California Stay-or-Pay Law  (AB692)

Effective January 1, 2026

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The California "Stay-or-Pay" law, formally Assembly Bill 692 (AB 692), is a new statute (adding Business and Professions Code § 16608 and Labor Code § 926) signed by Governor Newsom on October 13, 2025, and effective January 1, 2026. It prohibits California employers from including, or requiring workers (including employees and prospective employees) to sign as a condition of employment or work relationship, any contract terms that impose financial obligations upon separation from employment. Commonly known as "stay-or-pay" provisions or Training Repayment Agreement Provisions (TRAPs), these clauses typically require repayment of sign-on bonuses, relocation expenses, training costs, tuition assistance, or other benefits if the worker leaves before a set period, or impose penalties, fees, costs, or debt collection triggers upon termination (voluntary or involuntary).Key prohibitions apply to agreements executed on or after January 1, 2026 (pre-2026 contracts are generally unaffected):

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• Requiring repayment of a "debt" (broadly defined to include employment-related costs, education costs, etc.) to the employer, training provider, or debt collector if employment ends.

• Authorizing resumption or initiation of debt collection upon separation.

• Imposing any penalty, fee, or cost (including "quit fees," hiring replacement costs, immigration-related reimbursements, or other employer losses) solely because the work relationship ends.

 

Such non-compliant terms are void and against public policy (tied to California's restraints-on-trade laws).Limited exceptions allow certain repayment obligations only if strict requirements are met, including:

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• Discretionary upfront payments (e.g., sign-on bonuses or relocation reimbursements not tied to performance): Must be in a separate written agreement; employee given ≥5 days' notice and right to consult an attorney; repayment period ≤2 years; prorated repayment; no interest; option to defer payment until end of period (with no obligation if completed); repayment only if voluntary quit or termination for misconduct (as defined in Labor Code).

• Government loan/forgiveness programs.

• Certain tuition repayment agreements.

• Specific apprenticeship programs.

• Leasing, financing, or land purchase contracts (with conditions).

 

Violations enable affected workers to bring civil actions for actual damages (or statutory minimum of $5,000, whichever greater), injunctive relief, and attorneys' fees/costs. The law aims to enhance employee mobility, reduce barriers to changing jobs, and align with California's strong protections against restraints on lawful employment (similar to non-compete restrictions). Employers should review and update offer letters, employment agreements, bonus plans, and training repayment forms for California workers to ensure compliance. No official state template exists, but guidance appears in legal analyses and the bill text on the California Legislative Information website.

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For more information, contact us:
 

Email: paul@amanteHR.com

Tel.: (714) 309-9677

 

This article is for informational purposes only. It is not intended to be, nor shall it be construed as legal advice or guidance.

Consult with a professional for appropriate advice and guidance.