Update Applicable to:	Effective Date
All Employers in California	January 1, 2026

What happened?

On October 13, 2025, Governor Gavin Newsom signed Assembly Bill (AB) 692, adding Business & Professions Code §16608 and Labor Code §926, to prohibit most “stay-or-pay” provisions in employment contracts.

The law takes effect January 1, 2026, and applies to all employers in California.

Overview:

These provisions often require employees to repay costs like training or relocation if they leave before a set period.

Summary of AB 692:

Prohibitions (§16608(b)(1)): Employers may not require or include terms that:

• Require repayment of debts (e.g., training, relocation, education costs) if employment ends.
• Authorize debt collection or end forbearance upon termination.
• Impose penalties, fees, or costs if employment ends (including replacement hire fees, retraining fees, quit fees, immigration costs, liquidated damages, lost goodwill, or lost profit).

Who Is Covered: All California employers and any employment or work relationship in the state.

Allowed Exceptions (§16608(b)(2)): Certain agreements remain lawful under strict conditions:

• Government Loan Programs: Federal, state, or local repayment or forgiveness programs.

• Transferable Credential Tuition: Separate from employment contract; not a job condition; capped at actual cost; prorated; no acceleration; repayment only for misconduct.

• Approved Apprenticeship Programs: Programs approved by the Division of Apprenticeship Standards.

• Discretionary/Unearned Payments (e.g., signing bonuses, relocation assistance): Employers may require repayment of these payments only if all the following conditions are met:

• The repayment terms are in a separate agreement, not in the main employment contract.

• The employee has at least 5 business days to review the agreement and is informed of the right to consult an attorney.

• Any repayment obligation is prorated, interest-free, and tied to a retention period of no more than two years.

• The employee can choose to defer receiving the payment until the end of the retention period to avoid any repayment obligation.

• Repayment is required only if the employee resigns voluntarily or is terminated for misconduct.

• Residential Property Agreements: Lease, financing, or purchase of housing.

Enforcement (§926)

• Private right of action for workers or representatives.

• Remedies: Greater amounts of actual damages or $5,000 per worker, plus injunctive relief, and attorney’s fees.

Source References

• California AB 692 – Employment: contracts in restraint of trade
• Governor’s Office – AB 692 Press Release (10-13-2025)

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