The California legislature passed Assembly Bill 692, which restricts employers’ ability to enforce training and retention repayment provisions and other stay-or-pay provisions in employment agreements. The bill, which we expect to be signed by Governor Newsom soon, will be codified under the new Business and Professions Code Section 16608 and Labor Code Section 926. The new law provides that after January 1, 2026, it will be unlawful to include in an employment contract any provision “as a condition of employment” requiring an employee to pay back money for leaving a job prior to a set date unless the agreement meets specific guidelines. Employers will need to review any programs requiring the repayment of educational costs, relocation costs, signing bonuses, and retention incentives to determine whether they meet the strictures of the new laws.
Where Did this Come From?
This legislation follows a larger trend of states addressing training repayment agreement provisions (“TRAPs”) and stay-or-pay provisions via new laws and government litigation. Several U.S. states have recently passed or enacted laws to regulate or restrict such provisions—including Colorado, Pennsylvania, Indiana, and New York—and Nevada recently joined a multistate enforcement action against TRAPs in healthcare. At the federal level, the Consumer Financial Protection Bureau and Federal Trade Commission have investigated employer-driven debt practices, signaling growing scrutiny of TRAPs nationwide.
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