California’s New Ban on Stay or Pay Training Contracts and How It Protects Workers

California has adopted a significant change to employment law that will reshape how employers handle training and onboarding costs. Beginning January 1, 2026, a new statute eliminates most “stay or pay” training repayment contracts that have kept workers locked in jobs by threatening heavy debt if they leave. These agreements, often described as Training Repayment Agreement Provisions, function much like noncompete clauses, making it financially risky for an employee to take a different job. The new law gives California workers greater freedom and stronger control over their careers.

What California’s Stay or Pay Law Actually Covers

The statute targets contract language that requires a worker to repay money, equipment costs, or training expenses simply because the worker resigns, changes employers, or is terminated. The law focuses on why the repayment is demanded. If the only reason a worker owes money is that they stopped working for a particular employer, the clause will likely be unlawful after the new rules take effect.

The statute defines “debt” broadly. It includes money, property, or anything of value that the employer or a third party claims the worker must repay. This broad definition captures training costs, onboarding charges, quit fees, and any other repayment requirement tied to continued employment. Many agreements used complicated language to hide these obligations, but the new law treats these practices the same, regardless of the label used.

Examples of Job-Trap Training Repayment Clauses

Workers have seen many versions of these clauses in hiring packets, handbooks, and multi-page agreements. Some of the most common examples include onboarding programs that look free on the surface but turn into significant debt if the worker leaves early. In health care, new nurses have been told that a mandatory orientation counts as “training” and carries a future repayment obligation. In the transportation industry, some programs promised free instruction to obtain a license, but later demanded repayment and collection fees if the driver changed jobs. Tech and service workers have faced similar provisions involving equipment costs or internal coursework.

All of these examples share a standard feature. The repayment is triggered by leaving the job, not by receiving a genuine educational benefit. That structure is what the new California law is designed to eliminate.

When Repayment Terms May Still Be Allowed

The law does not eliminate every type of repayment clause. Some exceptions remain valid as long as the employer follows strict requirements. These exceptions include specific tuition support or discretionary bonuses that involve clear, separate agreements with limited repayment periods. The law requires transparency, reasonable limits, and real choice. A worker must have the opportunity to review the agreement without pressure, and the repayment obligation cannot function as a penalty.

These exceptions highlight the difference between legitimate incentives and unlawful job-trap contracts. Actual educational benefits remain possible. However, employers cannot disguise ordinary business costs as “training” and use repayment language to keep workers from seeking better opportunities.

Why The Ban on TRAPs Helps California Employees

The new law strengthens California’s long-standing commitment to worker mobility. For many years, California has prohibited noncompete agreements for nearly all employees. Training repayment contracts became a way for some employers to sidestep that rule by replacing noncompete restrictions with financial penalties. The practical effect was the same. Workers felt unable to leave because doing so could result in thousands of dollars in debt.

By eliminating most stay-or-pay clauses, California prevents employers from using debt to force retention. Workers who face unsafe conditions, unfair treatment, low pay, or incompatible schedules can now change jobs without fear of severe financial consequences. These protections apply across industries, including health care, transportation, hospitality, retail, and technology.

Growing National Attention to Training Repayment Practices

California’s move fits within a larger national discussion about employment-related debt. Researchers and labor advocates have documented widespread use of training repayment clauses in lower-wage jobs and in industries with high turnover. The national debate over noncompete agreements also brought attention to these repayment practices because they often produced similar results. Several states have started reviewing these contracts, and lawmakers across the country have proposed limits on job-trap debt.

For California workers, this means the issue is now widely understood. As more states consider similar protections, employers will be expected to treat training debt with greater caution and clarity.

What To Do If You Already Signed a Stay or Pay Agreement

Many workers sign onboarding packets quickly, often without enough time to understand every clause. If you later discover that your contract includes a training repayment or exit fee requirement, you should not assume the clause is enforceable. Keeping a copy of the agreement, saving communications about the training, and documenting the timing of each step can help determine whether the clause violates California law.

Timing also matters because the law takes effect January 1, 2026. Agreements signed before that date may raise different issues, but they may still violate other California employee protections. A careful review can show whether the employer’s demands amount to an unlawful penalty or an unfair restraint on your ability to change jobs.

Talk With a California Employment Lawyer About Training Debt and Your Rights

Workers facing stay-or-pay language often feel stuck between financial pressure and the need to move on from a difficult job. You can contact The Nourmand Law Firm, APC at 800-700-WAGE (9243) to review any training repayment terms in your paperwork, understand how California’s new rules apply to your position, and discuss strategies for challenging job-trap debt. Speaking with an employment lawyer can help you protect your rights, gather necessary documents, and decide how to move forward without risking your financial stability.