Effective January 1, 2026, California employers with unpaid wage judgments will be subject to significantly increased liability as a result of SB 261, signed by the Governor on October 13, 2025. Employers seeking further guidance regarding these or other changes in California laws may contact MNK Law, APC at info@mnklawyers.com, or 562.362.6437.
Impacts of the New Law
Under existing law, the Labor Commissioner is authorized to investigate employee complaints and to provide for a hearing in any action to recover unpaid wages, penalties, or other demands for compensation. SB 261 bring important changes for employers to this process.
- Tripled Penalties. If a final wage judgment remains unpaid after 180 days, employers may face a civil penalty of up to three times the amount of the outstanding judgment. Courts must impose the full penalty requested unless the employer proves, by clear and convincing evidence, that there is “good cause” to reduce it. No penalty will apply if, before the 180th day, the employer reaches an agreement with the employee or judgment creditor to pay the judgment in installments and remains in compliance with that agreement until payment is completed.
- Successor Liability. Any successor to a judgment debtor—as defined under any applicable law—will be jointly and severally liable for penalties related to unpaid wage judgments. Consequently, changes such as company sales, reorganizations, or transfers of ownership will not protect employers from this liability
- Mandatory Attorneys’ Fees and Expanded Enforcement. Courts are required to award reasonable attorneys’ fees and costs to prevailing plaintiffs in actions to enforce wage judgments – whether brought by the employee, Labor Commissioner, or a public prosecutor. SB 261 expands enforcement opportunities by adding public prosecutors to the list of parties entitled to reimbursement of fees/costs, resulting in risks for employers.
Employer Takeaways
- Beginning January 1, 2026, Employers should treat outstanding final wage judgments as high-risk liabilities. Failure to satisfy a judgment within 180 days can result in a penalty up to three times the amount owed.
- To avoid penalties, employers should negotiate and document an installment payment plan (accord) with the employee or judgment creditor before the 180-day mark and ensure strict compliance until paid in full.
- Because the law imposes successor liability, buyers and investors should audit targets for unpaid wage judgments during mergers, acquisitions, or restructurings, to prevent inherited exposure.
- Courts must award attorneys’ fees and costs to prevailing employees, the Labor Commissioner, or public prosecutors—making enforcement actions more financially attractive for claimants.
- Employers should anticipate increased enforcement since the law expands enforcement opportunities including by awarding half of all penalties directly to employees.
- The “clear and convincing evidence” standard used to determine penalty reduction sets a high bar. Employers should not expect leniency once the 180-day period expires.
- Establish internal systems to track wage judgment dates and deadlines to ensure prompt resolution and minimize the risk of compounding liability.
- Review and update wage payment, recordkeeping, and final pay procedures now to avoid judgments in the first place and ensure compliance readiness ahead of 2026.
Employers who may benefit from guidance may contact the experienced counsel at MNK Law, APC, by e-mail at info@mnklawyers.com, or telephone at 562.362.6437.