California has enacted a new law that bans “stay-or-pay” agreements — arrangements that require employees to pay money back if they leave their job before a certain time. These agreements are frequently used in relation to paid-for training and hiring bonuses.

Assembly Bill 692 added Section 16608 to the Business and Professions Code. The law applies to agreements entered into on or after January 1, 2026, even if employment began earlier. It reflects a focus on employee mobility and wage protection.

Under the new law, employers may not use agreements that:

• Require an employee to repay money to the employer, a training provider, or a debt collector if the employee leaves prior to a certain time,
• Allow the employer to start or resume collecting a debt, or end any payment forbearance, when employment ends, or
• Impose any financial penalty connected to an employee resigning or being terminated.

This is a major change for employers and will impact companies that provide paid-for employee training or retention-based hiring bonuses. Employers who pay for employee training, certifications, or licenses should carefully review any agreements with employees related to those costs.

Key Exceptions

There are, however, several useful exceptions. The law does not prohibit:

• Government-sponsored loan forgiveness programs,
• Repayment of tuition for academic credits that can be transferred to another school,
• Contracts related to approved apprenticeship programs, or
• Hiring bonuses that meet strict requirements.

Hiring Bonuses

A hiring or retention bonus that requires repayment if an employee leaves early must meet the following requirements to be enforceable:

• The agreement is in writing,
• The employee is given at least five days to consult with an attorney before signing,
• The amount to be repaid is prorated based on how much of the retention period remains and does not accrue interest,
• Repayment is only required if the employee resigns or is terminated for misconduct, and
• The employee must have the option of deferring receipt of the bonus until the end of the retention period.

Penalties for Violations

Employers that violate this law face a penalty equal to the greater of:

• The employee’s actual damages, or
• $5,000 per violation

Employees can bring lawsuits personally, and company-wide policies cause exposure to class actions or PAGA representative claims.

What Employers Should Do Now

Employers that use training repayment agreements or retention-based hiring bonuses should have those agreements reviewed by their attorneys. Non-compliant policies can expose employers to costly litigation.

Stokes Wagner will continue to monitor updates and will provide additional updates as they become available. If you have any questions, do not hesitate to contact a Stokes Wagner attorney.

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THIS DOCUMENT PROVIDES A GENERAL SUMMARY AND IS FOR INFORMATIONAL/EDUCATIONAL PURPOSES ONLY. IT IS NOT INTENDED TO BE COMPREHENSIVE, NOR DOES IT CONSTITUTE LEGAL ADVICE. PLEASE CONSULT WITH COUNSEL BEFORE TAKING OR REFRAINING FROM TAKING ANY ACTION.