California Moves to Ban “Stay-or-Pay” Provisions: What Employers Need to Know
Image generated by Google GeminiCalifornia is changing the rules on how employers can structure agreements with their workers—and this one’s a big deal.
In 2023, Governor Newsom signed AB 692 into law, and starting January 1, 2026, most ‘stay-or-pay’ provisions will be banned in California. These are contract terms that require employees to repay money, such as training costs, sign-on bonuses, or even visa fees, if they leave the job before a certain date.
At first glance, that may sound like a small technical shift. But in practice, this law is about protecting employee mobility and preventing workers from being locked into jobs with heavy financial penalties. For employers, it’s a signal that the time to review agreements is now, well before the law takes effect.
What AB 692 Does
Here’s the straightforward version: starting January 1, 2026, California will ban most contracts that force employees to pay back money if they leave their job early. That means repayment obligations for things like training programs, hiring costs, or immigration fees won’t be allowed anymore.
The reasoning is simple: California wants to ensure workers have the freedom to move jobs without being trapped by financial strings. Any new agreement that includes these repayment terms after the law takes effect will be unenforceable and considered void.
Who Is Covered
AB 692 applies broadly, which means it’s not just traditional full-time employees who are protected. The law covers:
Employees and workers of all types, including freelancers, independent contractors, and those in training programs.
Employers and training providers, ranging from parent companies to subsidiaries, contractors, and third-party partners that may try to enforce repayment.
If you’re an employer in California, or you hire people to work here, this law applies to you.
Are There Any Exceptions?
Not everything is off the table. Employers still have ways to offer bonuses and reimbursements, but the rules are now much tighter. Here are some carve-outs:
Loan forgiveness programs under federal, state, or local law are still valid.
Tuition reimbursement for a transferable credential can work, but only if the agreement is separate from employment, costs are fair, repayment is prorated, and employees don’t owe anything if they’re let go (except for misconduct).
Retention or sign-on bonuses can still be offered if repayment terms are fair, interest-free, clearly laid out in a separate agreement, and employees are given time to consult an attorney before signing. Retention periods are capped at two years.
Approved apprenticeship programs remain exempt.
So while the law cuts off most repayment obligations, employers can still structure incentives, as long as the terms meet these specific conditions.
What This Means for Employers
Here’s the bottom line: many of the repayment clauses businesses have used for years will soon be unenforceable. That means:
Existing agreements should be reviewed for compliance.
New agreements must be drafted with AB 692 in mind.
Policies like trade secret protections and non-solicitation clauses should be strengthened to safeguard business interests in other ways.
Waiting until late 2025 to make these changes is risky. Employees could challenge agreements, and businesses that fail to comply could face lawsuits, penalties, and reputational damage.
Don’t Wait Until 2026
Change is coming fast, but employers don’t have to navigate it alone. With the right preparation, you can remain compliant while still finding ways to attract and retain top talent.
At Wagner Legal, we help California businesses stay ahead of employment law changes. Our team can review your current contracts, identify risky provisions, and guide you in drafting agreements that comply with the new rules under AB 692.
Don’t wait until January 2026; reach out today and make sure your business is ready.
