California’s Assembly Bill 692 (AB 692), effective January 1, 2026, significantly limits the use of employee repayment and “stay-or-pay” provisions. Employers should review their agreements now to ensure compliance with the new requirements.
What the Law Changes
AB 692 generally prohibits employers from requiring employees to agree to provisions that impose financial consequences when employment ends. This includes terms that:
- Require repayment of a debt upon separation
- Allow or accelerate collection of an alleged debt
- Impose fees, penalties, or costs tied to leaving employment
The statute defines both “debt” and “penalty” broadly, covering arrangements such as training or education repayment obligations, hiring or replacement costs, visa reimbursements, liquidated damages, and claims for lost profits or goodwill.
Limited Exceptions
The law does not eliminate all repayment arrangements. Certain agreements may still be permitted, including qualifying tuition reimbursement programs, government loan repayment or forgiveness programs, approved apprenticeship agreements, and limited upfront compensation structures that satisfy statutory conditions. These exceptions are narrowly interpreted and require careful review.
Broader Legal Trend
AB 692 is part of a broader national movement restricting contractual terms that may discourage employee mobility. States such as New York and Washington have also enacted similar restrictions in recent legislative cycles.
What Employers Should Do
Employers should promptly review offer letters, bonus agreements, training repayment provisions, and any policies that create financial obligations tied to separation. Updating these documents is critical to reducing legal risk under the new law. If you need legal guidance, please contact us at info@mnklawyers.com.
This material is provided for informational purposes only. It is not intended to constitute legal advice, nor does it create a client-lawyer relationship between MNK Law and any recipient. Recipients should consult with counsel before taking any action based on the information contained within this material