for penalties to successors of judgment-debtor employers, so business reorganizations or sales do not erase liability.

Earlier versions of SB 261 included public posting of employers with unsatisfied wage theft judgments, but these provisions were removed. SB 261 focuses on financial penalties and fee recovery.

Impact of the Law

SB 261’s enforcement tools would impact all stakeholders.

Employees: The bill would give workers more leverage. Employers that delay payment beyond 180 days would face penalties up to three times the original judgment, plus attorneys’ fees and costs. Half of any penalty would go directly to affected workers.

Employers: The bill would significantly increase the risk for employers with unpaid wage judgments. Letting a judgment go unpaid for over six months could result in penalties far above the original amount, plus fees. Successor liability means parties to such a transaction may want to include a review of outstanding wage judgments as part of their due diligence.

Public prosecutors and the labor commissioner: The bill would make enforcement easier by requiring courts to award attorneys’ fees and costs to prevailing plaintiffs, supporting public enforcement efforts. Half of all penalties would fund DLSE enforcement and education.

Courts: More enforcement actions and workload are expected if the bill becomes law. Courts would be required to assess the full penalty unless the employer proves, by clear and convincing evidence, good cause for reduction—a high bar.

Small Businesses: The stakes are potentially higher for small businesses. Even with cash flow issues, letting a judgment go unpaid for more than 180 days without an approved payment plan could trigger large penalties. However, employers that reach and comply with an accord (such as negotiating and finalizing a payment plan) before day 180 would be shielded from the treble penalty.

Action Items for California Employers

To comply with SB 261 and minimize risk, California employers may consider the following:

• Resolving wage claims promptly. Employers that receive an order, decision, or award (ODA) and do not plan to appeal may want to pay it quickly. If appealing, consider posting the required bond and tracking deadlines.
• For employers that cannot pay in full before day 180, setting up and documenting payment plans. Consider working with the employee to establish an accord under Labor Code Section 238 and following the payment schedule.
• Tracking deadlines. Once the appeal period ends, consider starting a 180-day countdown and setting reminders to ensure timely action.
• Budgeting for payment or settlement. Employers may want to treat wage judgments as priority obligations and plan accordingly.
• Auditing wage-and-hour practices. Employers may want to regularly review classifications, timekeeping, overtime, meal/rest breaks, and final pay. Employers may also want to address issues, update policies, and train managers to ensure compliance and that such compliance is documented.
• Centralizing judgment response. Consider assigning a particular gatekeeper with the responsibility for tracking ODAs, appeals, and payments. Employers may also want to keep proof of payment, and communicate with the DLSE or opposing counsel as needed.
• Assessing successor liability in business deals. Consider including wage judgments and liens in due diligence. In addition, employers may wish to use indemnities or escrows if needed, as successors can be liable for SB 261 penalties.

Conclusion

Early action, careful tracking, and proactive compliance are key for California employers to manage this potential new risk.

Ogletree Deakins’ Wage and Hour Practice Group will continue to monitor developments and will post updates on the California and Wage and Hour blogs as additional information becomes available.

Follow and Subscribe
LinkedIn | Instagram | Webinars | Podcasts