California’s Assembly Bill 692 (AB 692), effective January 1, 2026, prohibits most “stay-or-pay” provisions in employment contracts. AB 692 renders void any clauses requiring employees to repay training, education, or relocation costs upon separation, and limits efforts to penalize workers for leaving. The bill enhances employee mobility and creates private rights of action for violations.

The bill includes several important exceptions that narrow its application. Generally, the restrictions do not apply to agreements that involve bona fide loans, educational assistance, or training programs where the costs are reasonable, clearly disclosed in advance, and directly related to transferable skills that benefit the employee beyond the current role.

Contracts related to tuition repayment for transferable credentials are allowed if the agreement:

• Is offered separately from any employment contract;

• Does not require the credential as a condition of employment;

• Specifies the repayment amount before the employee agrees to the contract, and the repayment amount must not exceed the employer’s cost;

• Allows prorated repayment over the required employment period, with no accelerated repayment on early exist; and

• Does not require repayment if the worker is terminated, unless for misconduct.

Upfront discretionary repayments which are not tied to job performance are permitted if the agreement if the following conditions are all met:

• Repayment terms must be in a separate agreement from the main employment contract;

• The employee must be informed of the right to consult an attorney and given 5 business days to do so;

• Repayment for early exit must be interest-free, prorated, and tied to a retention period not exceeding two years;

• The worker may defer payment until completing the full retention period to avoid repayment; and

• Early separation must be voluntary, or due to employee misconduct.

Exceptions may exist where repayment obligations are tied to voluntary programs or where the employee receives a meaningful, proportionate benefit in exchange. These carve-outs are designed to distinguish prohibited stay-or-pay arrangements from legitimate investments in employee development, while still preventing practices that could unfairly restrict worker mobility or function as de facto penalties for leaving employment.

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.