California’s SB 261 Incentivizes Timely Compliance With Final Wage Judgments

Effective January 1, 2026, California employers with unpaid wage judgments will be subject to significantly increased liability as a result of SB 261 – which was signed by the Governor on October 13, 2025. Employers should take careful note of the changes in California law, as explained below.   

Impact of the 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. The Labor Commissioner’s final order is filed with the superior court, which becomes a judgment that may be enforced.

According to the California Legislature, only a small percent of final wage judgments are ever collected by employees. Accordingly, SB 261 was enacted in an effort to provide employees with additional tools to enforce wage judgments and to incentivize employers to pay, through harsher penalties for non-compliance. 

Employers should be aware of the following aspects of SB 261:

• Triple Penalties. Employers may be subject to a civil penalty of up to three times the outstanding judgment amount if a final wage judgment remains unsatisfied after a period of 180 days. Courts are required to assess the full penalty sought unless the employer demonstrates by clear and convincing evidence “good cause” to reduce the amount. Employers will not be subject to any penalty if before the 180th day they reach an accord with the judgment creditor/employee for the judgment to be paid in installments (and they remain in compliance with the accord until it is fully satisfied).   
• Successor Liability. Any “successor” to a judgment debtor (as defined by “any” law) shall be jointly and severally liable for such penalties for unpaid judgments. Therefore, company sales, reorganizations, etc., will not shield employers from 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. The new law adds significant enforcement opportunities by adding public prosecutors to the list of parties entitled to reimbursement of fees/costs. 
• Penalty Allocation. Fifty percent of penalties assessed under the new law are to be paid to the effected employee(s), and fifty percent are to be paid to the DLSE to fund enforcement and education efforts. By allocating penalties to the employee seeking to enforce the judgment, the law further incentivizes enforcement efforts. 

Takeaways

In sum, SB 261 not only subjects employers to much harsher penalties for non-compliance, but greatly incentivizes parties to file suits to enforce judgments by allocating a portion of those penalties to the effected employees and expanding the scope of parties who may recover their attorneys’ fees and costs. Accordingly, in advance of January 1, 2026, employers will want to re-examine their practices to ensure wage claims are promptly resolved, and/or accords are entered into early on – agreeing to payment of outstanding judgments on an installment plan.