No Strings Attached: AB 692 Bans “Stay or Pay” Employment Contracts
Posted November 17, 2025

Starting January 1, 2026, California employers will face new restrictions on employment-related contracts under AB 692. This law prohibits “stay or pay” provisions, which are contract terms that penalize workers with repayment obligations or fees when they separate from employment.

What’s Changing?

AB 692 make it unlawful for employers to include repayment obligations in employment contracts or related agreements entered into on or after January 1, 2026. This includes:

• Repayment demands for training costs
• Replacement hire fees
• “Quit” fees
• Lost profits
• Immigration-related expenses

The law applies broadly to “workers,” including employees, prospective employees, freelance workers, and participants in skills training programs.

Historically, employers have offered tuition or training reimbursement with strings attached; the employee must remain employed for a set period or repay the cost on a prorated basis. AB 692 now prohibits these arrangements unless they fall under specific exceptions.

Exceptions to the Rule:

Employers may still use certain repayment structures, but only if they meet strict criteria. Exceptions include:

• Government-sponsored loan forgiveness programs
• Tuition repayment for transferable credentials if:
  • The contract is separate from the employment agreement
  • The credential is not a condition of employment
  • The repayment amount is specified upfront and capped at the credential cost
  • Repayment is prorated and not accelerated
  • No repayment is required if the worker is terminated (unless for misconduct)
• Approved apprenticeship programs
• Residential property transaction contracts
• Signing bonuses if:
  • The repayment terms are in a separate agreement
  • The employee is given at least five business days to consult an attorney
  • Repayment is prorated and interest-free
  • The employee can defer the bonus until the retention period ends
  • Early separation is voluntary or due to misconduct

Enforcement and Penalties:

Any contract violating AB 692 will be void as contrary to public policy. Workers may bring individual or representative civil actions. Employers found liable may owe:

• Actual damages or $5,000 per affected worker (whichever is greater)
• Injunctive relief
• Reasonable attorney’s fees and costs

Next Steps:

Employers should begin reviewing recruiting materials, sign-on bonus agreements, training reimbursement policies, and employment contracts to ensure compliance with AB 692. Signing bonuses tied to retention must be carefully structured and offered under separate agreements with proper notice and timing.

Final Takeaway:

AB 692 is a major shift in how employers can structure retention incentives and training reimbursements. With the January 1, 2026 deadline approaching, now is the time to audit your employment agreements and bonus structures to avoid costly violations.

Read the full bill text here.

For questions regarding the above or any other employment law issues, contact the attorneys at LightGabler LLP.

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