Starting January 1, 2026, a wage judgment that sits unpaid can grow to as much as four times its size. Under SB 261, if a final judgment for unpaid wages stays unsatisfied for 180 days after the time to appeal runs out, a court can add a civil penalty of up to three times the outstanding amount, interest included. The court also has to award the enforcing party its attorney’s fees. An employer that settles on a payment plan before day 180, and keeps to it, avoids the penalty.
What did the Legislature do?
SB 261 was chaptered as Statutes 2025, chapter 747, effective January 1, 2026. It added two sections to the Labor Code and amended the Labor Commissioner appeal statute, section 98.2.
The penalty is in new Labor Code section 238.05(a). If “a final judgment arising from nonpayment of wages for work performed in this state remains unsatisfied after a period of 180 days after the time to appeal therefrom has expired and no appeal therefrom is pending,” the judgment debtor “shall be subject to a civil penalty not to exceed three times the outstanding judgment amount, including postjudgment interest then due.”
The fee provision is new section 238.10: “The court shall award a prevailing plaintiff all reasonable attorney’s fees and costs in any action brought by a judgment creditor, the Labor Commissioner, or a public prosecutor” to enforce a final wage judgment.
How did enforcement work before 2026?
The main tool was a bond requirement, and it’s still on the books. Under Labor Code section 238(a), an employer with a final wage judgment unpaid 30 days after the appeal period “shall not continue to conduct business in this state” unless it posts a surety bond of $50,000 to $150,000, depending on the unpaid amount. Violating that rule carries a $2,500 civil penalty under subdivision (f), and more for employers that ignored an earlier assessment.
Those amounts were small compared with the judgments themselves. A business could treat a $40,000 Labor Commissioner award as something to pay later, or never. SB 261 changes the economics: the same award can carry up to $120,000 more in penalties, plus the other side’s fees for chasing it.
Which judgments does the new penalty reach?
The text isn’t limited to Labor Commissioner awards. Section 238.05(a) covers “a final judgment arising from nonpayment of wages for work performed in this state,” which reads broadly enough to include a superior court judgment in a wage lawsuit. A Labor Commissioner award becomes a judgment when it’s filed with the court under section 98.2(e), and the process for contesting those awards is explained in the firm’s post on Berman hearings and Labor Commissioner wage claims.
The 180 days start only once the judgment is final. The statute counts from when “the time to appeal therefrom has expired and no appeal therefrom is pending.” A pending appeal stops the clock from starting, but an employer can’t file a weak appeal just to buy time without cost: an employer that appeals a Labor Commissioner award must post an undertaking in the amount of the award under section 98.2(b), and an unsuccessful appellant pays the other side’s fees under subdivision (c).
Can an employer avoid or reduce the penalty?
Yes, in two ways, and the first is far easier.
An accord before day 180. Section 238.05(a) says a judgment debtor “shall not be subject to a penalty under this subdivision if the judgment debtor reaches an accord described in subdivision (b) of Section 238 before the 180th day and then remains in full compliance with the accord until its full satisfaction.” An accord under section 238(b) is an agreement with the judgment holder, which can provide for payment in installments, with a notarized copy given to the Labor Commissioner. Missing an installment ends the protection.
A good-cause reduction. Once the penalty is in play, the burden is heavy. Under section 238.05(b), the court “shall assess against the judgment debtor the entire amount of the requested penalty except to the extent that the court finds that the judgment debtor has demonstrated by clear and convincing evidence good cause to reduce the amount of the penalty.” That’s a higher standard than most civil issues, and the employer carries it.
The practical lesson is that the real negotiation window is the first six months after the judgment becomes final. An employer that can’t pay in full should be talking about a payment plan well before day 180, not after the penalty motion is filed.
Who else can be liable?
Buyers and successors. Section 238.05(d) makes “a successor to a judgment debtor, as defined in subdivision (a) of Section 200.3 or by any other law,” jointly and severally liable for the penalties. A company buying a business, or taking over its workforce and customers, should search for unpaid wage judgments as part of diligence, since the penalty can follow the operations.
The penalty also stacks. Under subdivision (e), it is “in addition to any other penalties or fines permitted by law,” and half of it is paid to the employees in whose favor the judgment was entered, under subdivision (c)(1).
| Provision | What it does | Key condition |
|---|---|---|
| Lab. Code § 238(a), (f) | Bond required to keep doing business, and $2,500 penalty for violating it | Judgment unpaid 30 days after appeal time runs |
| Lab. Code § 238.05(a) | Civil penalty up to three times the outstanding judgment with interest | Unpaid 180 days after appeal time runs, no appeal pending, no accord kept |
| Lab. Code § 238.05(b) | Full penalty unless the court reduces it | Employer shows good cause by clear and convincing evidence |
| Lab. Code § 238.05(d) | Successors jointly and severally liable | Successor as defined in § 200.3 or other law |
| Lab. Code § 238.10 | Mandatory fees and costs to a prevailing plaintiff in enforcement | Action by judgment creditor, Labor Commissioner, or public prosecutor |
What should an employer with a wage judgment do now?
The answer depends on where the case sits on the calendar, so the first job is to find out.
- Pull every wage judgment and Labor Commissioner award against the company and its affiliates, and calendar the date each became final and the 180th day after it.
- For any judgment the company can’t pay in full, open payment talks with the judgment holder and document any accord in the form section 238(b) requires, including the notarized copy for the Labor Commissioner.
- Pay installments on time, every time, since a missed payment ends the accord’s protection.
- For a pending Labor Commissioner award, decide whether an appeal is worth the undertaking and the fee risk under section 98.2 before the 10-day appeal window closes.
- Talk to a lawyer before day 180 about the accord, any good-cause evidence, and successor exposure in a pending sale.
The firm’s page on defending employment lawsuits in California describes how it handles wage claims at each stage, including enforcement.
If a wage judgment is about to cross the 180-day line
If your company has an unpaid wage judgment or Labor Commissioner award, the date it became final and the terms of any payment plan usually decide whether SB 261’s penalty applies. Rosenberger + Kawabata represents employers defending employment lawsuits and claims through its business litigation practice, including claims involving unpaid wage judgments. Contact Rosenberger + Kawabata online for a confidential consultation, or call (310) 894-6921.
Sources
The statutes are Labor Code sections 98.2, 238, 238.05, and 238.10, as added or amended by SB 261 (Stats. 2025, ch. 747).
This post is general information about California and federal employment law as of November 7, 2026. It is not legal advice, and reading it does not create an attorney-client relationship. Employment statutes, regulations, and court decisions change often, and the outcome of any claim depends on its facts. Past results do not guarantee future outcomes.