Governor Newsom has signed Assembly Bill (AB) 692, which adds Section 16608 to the Business and Professions Code and Section 926 to the Labor Code, making it unlawful to include in any employment contract or require a worker to execute, as a condition of employment, a contract that includes terms that require a worker to “pay an employer, training provider, or debt collector for a debt if the worker’s employment or work relationship with a specific employer terminates,” with limited exceptions.

The bill will apply to contracts entered into on or after January 1, 2026.

The law applies to all employers in California.

Under the law, it will be unlawful to include terms that impose penalties or fees, or require employees to pay debts, authorize debt collection, if the employment relationship ends.

There are some allowances for contracts for repayment under the law:

• A contract entered under a loan repayment assistance program or loan forgiveness program provided by a federal, state, or local government agency.
• A contract related to the repayment of the cost of tuition for a transferable credential, provided that the contract (a) is separate from the employment contract, (b) does not make obtaining the transferrable credential a condition of employment, (c) specifies a repayment amount not exceeding the cost of the credential to the employer, (d) provides for prorated repayment without acceleration; and (e) does not require repayment unless the worker is terminated for...

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