The landscape of wage enforcement in California has fundamentally changed with the enactment of Senate Bill 261 (SB 261), a law designed to eliminate the otherwise questionable strategy of ignoring wage judgments. Unlike a related measure that was vetoed, SB 261 is set to take effect on January 1, 2026, and introduces a massive financial risk for employers who fail to satisfy court-ordered judgments.

At the heart of SB 261 is a hard 180-day deadline. If a final, non-appealable judgment for unpaid wages remains unsatisfied after this period, the employer faces a civil penalty that can be up to three times the outstanding judgment amount, including the principal and accumulated interest. This triple-penalty threat transforms a judgment from a simple debt into a critical compliance deadline.

The court is mandated to assess this full penalty unless the employer can demonstrate, by clear and convincing evidence, that “good cause” exists to reduce the amount. “Clear and convincing evidence” is an extremely high bar, requiring the employer to present facts that are highly probable and virtually certain to be true. To establish good cause, the employer would likely need to demonstrate that the failure to pay resulted from extraordinary circumstances beyond their control, such as a sudden and catastrophic corporate event (like a fire or natural disaster that destroyed financial records and froze assets) or an external, non-negligent error that prevented the payment from being processed. Conversely, circumstances that do not constitute good cause – and are highly unlikely to satisfy the court – include poor cash flow, general corporate negligence, the deliberate decision to prioritize other business expenses over the wage judgment, or mismanagement of funds. In short, “good cause” is not a loophole for bad business decisions or lack of diligence.

The only certain path for an employer who cannot pay the judgment in a lump sum to avoid this triple penalty is to utilize the “accord” provision. If the employer reaches a formal, written installment payment plan with the judgment creditor/employee and maintains compliance with that plan before the 180-day deadline expires, they will be shielded from the severe penalty. The accord exception provides a necessary – but finite – window for negotiation and resolution.

SB 261 further incentivizes enforcement by making the award of attorneys’ fees and costs to the prevailing party mandatory in any collection action.  Such an award is required regardless of whether the action is brought by an employee, the Labor Commissioner, or a public prosecutor, ensuring that payment will be vigorously pursued. The law also establishes successor liability for all penalties, thereby discouraging any attempt to evade the judgment through corporate restructuring or the selling of assets. Finally, for persistent non-compliance, the Labor Commissioner is now required to post information about employers with unsatisfied judgments on their website, adding significant reputational damage to the list of consequences.

In sum, SB 261 requires employers to treat a final wage judgment not as a low-priority liability, but as an immediate financial burden that, if left unpaid for 180 days, will almost certainly cost three times the original amount, and more.

This publication is published by the law firm of Ervin Cohen & Jessup LLP. The publication is intended to present an overview of current legal trends; no article should be construed as representing advice on specific, individual legal matters. Articles may be reprinted with permission and acknowledgment. ECJ is a registered service mark of Ervin Cohen & Jessup LLP. All rights reserved.