Ketul D. Patel

As 2027 approaches, California employers face several employment law changes that could affect everything from employee compensation and workplace policies to the use of artificial intelligence in employment decisions. With new requirements taking effect in the coming months, employers should be reviewing their current practices and identifying areas that may need attention before the new year. During Dorsey’s recent Seven Before ’27: 7 Policy Changes Employers with California Operations Must Make by January 2027 panel. Dorsey attorneys Nisha Verma, Ketul Patel, and Erica Chen discussed seven key developments and offered practical guidance to help employers prepare. 1. PAGA: Preparing for Proposed Regulatory Changes California's Private Attorneys General Act (PAGA) continues to evolve, with proposed regulations addressing how employers respond to notices, correct alleged violations, and resolve claims. Ketul discussed how the proposed regulations could create additional opportunities for employers to address certain violations before litigation. However, those opportunities come with short deadlines, making preparation essential. Employers should establish procedures for promptly identifying PAGA notices, preserving relevant records, and investigating potential violations. Regular audits of wage statements, meal and rest breaks, overtime, and expense reimbursements can also help identify issues before they escalate. 2. Minimum Wage Increases: Understanding State, Local, and Industry Requirements California's statewide minimum wage will increase to $17.40 per hour on January 1, 2027, with a corresponding increase in the salary threshold for certain exempt employees to $72,384 annually. Erica explained that employers must also consider local minimum wage ordinances and industry-specific requirements, which may exceed the statewide minimum. Certain agricultural workers will also be subject to new wage requirements beginning in 2027. Employers should review employee compensation by location and industry, evaluate exempt employee classifications, and coordinate with HR and payroll teams to ensure the appropriate rates are applied. 3. Stay-or-Pay Agreements: Reviewing Employment Contracts California's restrictions on stay-or-pay agreements, which can require employees to repay certain employment-related expenses or bonuses when they leave a job, are changing again. Erica discussed how recent legislation revised the restrictions scheduled to take effect January 1, 2027, while creating additional exceptions for certain discretionary payments and other qualifying arrangements. Employers should use the remaining time before the new requirements take effect to review existing employment agreements, identify potentially problematic repayment provisions, and determine whether separate agreements or revised procedures are necessary. 4. Pay Data Reporting: Preparing for New Categories and Increased Penalties California employers subject to annual pay data reporting requirements will face additional changes in 2027. Erica explained that the reporting framework will expand from 10 occupational categories to 23, requiring employers to take a closer look at how employees are classified. Penalties for subsequent reporting failures will also increase, making accurate reporting particularly important. Employers should begin reviewing workforce classifications, evaluating data collection procedures, and coordinating with HR and payroll teams well ahead of the May 2027 reporting deadline. 5. Workplace AI: New Rules for Employment Decisions and Layoffs Artificial intelligence is becoming an increasingly important part of workplace operations, and California is introducing new requirements governing its use in employment decisions. Ketul discussed two laws addressing AI-assisted discipline and termination decisions, as well as additional disclosure requirements for certain layoffs involving automation. Beginning July 1, 2027, employers will face restrictions on relying solely on automated systems to discipline or terminate employees. When employers primarily rely on these systems, meaningful human review will be required. Separate requirements taking effect January 1, 2027, will require additional information in certain layoff notices when AI or automation substantially contributes to workforce reductions. Ketul emphasized that employers should identify where automated tools are already being used, establish clear human review procedures, and train managers on their responsibilities when AI influences employment decisions. 6. Menopause-Related Protections: Understanding Existing Accommodation Obligations The panel also addressed the evolving legal landscape surrounding menopause-related workplace protections. Nisha discussed California legislation that would have expressly added menopause-related conditions to certain statutory protections but was ultimately vetoed. Although the legislation did not become law, employees experiencing menopause-related symptoms may still qualify for protections under existing disability and accommodation laws. Employers should ensure that HR personnel and managers understand their existing accommodation obligations and evaluate requests based on an employee's individual circumstances rather than whether a particular medical condition is expressly identified in a workplace policy. 7. Bereavement Leave: Expanding the Definition of Family Beginning January 1, 2027, California's bereavement leave law will expand to include a designated person whose relationship with an employee is equivalent to a family relationship. Nisha explained that the change reflects a broader recognition that family relationships do not always fit traditional definitions. While the law does not increase the existing five-day leave entitlement, employers will need to account for the expanded eligibility requirements. Employers should review their bereavement leave policies, update employee handbooks and leave forms, and ensure managers understand how to respond appropriately to requests involving designated persons. Preparing for 2027 Throughout the webinar, a consistent theme emerged: preparing for new employment laws requires more than updating written policies. Employers should review their existing practices, train the people responsible for implementing changes, and establish processes that support ongoing compliance. With 2027 approaching, taking these steps now can help California employers navigate the changing legal landscape and reduce the risk of preventable compliance issues. This post highlights key takeaways from “Seven Before ’27: 7 Policy Changes Employers with California Operations Must Make by January 2027,” presented by Dorsey attorneys Nisha Verma, Ketul Patel, and Erica Chen.

