Imagine you just started a new job. Your employer paid for some training and gave you a signing bonus. Six months later, you realize the job is not what you were promised, but when you try to leave, your employer hands you a bill for thousands of dollars. Under the old rules in California, that kind of arrangement was often perfectly legal. As of January 1, 2026, a new law changes the picture significantly.
Assembly Bill 692 (AB 692) places strict limits on what California calls "stay or pay" provisions in employment contracts. These are the clauses that require workers to repay their employer for things like training costs, relocation expenses, or signing bonuses if they leave before a certain date. If you work in California, here is what this law means for you.
What Are "Stay or Pay" Contracts?
A "stay or pay" provision is any clause in an employment agreement that requires a worker to pay the employer money if they leave their job before a specified period of time. These clauses go by many names. You might see them called training repayment agreement provisions (TRAPs), clawback clauses, or retention agreements.
Common examples include:
- Training repayment agreements: Your employer pays for a certification or training program and requires you to stay for two or three years or else repay the full cost.
- Sign-on bonus clawbacks: You receive a bonus for accepting the job, but you must pay it back if you leave within a year.
- Relocation expense recovery: Your employer covers moving costs but requires repayment if you resign within a set period.
- Education reimbursement with strings: The company pays your tuition but demands repayment if you leave before a deadline.
These arrangements can trap workers in jobs they want to leave. A worker earning $20 an hour who owes $15,000 in "training costs" may feel like they cannot afford to quit, even if they are experiencing unsafe conditions, harassment, or other serious problems. AB 692 was designed to address exactly that kind of situation.
What Does AB 692 Actually Do?
The new law, codified in Business and Professions Code Section 16608 (and Labor Code Section 926), broadly prohibits employers from entering into agreements that require workers to repay training costs, sign-on bonuses, relocation expenses, or other employment-related benefits if the worker leaves before a set date. The law applies to agreements entered into on or after January 1, 2026.
The term "worker" is defined broadly under the statute. It covers employees, prospective employees, and other individuals permitted to work for an employer or participate in job training programs. This means the law could potentially protect people even before they officially start the job.
The law does not apply retroactively. If you signed a stay or pay agreement before January 1, 2026, that agreement may still be enforceable under the rules that were in place at the time. However, any new agreement entered into on or after that date must comply with AB 692.
Are There Any Exceptions?
AB 692 does not ban every type of repayment arrangement. Business and Professions Code § 16608(b)(2) carves out five categories. Two of them carry detailed conditions and are the ones most workers will encounter, so they are set out in full below. The other three are flat exclusions:
- Government loan repayment and forgiveness programs, federal, state, or local (subd. (b)(2)(A)). If your repayment obligation comes from one of these, AB 692 does not reach it.
- Apprenticeship contracts approved by the Division of Apprenticeship Standards (subd. (b)(2)(C)).
- Contracts for the lease, financing, or purchase of residential property, including a mortgage (subd. (b)(2)(E)). Employer-assisted housing is not a stay-or-pay clause.
That matters in both directions. A worker in an approved apprenticeship, or one whose employer helped finance a home, should not read the ban as voiding those arrangements. Equally, an employer cannot relabel an ordinary training-repayment clause as one of these to escape the statute.
Sign-On and Retention Bonuses (subd. (b)(2)(D))
Employers may still offer sign-on or retention bonuses with repayment terms, but only if several requirements are met:
- The repayment terms must be in a separate, standalone agreement, not buried in the main employment contract.
- The worker must be notified of their right to consult an attorney and given at least five business days to do so before signing.
- The repayment amount must be prorated over a retention period that cannot exceed two years, and it may not include interest.
- Repayment is only triggered if the worker voluntarily leaves or is terminated for misconduct. If the employer lays you off or fires you for any other reason, no repayment can be required.
- The worker must have the option to defer receiving the bonus until the retention period ends. If the worker chooses to wait and completes the full period, no repayment obligation applies.
Tuition Reimbursement for Transferable Credentials (subd. (b)(2)(B))
Employers may still require repayment of tuition or credential costs, but again with conditions:
- The agreement must be separate from the employment contract.
