New Law Limits Employee Repayment Agreements

Starting January 1, 2026, California's Assembly Bill (AB) 692 prohibits employers from requiring that employees pay money back simply because they quit or are fired. The law strengthens the state's long-standing rule that protects employees' right to change jobs freely.

What's Changing:

Some employers have used "stay-or-pay" agreements, i.e., contracts that give workers a bonus, training, or tuition help on the condition that they repay those costs if they leave before a set date. For example, an employer pays $2,000 for graduate school and requires the employee to repay it if they resign within a year.

With limited exceptions, any such repayment term will be void, and employers who use them could owe actual damages or $5,000 per affected employee (whichever is more), and injunctive relief and attorneys' fees.

What's Now Banned:

Employers cannot require or enforce agreements that:

• Require employees to repay money, training costs, or debt after leaving a job;
• Speed up loan repayment or end a grace period when employment ends; or
• Impose any fee, cost, or penalty for resigning or being fired.

These rules cover anyone working in California, no matter where the contract was signed or which state's law it cites.

Limited Exceptions:

Employers can't charge workers for leaving a job unless the agreement falls under one of a few narrow exceptions -- most commonly, these two:

1. Educational or Training Programs

The program must lead to a transferable credential (like a license or certificate) and:

• The agreement is separate from the employment contract;
• Costs are fairly prorated (for example, the amount owed decreases as time passes); and
• Repayment applies only if the employee is fired for misconduct.

1. Retention Bonuses

Employers can still offer bonuses tied to staying with the company if:

• The employer and employee sign a stand-alone agreement;

• The employee has at least five business days to review it and seek legal advice;

• Repayment is interest-free, prorated (no longer than two years), and deferred until the end of the retention period; and

• Repayment applies only if the employee resigns voluntarily or is fired for misconduct.

Take-Aways:

Employers don't need to change existing contracts, but they should use the rest of 2025 to review and remove any unenforceable "stay-or-pay" or repayment terms to ensure that all agreements made or updated on or after January 1, 2026, comply with AB 692.

For further information, please contact Tim Bowles, Cindy Bamforth or Helena Kobrin.

See also:

• Sweat The Details - Friendly Workplace Practices Audits Before PAGA Comes Calling (January 24, 2025)
• All Aboard Wage Obligations to New Hires (April 11, 2025)
• Employee Training Programs (March 29, 2011)

Cindy Bamforth
October 31, 2025