California Employers Should Revisit Repayment And “Stay-or-Pay” Arrangements In Light Of AB 692’s Recent Enactment

California’s Assembly Bill (AB) 692 took effect on January 1, 2026, impacting repayment and “stay-or-pay” agreements. For a summary of the limitations and requirements stemming from this law, please see our earlier blog post. California employers should already be evaluating offer letters, bonus agreements, training repayment provisions, tuition arrangements, and other documents that impose repayment obligations or financial consequences tied to separation from employment.

As enacted, the new California law makes it unlawful to include in an employment contract, or require a worker to sign as a condition of employment or a work relationship, a term that does any of three things upon the end of employment with a specific employer: requires payment of a debt, authorizes collection of a debt or the end of forbearance on a debt, or imposes a penalty, fee, or cost, unless the contract satisfies certain allowances of repayment under the law.

The statute defines “debt” broadly to include money, personal property, or their equivalent allegedly due for employment-related costs, education-related costs, or consumer financial products or services, whether certain or contingent and whether voluntarily incurred.

It likewise defines “penalty, fee, or cost” broadly, expressly identifying items such as replacement-hire fees, retraining fees, quit fees, immigration- or visa-related reimbursement, liquidated damages, lost goodwill, and lost profits.

At the same time, AB 692 is not a blanket prohibition on every repayment-related arrangement. The statute contains several express exceptions, including for agreements under government loan repayment or loan forgiveness programs; certain tuition repayment arrangements for a transferable credential if statutory conditions are met; agreements related to approved apprenticeship programs; certain separate agreements covering discretionary or unearned monetary payments at the outset of employment if the statutory requirements are satisfied; and contracts related to residential property financing or purchase. Whether an existing form fits within one of these exceptions will require a careful, provision-by-provision review.

California’s Law Is Part of a National Trend

California’s AB 692 is part of a multi-jurisdictional broader trend. New York enacted the “Trapped at Work Act” in late 2025 to prohibit certain “employment promissory notes” and similar provisions, and Washington recently amended its noncompetition statute in a way that also bears on repayment arrangements by carving out only a narrow category of written agreements to repay out-of-pocket educational expenses. Although these laws are not identical, together they underscore growing legislative attention to contract provisions that may discourage employees from leaving employment.

Takeaway

Employers should review their employment agreements, offer letters, sign-on bonus documentation, retention arrangements, training repayment agreements, tuition and credential programs, relocation repayment terms, and immigration-cost provisions.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.