What Is a Stay-or-Pay Clause?

A stay-or-pay clause is any contract term that requires you to pay your employer — or forfeit money — if you leave before a set date. Common forms include:

• Training repayment agreement provisions (TRAPs) — you agree to repay the cost of employer-sponsored training if you resign within a certain period
• Sign-on bonus clawbacks — you received a bonus but must repay it if you leave before one or two years
• Exit fees — a flat charge for resigning, regardless of how long you stayed
• Visa and immigration cost recovery — employer seeks reimbursement for sponsorship costs if you leave
• Recruitment cost charges — employer tries to bill you for the cost of finding and hiring you

These clauses were common in healthcare, tech, and professional services. AB 692 substantially restricts or eliminates most of them in California.

What Changed Under AB 692

AB 692 added Business & Professions Code § 16608, which prohibits employers from requiring employees to sign agreements that impose repayment obligations upon separation. The statute also added Labor Code § 926, which creates a private right of action with damages and attorney fees.

"An employer shall not require an employee to enter into an agreement that requires the employee to pay the employer, or a third party designated by the employer, for the costs of the employee's recruitment, employment, or training if the employee separates from employment."

Bus. & Prof. Code § 16608(a) — Cited but not quoted verbatim; verify exact statutory text before filing

The law applies to agreements entered, renewed, or modified on or after January 1, 2026. A prohibited clause is void — meaning even if you signed it, you do not owe the money.

What the Law Does Not Cover (The Narrow Exceptions)

Three narrow categories can still be covered by a repayment agreement, but only if the employer meets strict procedural requirements:

• Government-sponsored loan forgiveness programs — e.g., you received a government grant or loan tied to employment
• Transferable professional credentials — a license or certification you keep and can use after leaving, not just internal training
• State-approved apprenticeship programs — formal registered apprenticeships under California law

For any of these exceptions to be valid, the employer must: (1) present it as a separate written agreement (not buried in an offer letter or handbook), and (2) give you at least five business days to review and consult an attorney before signing. Repayment must also be prorated — they cannot charge the full amount if you completed most of the required period.

If your agreement does not clearly fit one of these exceptions, or did not follow the procedural requirements, it is likely void regardless of what you signed.

What to Do If Your Employer Is Trying to Enforce One

1. Pull the agreement and check when you signed it — the law covers agreements entered, renewed, or modified on or after January 1, 2026
2. Check whether the clause fits a statutory exception — most training reimbursement programs do not qualify
3. Check whether the agreement was presented as a standalone document with a five-day review period
4. Do not make any payments or sign anything new without speaking to an employment attorney
5. Save all communications — emails, letters, and any demand for repayment

What You Can Recover

Under Labor Code § 926, an employee harmed by a prohibited stay-or-pay clause can recover:

• Actual damages (any money you paid or lost)
• Statutory damages of at least $5,000 if actual damages are lower
• Attorney fees and costs

Importantly, the statute does not require the employer to have actually collected — merely including a prohibited clause in an agreement is enough to trigger liability. That means employees who signed but were never asked to repay may still have a claim.

Pre-2026 Agreements: What You Should Know

The law does not automatically void contracts signed before January 1, 2026. However, if your employer renews, extends, or asks you to re-sign an agreement that includes a prohibited clause on or after that date, the new version is covered — and the clause is void. Do not assume an old agreement is enforceable simply because it predates the law.

Also worth noting: many pre-2026 training repayment agreements were already on shaky legal ground in California. Under existing case law interpreting Business & Professions Code § 16600, clauses that effectively functioned as non-compete provisions — by making it financially prohibitive to leave and work for a competitor — were arguably void even before AB 692.

Legal Disclaimer: This article is for general informational purposes only and does not constitute legal advice or create an attorney-client relationship. Employment law is complex and fact-specific; outcomes vary depending on individual circumstances. Consult a licensed California employment attorney for advice specific to your situation. McLellan Law Group, LLP · 20665 4th Street, Ste. 202, Saratoga, CA 95070 · (408) 963-7533