2025 CA Employment Law Changes
California is known for having some of the most complex and employee-friendly labor laws in the nation. While these laws are designed to protect workers, they can also present challenges for employers who must stay compliant with constantly evolving regulations. As we look ahead to 2025, several key changes in California employment law are set to take effect, and it’s crucial for employers to be prepared.
Whether you run a small business or manage a larger workforce, understanding these upcoming changes is essential to avoid costly penalties and lawsuits. Here’s a rundown of some of the most significant updates in California employment law for 2025.
1. Minimum Wage Increases
California has a history of gradually raising the state minimum wage, and 2025 will be no exception. As of January 1, 2025, California's minimum wage will continue its annual increase in alignment with the state's inflation-based adjustments. For businesses with 26 or more employees, the state minimum wage is expected to rise to $16.50 per hour, and for employers with 25 or fewer employees, the minimum wage will also be $16.50 per hour.
What Employers Need to Know:
If you have employees who are currently earning minimum wage, you'll need to adjust their pay to reflect the new rate.
For employers with salaried employees, be sure that their exempt salary exceeds the minimum threshold for exemption, which is tied to the state minimum wage.
Ensure that your payroll systems are updated and that employees receive proper notice of the wage increase.
2. Expansion of Paid Sick Leave
Starting in 2025, California employers will face expanded paid sick leave requirements under AB 152. Currently, California law mandates that employers provide up to 24 hours or 3 days of paid sick leave annually. However, in 2025, the state will require all employers to allow employees to accrue up to 40 hours (5 days) of paid sick leave per year.
What Employers Need to Know:
Accrual rate: Employees will accrue paid sick leave at a rate of at least one hour for every 30 hours worked.
Carryover requirement: While employees can carry over unused sick leave, employers can limit the amount of carryover to 80 hours (10 days). However, employees can still take up to 40 hours per year.
Make sure your employee handbook and sick leave policies are updated to reflect the new accrual rates and carryover requirements.
Notification: You will need to notify employees of their accrued sick leave balance, so updating your payroll system is essential.
3. New Family and Medical Leave Laws (California Family Rights Act)
The California Family Rights Act (CFRA), which provides job-protected leave for employees to care for family members or address their own serious health conditions, will be expanding in 2025. Under new legislation, more employees will qualify for CFRA leave, including those working in smaller businesses. The threshold for CFRA coverage will drop from 50 employees to just 5 employees.
This means that small businesses with as few as 5 employees will now need to provide the same job protections for family and medical leave as larger businesses.
What Employers Need to Know:
If you have fewer than 50 employees, you’ll now be required to comply with CFRA regulations, including providing up to 12 weeks of unpaid leave for eligible employees for family and medical reasons.
Employers will also need to ensure that CFRA leave is available for a broader range of family members, including parents, children, spouses, domestic partners, and even grandparents.
Be prepared to track employee leave and reinstate them to the same or equivalent positions upon their return.
4. Wage Transparency and Pay Equity Reporting
In 2025, California employers will face new regulations around wage transparency and pay equity reporting. Following the passage of SB 1162, businesses with 15 or more employees will be required to disclose the pay scale for any job opening and to submit annual pay data reports to the state.
The California Department of Fair Employment and Housing (DFEH) will begin collecting data on compensation by race, gender, and other demographic categories to monitor compliance with pay equity laws.
What Employers Need to Know:
Employers will be required to post pay scales in job advertisements, helping to promote pay transparency.
You’ll also need to track and report employee pay data, broken down by job category, gender, race, and ethnicity.
Failure to comply with these reporting requirements could result in fines or other penalties.
Take proactive steps now to ensure that you are conducting regular pay audits to identify and correct any potential pay disparities that could be flagged by the new reporting system.
5. Non-Compete Agreements and Restrictions
California has long been known for its anti-non-compete stance, which invalidates most non-compete agreements between employers and employees. However, in 2025, new legislation (AB 150) will create even stricter limitations on the enforceability of non-compete clauses, particularly in light of the increasing trend of remote work and the gig economy.
The new law will introduce more specific definitions around what constitutes an enforceable non-compete agreement and will apply additional restrictions on how businesses can enforce such clauses.
What Employers Need to Know:
If your company uses non-compete agreements, you’ll need to ensure they are compliant with the new rules.
Remote employees or employees who work outside of California will have even more protections when it comes to non-compete clauses.
Employers will likely need to review their employment contracts to ensure non-compete clauses are tailored to comply with the new law and to avoid penalties.
6. Workplace Accommodations for Pregnant Workers
California has passed a new law that will require employers to make workplace accommodations for pregnant employees starting in 2025. This law, known as AB 1949, requires employers to provide accommodations for pregnant employees experiencing conditions related to pregnancy, childbirth, or breastfeeding, including changes to job duties, more frequent breaks, and the ability to sit or stand as needed.
What Employers Need to Know:
Employers will be required to provide reasonable accommodations for pregnant workers, such as modified duties or more frequent breaks, unless it would cause undue hardship to the business.
You’ll need to review your workplace policies and ensure that your managers are trained on how to handle pregnancy-related accommodation requests properly.
Document accommodation requests carefully to avoid potential claims of discrimination or failure to accommodate.
7. Expanded Definition of “Independent Contractor”
California continues to scrutinize the use of independent contractors with the state’s AB 5 law, which requires businesses to apply a stricter test (known as the ABC test) to determine whether workers are properly classified as independent contractors or employees. In 2025, California will implement further clarifications to prevent misclassification of workers, particularly in industries like gig economy businesses (Uber, DoorDash, etc.).
What Employers Need to Know:
Be cautious about how you classify workers, especially if they meet the criteria of an independent contractor under the ABC test.
If workers are misclassified, you could face penalties, back wages, and other financial liabilities.
Work with your HR or legal team to ensure that independent contractors meet the new criteria and avoid costly misclassification claims.
Conclusion: Stay Ahead of the Curve
California’s employment laws are constantly evolving, and 2025 will bring a new wave of changes that could affect your small business. To avoid costly fines, lawsuits, and reputational damage, it’s essential to stay informed and take proactive steps to ensure compliance with these upcoming regulations.
The key areas to focus on in 2025 include:
Minimum wage increases
Paid sick leave expansion
Changes to family and medical leave laws
Wage transparency and pay equity reporting
Updated rules around non-compete agreements
Workplace accommodations for pregnant workers
Independent contractor misclassification
By staying up-to-date with these changes and implementing the necessary adjustments to your business operations, you can continue to run a successful, compliant business that prioritizes the well-being of your employees while avoiding legal pitfalls.
If you’re unsure how these changes might impact your business, it may be helpful to consult with an HR consultant or employment attorney who can guide you through the process and help ensure compliance as 2025 approaches. Staying prepared today will pay off in the long run by preventing issues before they arise.
