California Bans Most Employment Repayment Clauses Under AB 692 “Stay-or-Pay”
California has taken another major step to protect workers from unfair employment practices. Beginning January 1, 2026, a new law — AB 692 — will make most “stay‑or‑pay” or repayment clauses illegal in employment agreements.
These clauses often require workers to pay money if they quit or are terminated, trapping people in jobs they no longer want or can safely remain in. AB 692 changes that.
Below is a clear breakdown of what this new law means for California workers, job seekers, and independent contractors.
What Are “Stay‑or‑Pay” Clauses?
“Stay‑or‑pay” clauses are contract terms that force workers to pay a fee or repay a cost because they leave a job. These can include:
Repaying training costs
Paying back sign‑on bonuses
Reimbursing visa or immigration fees
Paying “replacement costs” for a new hire
Penalties tied to quitting
Repayment of equipment or onboarding expenses
These clauses have been used to pressure workers into staying in unsafe, abusive, or unstable workplaces.
What AB 692 Does
Starting in 2026, employers in California cannot require workers to pay money simply because they resign or are terminated.
The law applies to:
Employees
Job applicants
Independent contractors
Anyone in a work‑related training program
If a repayment clause is triggered by leaving the job, it is void and illegal unless it falls under one of a few narrow exceptions.
What Becomes Illegal Under AB 692
Employers can no longer enforce:
Training repayment agreements
Sign‑on bonus clawbacks (unless strict rules are followed)
Fees for quitting early
Penalties for “lost profit,” “lost goodwill,” or “lost investment”
Repayment of visa or immigration costs
Any debt that becomes due because the worker leaves
These terms are now treated similarly to non‑compete agreements — unlawful restraints on trade.
The 5 Narrow Exceptions
AB 692 allows repayment clauses only in very specific situations:
1. Government Loan Programs
Federal, state, or local loan repayment/forgiveness programs are exempt.
2. Tuition for a Transferable Credential
Repayment is allowed only if:
The credential is not required for the job
The agreement is separate from the employment contract
Costs are clearly disclosed
Repayment is prorated
No accelerated repayment if the worker leaves
Repayment only applies if the worker is fired for misconduct
The credential is from an accredited institution and useful beyond the employer
3. State‑Approved Apprenticeships
Only programs approved by the Division of Apprenticeship Standards qualify.
4. Upfront Discretionary Payments (e.g., sign‑on bonuses)
Allowed only if:
The agreement is separate
Workers get 5 business days + the right to consult an attorney
Workers can choose to defer the payment
Repayment is prorated, interest‑free, and limited to 2 years
Repayment only applies if the worker quits voluntarily or is fired for misconduct
5. Residential Property Transactions
Employer‑assisted housing or mortgage programs are exempt.
What This Means for Workers
AB 692 gives workers more freedom and protection by:
Preventing employers from trapping workers in harmful jobs
Eliminating surprise fees when leaving a position
Ensuring training and bonus agreements are fair and transparent
Protecting immigrant workers from coercive visa‑related repayment demands
If an employer violates the law, workers may be entitled to:
At least $5,000 per affected worker
Attorneys’ fees
Court orders stopping the illegal practice.
Why This Matters
For years, “stay‑or‑pay” clauses have been used to intimidate workers — especially low‑wage, immigrant, and early‑career employees — into staying silent or staying put. AB 692 recognizes that no one should have to pay a penalty just to leave a job.
California is sending a clear message: Your freedom to change jobs is a right, not a debt.
If You Think You Signed an Illegal Repayment Agreement
You’re not alone — and you may have options.
Mauro Law Firm helps workers understand their rights and fight back against unlawful employment practices. If you believe your employer is trying to enforce a repayment clause or penalty tied to quitting, reach out for a confidential review.
Disclaimer: This content is intended for educational and informational purposes only. Real cases have been modified to protect confidentiality. This does not constitute legal advice for any specific situation.
Sources: Bill Text - AB-692 Employment: contracts in restraint of trade.