Your Employer Can’t Make You Sign a Stay-or-Pay Clause Anymore: California’s New Law, Explained
Published August 2026 | Last updated August 14, 2026 | California Employment Law
As of January 1, 2026, stay-or-pay clauses are illegal in California. Under Assembly Bill 692 (Stats. 2025, ch. 703), which added section 16608 to the Business and Professions Code and section 926 to the Labor Code , any provision in an employment contract entered into on or after January 1, 2026 that requires you to repay your employer when you leave (training costs, quit fees, replacement or retraining fees, visa and immigration cost reimbursement, liquidated damages, or similar exit penalties) is void. If a violation is proven, the worker recovers actual damages or $5,000, whichever is greater, plus injunctive relief and reasonable attorney’s fees and costs. If you have been told you owe your employer money for leaving, or you are being asked to sign a contract with a repayment clause, here is what the law now says.
What Is a Stay-or-Pay Clause?
A stay-or-pay clause is any contract term that requires a worker to pay an employer, a training provider, or a debt collector money if the employment or work relationship ends. The most common version is the training repayment agreement provision, commonly called a TRAP: sign here, and if you leave within two years, you owe us $10,000 for your training. Other versions include quit fees, replacement hire fees, retraining fees, visa and immigration cost reimbursement, and liquidated damages triggered by your departure. These clauses have one purpose, making it expensive for you to leave, and California now treats them the way it has long treated non-competes: as an unlawful restraint on your freedom to change jobs. The statute says so in terms: a contract that is unlawful under it “is a contract restraining a person from engaging in a lawful profession, trade, or business, and is void under Section 16600.” (Bus. & Prof. Code, § 16608, subd. (c).)
What Does AB 692 Make Illegal?
Assembly Bill 692 (Stats. 2025, ch. 703) took effect January 1, 2026 and added section 16608 to the Business and Professions Code. It provides that “for contracts entered into on or after January 1, 2026, it shall be unlawful to include in any employment contract, or to require a worker to execute as a condition of employment or a work relationship a contract that includes,” a contract term that does any of the following:
- Requires you to pay the employer, a training provider, or a debt collector a debt if the work relationship ends;
- Authorizes the employer, training provider, or debt collector to resume or initiate collection of, or end forbearance on, a debt if your employment or work relationship terminates; or
- Imposes any penalty, fee, or cost on you if your employment or work relationship terminates. The statute defines that phrase to include replacement hire fees, retraining fees, replacement fees, quit fees, immigration or visa cost reimbursement, liquidated damages, lost goodwill, and lost profit, and the list is expressly not exclusive.
The statute defines “debt” broadly, as “money, personal property, or their equivalent that is due or owing or alleged to be due or owing from a natural person to another person, including, but not limited to, for employment-related costs, education-related costs, or a consumer financial product or service, regardless of whether the debt is certain, contingent, or incurred voluntarily.” (Bus. & Prof. Code, § 16608, subd. (a)(2).) Two words there matter to you. “Alleged” means a demand can fall within the statute even if the employer never proves the amount. “Contingent” means a clause that bites only if you leave early is still covered. If your employer labeled the obligation something creative, the label does not control. The substance does.
What Can You Recover If Your Contract Has One?
Two provisions make the clause unenforceable. Business and Professions Code section 16608, subdivision (c) makes an unlawful term “void under Section 16600 only if the contract was entered into on or after January 1, 2026.” Labor Code section 926, subdivision (a) adds that a contract or contract term violating section 16608 “is void as contrary to public policy only if entered into on or after January 1, 2026.” You do not owe the money, and a court will not enforce the clause against you.
Beyond that, you can sue. Section 926, subdivision (b) lets a worker “or a worker representative” bring a civil action “on behalf of that worker, other persons similarly situated, or both.” Subdivision (c) sets the recovery: “actual damages sustained by the worker or workers on whose behalf the case is brought, or five thousand dollars ($5,000) per worker, whichever is greater, in addition to injunctive relief, and reasonable attorney’s fees and costs.” Note the statute reaches “any person found liable,” not only your employer, so a training provider or a debt collector that participated can be on the hook too. If the same clause was used across your team, every coworker who signed it may have the same claim.
Does the Ban Apply to Your Contract? The Timing Rules
The ban applies only to contracts entered into on or after January 1, 2026. Both operative provisions say so using the word “only,” and the Legislature did not make the statute retroactive. An agreement you signed in 2024 or 2025 is not prohibited by AB 692 itself.
