On September 11, 2025, the California legislature approved a bill (AB 692) prohibiting many forms of “stay-or-pay” agreements as part of the state’s continued efforts to protect employee mobility. The new law will bar common arrangements that require an employee to reimburse employers for costs like relocation expenses and work-related training programs if the employment ends before an agreed upon time, with exceptions for tuition and upfront discretionary bonus repayments as long as employers follow certain restrictions prescribed by the new law. Unless Governor Gavin Newsom vetoes this bill before October 13, the bill will become law and will apply to agreements entered on or after January 1, 2026.
What Does AB 692 Prohibit?
All employers are prohibited from requiring a worker to sign, as a condition of employment, a contractual provision that does any of the following:
- Requires debt (e.g., employment-related costs, education-related costs, or consumer financial product or services) repayment if employment ends;
- Allows debt collection or end forbearance on a debt if employment ends; or
- Imposes any penalty, fee, or cost if employment ends.
“Penalty, fee, or cost” includes, but is not limited to, a replacement hire fee, retraining fee, replacement fee, quit fee, reimbursement for immigration or visa-related costs, liquidated damages, lost goodwill, and lost profit.
Exceptions
There are two main exceptions to the general prohibition.
Tuition Repayment Exception
Contracts related to the repayment of tuition for a transferable credential are permitted if the agreement meets the following requirements:
- Is offered separately from any employment contract;
- Does not require the credential as a condition of employment;
- Specifies the repayment amount before worker agrees to the contract, and the repayment amount must not exceed employer’s cost;
- Allows prorated repayment over the required employment period, with no accelerated repayment on early exit; and
- Does not require repayment if the worker is terminated, unless for misconduct.
“Transferable credential” means a degree from an accredited, state-authorized institution that isn’t required for the worker’s current job but is useful for future employment.
Upfront Discretionary Bonus Exception
Upfront discretionary payments not tied to job performance (e.g., sign-on bonus, relocation assistance) are permitted if the agreement meets the following requirements:
- Repayment terms must be in a separate agreement from the main employment contract;
- The employee must be informed of the right to consult an attorney and given 5 business days to do so;
- Repayment for early exit must be interest-free, prorated, and tied to a retention period not exceeding two years;
- The worker may defer payment until completing the full retention period to avoid repayment; and
- Early separation must be voluntary, or due to employee misconduct.
Penalties for Violations
The Bill establishes a private right of action for monetary damages equal to either the worker’s actual losses or $5,000—whichever amount is greater, injunctive relief, and reasonable attorneys’ fees and legal costs for the employee.
Practical Takeaways for Employers
Do not modify or revoke existing agreements, even if they do not comply with new requirements under AB 692 because this law is not retroactive. Even if it is signed by the Governor, the bill only applies to agreements entered on or after January 1, 2026. In the meantime, employers that use “stay or pay” agreements should plan to revise their agreements to comply with the law for contracts entered after 1/1/26.
*Special thanks to CDF Law Clerk Daisy Chen for her research and contributions to this article.
