California Banned Stay-or-Pay Contracts — What Workers Need to Know About AB 692

If you ever signed an employment agreement that required you to repay training costs, a sign-on bonus, or relocation expenses when you left a job, you were locked into what California now considers an unlawful restraint on your career. Assembly Bill 692, which took effect on January 1, 2026, prohibits most of these “stay-or-pay” provisions in employment contracts across California.

The Nourmand Law Firm, APC represents California workers who have been subjected to illegal contract terms, including stay-or-pay clauses that violate AB 692 and other protections under state employment law. If your employer is enforcing a repayment clause in a contract signed on or after January 1, 2026, an employment attorney can evaluate whether that provision is void under the new law. Call 800-700-WAGE to schedule a free consultation.

What Are Stay-or-Pay Provisions, and Why Did California Ban Them?

A stay-or-pay provision is any contract term that forces a worker to repay money to an employer — or to a training provider or debt collector — if the worker leaves the job before a specified date. These clauses go by many names: training repayment agreement provisions (TRAPs), clawback clauses, retention payback terms, and exit fees. Regardless of the label, the effect is the same. The worker stays in a job — sometimes one that underpays or mistreats them — because they cannot afford the financial penalty for leaving.

Before AB 692, California employers in trucking, healthcare, logistics, and other industries routinely required workers to sign agreements that imposed thousands of dollars in repayment obligations tied to employer-funded CDL training, nursing certifications, onboarding programs, or relocation packages. Workers in cities like Bakersfield, Stockton, Fontana, and throughout the Inland Empire and Central Valley were especially affected, because the industries that dominate those regions rely heavily on these kinds of agreements.

The California Legislature recognized that stay-or-pay provisions function as de facto restraints on trade— trapping workers in jobs much the same way non-compete agreements do. AB 692 builds on the state’s existing prohibition against non-competes under Business and Professions Code § 16600 by closing this loophole.

Who Does AB 692 Protect?

AB 692 applies to any “worker,” which the statute defines broadly. The law covers any natural person permitted to work for or on behalf of an employer, including current employees, prospective employees, and participants in job training or skills training programs. The definition of “employer” is equally expansive — it includes parent companies, subsidiaries, affiliates, contractors, and third-party agents.

This means the stay-or-pay California law reaches far beyond traditional full-time employment relationships. If a staffing agency, a trucking company’s training arm, or a healthcare system’s subsidiary imposed a repayment obligation in a contract entered on or after January 1, 2026, that clause is almost certainly unenforceable.

What Specific Contract Terms Does AB 692 Prohibit?

Under Business and Professions Code § 16608 and Labor Code § 926, employers may not include in any employment contract — or require as a condition of employment — any term that:

• Requires a worker to pay an employer, training provider, or debt collector a “debt” if the employment relationship ends
• Authorizes the employer or a collector to initiate or resume debt collection upon separation
• Imposes any penalty, fee, or cost on the worker for leaving, including replacement-hire fees, quit fees, reimbursement for immigration or visa-related costs, liquidated damages, or lost profits

The statute defines “debt” broadly to include money, personal property, employment-related costs, and education-related costs. A contract or contract term that violates AB 692 is void as contrary to public policy.

Are There Any Exceptions Under the Stay-or-Pay California Law?

AB 692 does contain limited exceptions, but they are narrow and carry strict requirements. Two exceptions affect the most workers:

Tuition repayment for a transferable credential. An employer may still require repayment of tuition — but only if the credential is a degree or certification from an accredited third-party institution that is not required for the worker’s current job and that transfers to employment beyond the current employer. The repayment terms must appear in a standalone agreement separate from the employment contract, must specify the exact amount owed, and can only be triggered if the worker voluntarily resigns or is terminated for misconduct. No interest may accrue on the repayment amount, and the obligation must be prorated over a retention period that cannot exceed two years.

Sign-on bonuses. An employer may require repayment of a discretionary monetary bonus provided at the start of employment, as long as the repayment terms are in a separate agreement, the worker receives at least five business days to consult with an attorney before signing, the repayment is prorated and interest-free, and the retention period does not exceed two years.

The law also exempts government loan repayment and forgiveness programs, approved apprenticeship programs under the California Division of Apprenticeship Standards, and certain residential real property transactions.

If your employer claims an exception applies to your situation, it is worth having an attorney review the specific terms. Many employers will attempt to shoehorn prohibited provisions into one of these narrow exceptions — and if they fail to satisfy every statutory requirement, the clause remains void.

What Happens if an Employer Violates AB 692?

Workers subjected to illegal stay-or-pay provisions have a private right of action under the new law. A worker — or a representative acting on behalf of similarly situated workers — can bring a civil action seeking:

• Actual damages or $5,000 per worker, whichever amount is greater
• Injunctive relief to stop enforcement of the illegal provision
• Reasonable attorneys’ fees and costs

These remedies are cumulative. They do not replace other protections available under California law, including wage and hour claims for unlawful deductions, claims under Business and Professions Code § 16600, and actions under the Unfair Competition Law. A training repayment agreement California workers were forced to sign could also give rise to class-wide claims if the same unlawful provision appeared in contracts across a workforce.

What Should California Workers Do Right Now?

If you signed an employment agreement on or after January 1, 2026, review it for any clause that requires you to repay training costs, a sign-on bonus, relocation expenses, or any other amount if you leave your job. If such a clause exists and does not meet every requirement of one of AB 692’s narrow exceptions, that clause is void and cannot be enforced against you.

If your employer has already attempted to collect on a prohibited repayment obligation — through payroll deductions, demand letters, or collection activity — you may have grounds for a claim involving unlawful deductions from your paycheck in addition to a claim under AB 692 itself.

Keep copies of your employment contract, any separate bonus or training agreements, pay stubs, and any communications from your employer about repayment. Documentation strengthens every employment claim, and it is particularly important when contract language is at the center of the dispute.

Workers across California — from warehouse employees in San Bernardino to truck drivers in Fresno to healthcare workers in Sacramento — should understand that the stay-or-pay California law fundamentally shifted the balance of power. Employers can no longer use financial threats to keep you in a job you want to leave.

Talk to an Employment Attorney About Your Stay-or-Pay Contract

The Nourmand Law Firm, APC has fought for California employees for more than 20 years, recovering millions of dollars in cases involving wrongful termination, wage theft, discrimination, and unlawful employment agreements. If your employer required you to sign a contract with a stay-or-pay clause — or is currently trying to enforce one — call 800-700-WAGE or contact us online to schedule a free, confidential consultation. Se Habla Español.