Two things still matter if your contract is older. First, if your employer re-executes, renews, or materially amends it on or after January 1, 2026 (a promotion offer letter, an updated retention agreement, an annual re-signing), that new paperwork may be treated as a contract “entered into” after the effective date and therefore within the ban. The statute does not say this expressly and no California court has decided it, but it is the caution most California employment practitioners are giving employers, and it is the right question to ask about your own file.
Second, whether an older repayment clause was ever enforceable is a separate question under prior law, and the answer is fact-dependent. California courts have enforced some of these agreements. In USS-POSCO Industries v. Case (2016) 244 Cal.App.4th 197, the Court of Appeal upheld a $30,000 prorated training-reimbursement agreement against challenges under Labor Code section 2802 and Business and Professions Code section 16600, because the training program was voluntary, the employee had other routes to the same job, and the skills he gained were portable. (See also City of Oakland v. Hassey (2008) 163 Cal.App.4th 1477.) So do not assume you owe the money because you signed before 2026, and do not assume the clause is void either. How the program was offered to you will drive the outcome.
The Five Exceptions, and What Each One Actually Requires
Section 16608, subdivision (b)(2) carves out five exceptions, and only five: (1) contracts entered into under a federal, state, or local loan repayment assistance or loan forgiveness program; (2) tuition repayment contracts for a “transferable credential”; (3) contracts for enrollment in an apprenticeship program approved by the Division of Apprenticeship Standards; (4) contracts for a discretionary or unearned monetary payment at the outset of employment, such as a signing bonus, that is not tied to specific job performance; and (5) contracts for the lease, financing, or purchase of residential property.
Read the conditions carefully, because they are not the same for every exception, and much of the published commentary blurs them. The two detailed condition sets compare like this:
| Condition | Tuition repayment for a transferable credential (§ 16608, subd. (b)(2)(B)) |
Signing bonus / discretionary payment at outset (§ 16608, subd. (b)(2)(D)) |
|---|---|---|
| Separate agreement | Must be offered separately from any contract for employment | Repayment terms must sit in a separate agreement from the primary employment contract |
| Attorney notice and waiting period | Not required | Required: notice of the right to consult an attorney, plus at least five business days before signing |
| Amount limits | Repayment amount stated before you agree; cannot exceed what the credential actually cost your employer | No interest may accrue on the repayment obligation |
| Proration and time cap | Prorated across the required employment period, no accelerated payment schedule on separation; no two-year ceiling | Prorated against a retention period that cannot exceed two years from the date you received the payment |
| Deferral option | Not required | Required: you must be offered the option to defer receipt of the payment until the end of a fully served retention period, with no repayment obligation at all |
| Repayment triggers | Employer cannot require repayment if it terminates you, unless the termination was for misconduct; the credential cannot be a condition of employment | Only your own election to leave, or the employer ending your employment for misconduct |
Notice what is not in the tuition column: there is no five-day waiting period and no two-year ceiling in that exception. And if any required condition is missing from either, the exception fails and the clause is void.
What to Do If Your Contract Has a Stay-or-Pay Clause
- Do not pay before getting advice. If the clause is void, you owe nothing, and payments made under a void clause may be recoverable.
- Check your dates. When did you sign, and has the agreement been renewed, re-executed, or amended since January 1, 2026?
- Keep the paperwork. Your contract, any training or tuition agreements, demand letters, collection notices, and pay stubs showing deductions.
- Watch for it in new offers. Requiring a repayment provision as a condition of employment is itself prohibited, whether or not you sign.
- Talk to an employment attorney. The statute awards attorney’s fees if the employer is liable, which makes these claims practical even when the amount demanded is small.
- Do not sign a repayment agreement on the spot. If it is a signing-bonus repayment agreement, you are entitled to at least five business days to consult a lawyer first, and an employer that does not give you that time loses the exception.
Frequently Asked Questions
My employer says I owe them for training costs because I quit. Do I have to pay?
If the agreement was entered into on or after January 1, 2026 and does not fit a narrow exception, the clause is void and you do not owe the money. If you signed before 2026, the new ban does not apply to that agreement. Whether the clause is enforceable then turns on prior law, which has gone both ways: California courts have enforced voluntary, prorated training-reimbursement agreements ( USS-POSCO Industries v. Case (2016) 244 Cal.App.4th 197) and struck down provisions that operate as restraints on working elsewhere. Have an attorney review it before you pay anything.
