Stay-or-Pay Got a Reprieve, Not a Repeal
An employer that rewrote its training repayment and bonus clawback terms for 2026 can easily assume the job is finished, or that the latest delay means it can wait.
Neither holds. AB 1697, signed September 30, 2026 with an urgency clause, pushed California’s stay-or-pay ban so it reaches only agreements made from January 1, 2027 forward, and it rewrote several exceptions on the way.
The ban sits in Bus. & Prof. Code § 16608 and Lab. Code § 926, which void a covered repayment term and give workers a civil action for the greater of their actual damages or $5,000 for each affected worker, along with attorney fees. Which of your agreements are exposed turns on when each one was signed and what kind of payment it recovers.
For 2026 itself, the prior version of the law is treated as inoperative, and pending claims based on conduct before AB 1697 took effect were declared moot. That relief does not carry into next year.
The repayable bonus exception changed most. A bonus no longer has to be agreed at the outset of employment to qualify, so a retention bonus granted mid-employment can work if every condition is met.
Those conditions still bite: a separate agreement, at least five business days to consult with a lawyer, no interest, proration over a retention period of no more than two years, an option to defer the payment, and repayment only on the worker’s own resignation or a termination for misconduct as defined in Unemp. Ins. Code § 1256.
AB 1697 also adds exceptions for repaying advanced paid time off on a voluntary separation and for certain inducement payments in financial services, from broker-dealers, insurers, and investment advisers to their registered or licensed agents, with interest capped at the IRS applicable federal rate.
The common miss is ordinary. In a small business with no in-house HR, the clawback lives in an offer letter template that was fixed once and has been copied into new hires ever since without anyone checking which year it will be signed.
The proof pressure comes when a departing employee disputes a repayment demand. The first question is the signing date, and the second is whether every condition of the claimed exception appears on paper.
Advising employers on how to draft repayment terms, and representing employees who dispute repayment demands, points to the same lesson: what holds up is what is on paper, signed on the right date, with every condition of the exception spelled out.
The reprieve buys time to redo the paperwork correctly before January 1, 2027. It is not a reason to skip that work.
If any offer letter, bonus agreement, or tuition program you will use in 2027 asks for money back when someone leaves, its terms have to fit an exception before the first signature next year. That is what a first conversation is for.
Contact Michael Trust Law, APC for a no-charge initial consultation. The facts determine what needs to be addressed – and how much of a conversation that takes.
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.