Starting Jan 1, 2026, California employers will need to comply with new restrictions on repayment clauses, or “Stay-or-Pay” provisions, within employment contracts – particularly sign on or retention incentives. Any businesses needing advice on these or any employment matters may contact the experienced attorneys at MNK Law, APC at 562.362.6437, or info@mnklawyers.com.
What are the restrictions under AB 692?
Under AB 692, employment contracts cannot include the following repayment terms:
- Repayment mandates to pay an employer, training provider, or debt collector if employment or a working relationship is terminated.
- Authorization by employer, training provider, or debt collector to initiate or resume collection of a debt, or to end forbearance debt, if employment or a working relationship is terminated.
- Imposed penalty fees or costs in connection with employment or working relationship termination.
Are there any exceptions to AB 692?
Although the restrictions are broad, the bill does list specific exceptions:
- Contracts under any federal, state, or local governmental agency loan repayment assistance programs or loan forgiveness programs.
- Contracts related to tuition repayment for transferable credit.
- Contracts related to apprenticeship programs approved by the Division of Apprenticeship Standards.
- Contracts related to the lease, financing, or purchase of residential property.
The most relevant exception being discretionary or unearned monetary payments, such as signing or retention bonuses, if all the following conditions are met:
- Contract terms created separately from an employment contract.
- Employee notification of their right to consult legal counsel no fewer than 5 business days before contract execution.
- Defined, prorated retention periods not exceeding two years with no accrued interest.
- Voluntary separation by the employee or termination of the employee due to misconduct.
- Established employee options to defer payment until completion of the retention period
The statute also doesn’t retroactively apply to existing contracts – only contracts entered on or after Jan 1, 2026.
Considerations for California Employers
AB 692 is a major shift in repayment and incentive provisions for California employers. If violated, employers may face a civil action from the employee, under the Business and Professions Code on behalf of themselves and others similarly situated, who may seek actual damages or $5,000 per worker (whichever is greater), injunctive relief, and reasonable attorney’s fees and costs.
Employers should review and revise repayment and incentive agreements to meet compliance standards and mitigate risk in 2026 and onward.
Any businesses seeking advice on employment matters may contact MNK Law, APC via telephone at 562.362.6437, or by e-mail, at info@mnklawyers.com.