I signed my contract in 2024. Does the new law protect me?
Not directly, because the ban applies to contracts entered into on or after January 1, 2026. But if your employer re-executes, renews, or materially amends your agreement after that date, the new version can fall within the ban, and older clauses raise their own enforceability questions under prior law, where the results have gone both ways. The signing date starts the analysis; it does not end it.
How much can I recover if my employer used an illegal stay-or-pay clause?
Actual damages or $5,000, whichever is greater, plus injunctive relief and your reasonable attorney’s fees and costs. You can also sue on behalf of similarly situated coworkers who signed the same clause.
Are tuition reimbursement programs still legal in California?
Some are. Two of the five exceptions can cover them: government-sponsored loan repayment or forgiveness programs, and tuition repayment agreements for a transferable credential. A tuition repayment agreement qualifies only if it is offered separately from your employment contract, the credential is not required as a condition of employment, the repayment amount is stated up front and does not exceed what the credential cost your employer, repayment is prorated with no accelerated payment on separation, and your employer cannot demand repayment if it terminates you for anything other than misconduct. The five-business-day attorney-consultation right and the two-year retention cap belong to a different exception, the one for signing bonuses and other discretionary payments made at the outset of employment. Do not assume a tuition program is compliant because it gives you five days, and do not assume it fails because it does not.
Can my employer demand repayment of visa or immigration costs when I leave?
For contracts entered into on or after January 1, 2026, no. Visa and immigration cost reimbursement is among the separation fees the statute expressly prohibits. If you are facing such a demand, the date and terms of your agreement determine your options.
Is AB 692 retroactive?
No. Both operative provisions apply “only if” the contract was entered into on or after January 1, 2026. The open question is what happens when a pre-2026 agreement is renewed, re-executed, or materially amended after that date; no California court has answered it yet.
Does AB 692 apply to sign-on bonus clawbacks?
A clawback structured as a debt you owe on leaving is squarely within the prohibition, but there is an exception for a discretionary or unearned payment made at the outset of employment that is not tied to specific job performance. To use it, the employer must put the repayment terms in a separate agreement, tell you about your right to counsel and give you at least five business days, charge no interest, prorate against a retention period of no more than two years, offer you the option to defer the payment instead, and limit the trigger to your own resignation or a termination for misconduct. Retention bonuses paid mid-employment rather than at the outset do not fit the exception on its face.
Does AB 692 protect independent contractors and freelancers?
The statute is drafted to reach beyond W-2 employment. A “worker” is “a natural person who is permitted to work for or on behalf of an employer or business entity, or who is permitted to participate in any other work relationship, job training program, or skills training program,” and “employer” is defined to include contractors, hiring parties, and third-party agents. The statute also separately defines “freelance worker.” If a contractor or staffing agreement you signed in 2026 contains an exit-repayment term, it is worth reviewing.
Does the ban cover relocation cost repayment?
A relocation repayment clause triggered by your departure is a “debt” for “employment-related costs” and fits the general prohibition. None of the five exceptions is written for relocation expenses. The exception for a contract related to the lease, financing, or purchase of residential property is narrower than it may sound and is aimed at housing transactions, not at moving-expense recoupment.
How McLellan Law Group, LLP Can Help
McLellan Law Group, LLP represents California employees in disputes over unlawful contract terms, wage and hour violations, severance negotiations, and wrongful termination throughout Saratoga, San Jose, Santa Clara County, the greater Bay Area, and all of California. If your employer is demanding repayment for leaving, or a new offer includes a stay-or-pay clause, we can tell you where you stand. If you are an employer reviewing your own agreements, see our companion guide: California’s Stay-or-Pay Ban: What Employers Must Remove From Offer Letters in 2026. We offer one complimentary initial consultation at (650) 383-1266.
Facing a repayment demand or a stay-or-pay clause? Contact McLellan Law Group, LLP at mclellanlawgroup.com.
Attorney advertisement by McLellan Law Group, LLP. This is general information only and not legal advice. Prior results do not guarantee a similar outcome. Reading this article or contacting the firm does not create an attorney-client relationship. Responsible attorney: Claire Melehani, Esq. 20665 4th Street, Ste. 202, Saratoga, CA 95070.