- Obtaining the credential cannot be a condition of employment. If the employer requires you to get the certification or degree as part of your job, they cannot make you repay the cost.
- Repayment is limited to the employer's actual cost for a transferable credential, and the amount must be disclosed to the worker in advance.
- The repayment must be prorated without acceleration upon separation.
- Workers must be exempt from repayment if terminated, unless the termination is for misconduct.
The distinction around "transferable" credentials is important. If the training only helps you do this one job at this one company, the employer generally cannot require you to pay for it. If the credential is something you carry with you to future jobs, a limited repayment arrangement may still be allowed.
What Happens If an Employer Violates AB 692?
This is where the law has real teeth. AB 692 creates a private right of action, meaning affected workers can file a lawsuit. AB 692 was chaptered as Stats. 2025, ch. 703. It adds Business and Professions Code section 16608, which carries the prohibition, and Labor Code section 926, which carries the remedy. Both apply to contracts entered into on or after January 1, 2026. Section 926 makes a violator liable for "actual damages sustained by the worker or workers on whose behalf the case is brought, or five thousand dollars ($5,000) per worker, whichever is greater, in addition to injunctive relief, and reasonable attorney's fees and costs." So the law provides for:
- Minimum damages of $5,000 per worker affected by the violation.
- Injunctive relief, meaning a court can order the employer to stop using the illegal agreements.
- Attorney's fees and costs, which means the employer may end up paying for the worker's lawyer too.
The law also allows "worker representatives" to bring claims on behalf of multiple workers in similar situations. This opens the door to class-style enforcement actions, which could create significant financial exposure for employers who continue to use non-compliant agreements.
What This Means for Employees
If you signed a new employment agreement on or after January 1, 2026, take a close look at whether it contains any repayment or clawback provisions. Here are some practical steps:
- Read your agreement carefully. Look for any language about repaying training costs, bonuses, or other expenses if you leave within a certain timeframe.
- Check whether the exceptions apply. If your employer is requiring repayment of a sign-on bonus, verify that the agreement is in a separate document, that you were given five business days to consult an attorney, and that the repayment is prorated.
- Understand what triggers repayment. Under the new law, an employer generally cannot require repayment if they fire you for a reason other than misconduct. If you were laid off or let go without cause, you may not owe anything.
- Keep copies of everything. Save your offer letter, employment agreement, any training agreements, and any communications about bonuses or repayment terms.
What This Means for Employers
Employers should review their existing agreement templates and update them to comply with AB 692. A few key points:
- Any agreements entered into on or after January 1, 2026 that require repayment of training costs, relocation expenses, or similar items may be unenforceable and could expose the company to significant liability.
- Sign-on bonus and tuition reimbursement agreements must meet all of the specific requirements outlined in the law, including separate agreements, right-to-counsel notices, proration, and the voluntary separation trigger.
- Agreements that were enforceable before 2026 are not automatically invalidated, but employers should review any ongoing enforcement of pre-existing agreements for compliance.
How This Fits Into California's Broader Worker Protections
AB 692 is part of a pattern. California has long been one of the most protective states in the country when it comes to non-compete agreements, which the state has banned since 1872, first under former Civil Code section 1673 and, since section 16600 was added in 1941, under Business and Professions Code section 16600. The logic is similar: California wants workers to be free to move between jobs without being locked in by financial penalties.
Combined with the state's strong protections against retaliation, wrongful termination, and wage theft, AB 692 adds another layer of protection for workers who want to leave a bad situation without facing a financial penalty for doing so.
How Wiser Workplace Can Help
Disputes over stay or pay agreements can be stressful and confusing. You may not be sure whether your agreement is enforceable or whether your employer's demands are legal under the new law. In many cases, these kinds of disputes can be resolved through mediation before they escalate into a lawsuit.
Wiser Workplace offers an accessible, confidential dispute resolution process for California employment issues. If you are dealing with a stay or pay dispute, or any other workplace concern, you can join the launch waitlist and explore your options.