Last week, the California legislature passed a law that seeks to ban many “stay-or-pay” contracts, including training repayment agreements, as part of the state’s continued emphasis on employee mobility. But the bill excludes from the prohibition some of the most common arrangements, like tuition reimbursement and retention bonus repayment, so long as employers stay within new statutory guardrails. Assuming the governor signs the bill into law (which we expect), the new prohibitions will apply to contracts entered on or after January 1, 2026 – and workers who feel aggrieved can file private lawsuits and seek civil penalties for violations. Here’s what employers need to know to prepare.

What Agreements Does AB 692 Prohibit?

Recall that the previous General Counsel for the National Labor Relations Board tried to crack down on “stay-or-pay” provisions through an enforcement memorandum last year, but that memorandum was rescinded by the new acting GC in February.

The California legislature picked up where the previous NLRB GC left off. AB 692 will ban employers from requiring workers to execute, as a condition of employment or a work relationship, a contract that does any of the following:

• Requires 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;
• Authorizes the employer, training provider, or debt collector to resume or initiate collection of or end forbearance on...

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