In a published decision addressing a previously unresolved question under California law, the First District Court of Appeal held that individual supervisors and managers cannot be held personally liable for whistleblower retaliation under California Labor Code section 1102.5. In Chaudhry v. State of California, the court became the first California appellate court to squarely address whether the statute permits claims against individual supervisors, ultimately concluding that liability rests with the employer, not the individuals acting on the employer’s behalf. For employers, the decision provides a clear basis to seek early dismissal of supervisors named in section 1102.5 lawsuits and undercuts a tactic plaintiffs have used to keep these cases in state court. It does not, however, reduce the employer’s own exposure. The plaintiff, a state corrections employee who alleged she was retaliated against for making Cal/OSHA complaints, sued her employer and three of her supervisors. Although section 1102.5 prohibits retaliation by an employer or “any person acting on behalf of the employer,” the court held that this phrase, read in the context of the broader statutory scheme, does not authorize suits against individual managers and supervisors. In this article, we briefly summarize the court’s reasoning and focus on what the decision means in practice for California employers. The Court’s Reasoning in Brief The court found the statutory language ambiguous when read alongside related provisions, and it resolved that ambiguity against individual liability. Several factors led the court to that conclusion: Related statutory provisions, such as Labor Code sections 1104 and 1105, focus on imposing liability on employers for actions by supervisors that violate section 1102.5, rather than on the supervisors themselves. Labor Code section 1102.6, which establishes the burden-shifting framework governing whistleblower claims, places the burden of proof squarely on the employer and makes no reference to supervisors or other individuals. Legislative history regarding section 1102.5, including the 2013 amendments that added the phrase “any person acting on behalf of the employer,” reflects an intent to extend the prohibition to “all persons and entities,” but contains no indication that the Legislature intended to allow employees to sue individual managers or supervisors personally. California Supreme Court jurisprudence regarding the liability of individual supervisors under other employment statutes, such as FEHA, also points against imposing liability. The court reasoned that exposing supervisors to personal liability for necessary personnel decisions would add little to a plaintiff’s recovery while chilling managerial judgment and creating conflicts of interest between supervisors and their employers. The court noted that more than 30 federal district court decisions have reached the same conclusion, and it declined to follow the small number of federal rulings that had treated the question as open. Practical Implications for Employers The holding in Chaudhry has several important implications for California employers defending whistleblower retaliation claims. This decision removes a potentially significant source of personal exposure for individual managers and supervisors in section 1102.5 litigation. It should also reduce the defense costs and potential conflicts of interest that arise when an employer and its supervisors are co-defendants, particularly where the employer would be obligated to fund the supervisors’ defense. This opinion should meaningfully strengthen removal and fraudulent-joinder arguments in cases where individual California supervisors are named primarily to defeat diversity jurisdiction. Several federal courts had declined to find fraudulent joinder of supervisors precisely because no California court had resolved whether section 1102.5 permits individual liability; Chaudhry fills that gap. The opinion may also discourage plaintiffs from naming supervisors as defendants in future section 1102.5 actions absent another viable cause of action supporting individual liability. Employers defending existing lawsuits should evaluate whether individual supervisor defendants can be dismissed from pending section 1102.5 claims through a demurrer, a motion for judgment on the pleadings, or a summary judgment motion, and whether any other claims pleaded against those individuals (such as FEHA harassment) independently support keeping them in the case. Claims against the employer remain fully viable. The court allowed the section 1102.5 claim against the State and CDCR to proceed on a constructive-discharge theory, holding that a constructive discharge can itself be the actionable adverse action even when the underlying conduct began years earlier. The court also signaled that reversing course does not necessarily cure the harm; repeated terminations followed by reinstatement, combined with obstacles placed in the employee’s way on return, could make continued employment intolerable. Not every workplace slight is actionable. The court held that requests for doctor’s notes, a single accusation of improper mask use, and a counseling record with no alleged consequences were not adverse employment actions, individually or collectively. Even so, employers should document the legitimate, independent reasons for any discipline of an employee who has engaged in protected activity, because under section 1102.6 the employer must prove those reasons by clear and convincing evidence. Key Takeaway Chaudhry does not render supervisors wholly insulated from employment-related liability. Rather, it holds that the proper defendant in a section 1102.5 action is the employer. Supervisors may still face personal liability under other statutes, including FEHA’s harassment provisions and, for state employees, the California Whistleblower Protection Act, and plaintiffs may try to rely on other anti-retaliation statutes with “person” language that Chaudhry did not address. Employers should continue to train supervisors to recognize protected whistleblower activity and avoid retaliatory conduct because their actions may still expose the employer to liability, including under section 1102.5 itself, where the employer bears the burden of proving by clear and convincing evidence that it would have taken the same action for legitimate, independent reasons.