Stay-or-Pay Ban
AB 692 takes effect January 1, 2026, and it bans most “stay-or-pay” provisions in employment contracts entered into on or after that date. If you’re still using employment agreement templates with clawback clauses, you have a problem.
Stay-or-pay provisions typically require employees to reimburse employers for training costs, relocation expenses, or sign-on bonuses if they quit or are terminated within a specified period. AB 692 prohibits these arrangements in contracts entered into on or after January 1, 2026—with narrow exceptions for educational debt repayment or tuition reimbursement programs, provided they meet specific statutory requirements.
⚠️AB 692 is not retroactive. Existing agreements entered into before January 1, 2026 remain enforceable under their original terms. But any contract entered into on or after January 1, 2026 that contains prohibited stay-or-pay language will be void and unenforceable.
The exceptions are tightly drafted. Even if your program qualifies, you need a separate written agreement signed at the time of the benefit, with disclosures about the terms, duration, and repayment obligations. Generic employment agreement language won’t cut it.
Employers often embed stay-or-pay language in offer letters, bonus agreements, or onboarding documents without realizing these provisions will be unenforceable for agreements entered into after January 1—and potentially subject to penalties under Labor Code Section 2699.5 (PAGA).
Have you updated your template employment agreements, offer letters, and bonus structures to remove prohibited clauses for use after January 1?
If your contract templates still include stay-or-pay provisions, consult with an employment attorney to revise them before using them for any agreements entered into on or after January 1, 2026.
#AB692 #CaliforniaEmployers #EmploymentContracts #LaborCode
Please note that this article is for informational purposes only and should not be considered and is not legal advice, and does not constitute an attorney-client relationship. It is recommended to consult with an attorney directly for specific guidance pertaining to your business or individual situation.
This post shares general information based on common patterns I see in California workplaces. It is not legal advice, does not create an attorney-client relationship, and outcomes depend on specific facts — no lawyer can guarantee a result. Past results do not guarantee or predict future outcomes. AI may have been used to create this post. All content reviewed by a CA attorney before publication. This post may be attorney advertising.
Michael Trust Law, APC, 703 Pier Avenue, Ste. B367, Hermosa Beach, CA 90254: michaeltrustlaw.com