California manufacturers will need to comply with several new laws starting January 1, 2026, according to the California Manufacturers & Technology Association (CMTA). The association has outlined six major legal changes that will impact labor costs, hiring practices, training agreements, workplace rights notifications, and tax credits.
One of the most significant changes is an increase in the state minimum wage to $16.90 per hour due to annual cost-of-living adjustments. This represents a $0.40 increase from the previous year and is expected to raise labor expenses for manufacturers with large hourly workforces.
Another law, AB 692 (Kalra), prohibits training repayment agreements and quit fees beginning in 2026. Employers must remove these clauses from all contracts or face a minimum penalty of $5,000 per employee. “Requires immediate removal of prohibited terms from all contracts; violations trigger a minimum penalty of $5,000 per employee. Forces manufacturers to redesign retention strategies and re-budget for technical training,” CMTA stated.
SB 464 (Smallwood-Cuevas) brings changes to pay data reporting requirements by mandating that demographic data be stored separately from personnel files and imposing penalties for noncompliance—$100 per employee for first-time failures and $200 for subsequent incidents. From 2027 onward, employers must report across more job categories.
Employers using artificial intelligence in hiring will also be affected as FEHA anti-discrimination rules will apply directly to AI tools used in screening and evaluation processes. “Employers face liability if AI tools produce biased outcomes. Starting in 2026, manufacturers must conduct AI bias audits, update vendor contracts, train HR staff to understand and challenge AI outputs, and retain AI-related records for 4 years,” according to CMTA.
The Workplace Know Your Rights Act (SB 294) requires employers to provide standalone annual notices outlining various employee rights by February 1 each year and collect emergency contact information by March 30. Penalties are set at $500 per employee per day for noncompliance.
Additionally, SB 302 (Padilla) aligns California’s clean energy tax credit treatment with federal standards by eliminating state taxes on federal clean-energy credit payments between 2026 and 2030. This change aims to improve returns on investments related to clean energy projects within the state.
CMTA noted its ongoing advocacy efforts since its founding in 1918 on behalf of California’s manufacturing sector—a sector contributing about $300 billion annually to the state’s economy and employing approximately 1.3 million people.
