California is joining a national trend of protecting worker mobility by limiting “training repayment agreement provisions” (TRAPs). California’s AB 692 will ban most stay-or-pay clauses in employment agreements.

What is prohibited?

Under the new law, employment agreements entered into on or after January 1, 2026, may not contain terms that impose financial obligations on the employee if their employment ends. Stated differently, California now prohibits many agreements that require that employees stay in order to be forgiven advanced amounts (like bonus or tuition). For example, if your offer letters or handbooks include that an employee must repay amounts advanced toward training, relocation, sign-on bonus or education if the employee leaves your company before completing a set period of time, that clause no longer will be enforceable. Violations expose employers to minimum damages of $5,000 per worker, injunctive relief, and payment of the worker’s attorney fees and costs.

Will this impact existing agreements?

No. Only agreements created after January 1, 2026. Agreements made before January 1, 2026, are unaffected.

Are there any exceptions?

Yes! But the exceptions are narrow and come with strict conditions.

A repayment provision for a “transferable credential” (a degree from a third-party institution that’s useful for other employment) may be enforceable if obtaining the credential isn’t a condition of employment, and the provision:

• is contained in a separate contract;
• specifies a repayment amount that doesn’t exceed the cost of the credential to the employer;
• permits prorated repayment; and
• does not require repayment if the worker is fired unless it’s for misconduct.

Requiring repayment of a discretionary or unearned payment, such as a signing bonus, is another exception, so long as:

• the payment is made at the outset of employment;
• the repayment requirement is memorialized in a separate contract;
• the employee is advised of their right to consult with an attorney and given five business days to do so;
• the repayment is prorated and without interest;
• the retention period is no more than two years;
• the worker is given the option to defer receipt of the payment to the end of the retention period;
• repayment is not required if the employee is fired, unless it’s for misconduct.

Other exceptions exist for government loan assistance programs and certain approved apprenticeship programs.

How should employers prepare for this new law?

• As a first step, before the end of the year you should review your template offer letters and incentive plans, and review your employee handbook to determine whether you currently have one of these now-prohibited programs.

• Do you have a practice of any tethering any benefits to continued employment? If so, revisit your practice given the relatively steep consequences of getting it wrong.

• Do you want to continue the practice for education assistance? The context needs to fit clearly within the exception, and you will need to implement a standalone agreement with clear parameters.

• Do you want to continue to tether discretionary bonuses to continued employment? You can, but again you will need to implement standalone agreements and carefully outline and follow the exception parameters established by the new law.

By carefully drafting separate bonus or reimbursement agreements within the parameters of AB 692’s exceptions, employers can still incentivize and support employees without running afoul of the law. But caution is required! Let us know if we can help you update the language and the process.

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