[author: Mia Ndalugi]*
On October 13, 2025, Governor Gavin Newsom enacted Assembly Bill No. 692 (AB 692), effectively adding Section 16608 to the Business and Professions Code and Section 926 to the Labor Code.
AB 692 directly impacts employers as it restricts employers’ contract rights. AB 692 makes it illegal to include in employment contracts any terms that require the worker to repay a debt if their employment ends, subject to a few exceptions.
The Bill was enacted in response to public policy concerns that these types of contracts place unnecessary restrictions on employees, preventing them from freely engaging in a lawful profession, trade, or business. As a result, such contracts are deemed void and contrary to public policy.
What Does AB 692 Prohibit?
AB 692 prohibits the inclusion of terms that require an employee to pay or reimburse an employer, training provider, or debt collector for any debt upon termination of the employment or work relationship. The law extends to provisions that impose penalties, fees, or any form of repayment obligation, or that authorize debt collection on the basis of a worker’s separation from employment.
When Does It Take Effect?
Effective January 1, 2026, this new law makes it unlawful for employers to include, or require workers to enter into, employment contracts obligating the worker to repay debts, fees, costs, or penalties if their employment or work relationship ends.
Who Does It Apply To?
All employers in California.
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