California Bans “Stay-or-Pay” Employment Agreements

California’s hostility to non-compete agreements is well known among employers and employees.  But now, with Governor Newsom signing AB 692, California has gone even further – now banning most “stay-or-pay” agreements that are signed on or after January 1, 2026.

A “stay-or-pay” agreement requires an employee to pay the employer, a training provider, or a debt collector a fee, penalty, or other sum if the employee terminates their employment before completing some pre-set minimum term of employment.  For example, due to AB 692’s passage, a California employer will no longer be able to force an employee who resigns before completing a year of employment to repay the employer for the cost of the employee’s education or training.  

There are two main exceptions to the new law: (1) sign-on bonus agreements, and other retention bonus agreements, and (2) tuition cost repayment agreements.  Even after January 1, 2026, employers may continue to require departing employees to repay sign-on bonuses (and other retention bonuses) and pro-rated tuition costs provided that certain conditions specified in AB 692 are met.  

Employers who violate AB 692 after January 1, 2026 can be sued and are liable for the employee’s actual damages or $5,000 (whichever is greater), plus the employee’s attorneys’ fees.  AB 692 also specifically allows an affected employee to bring a class action against the employer if many other employees have also experienced violations of the law.

You can read the full text of AB 692 here.