[co-author: Leah Shepherd]

On September 11, 2025, the California Legislature passed a bill that would ban “stay or pay” terms in employment contracts, which require employees to pay their employer back for certain costs if they leave the job. Governor Gavin Newsom has not signed it yet.

Quick Hits

• California lawmakers recently passed a bill prohibiting contracts that require workers to pay the employer, training provider, or debt collector for certain expenses if the worker’s employment with the employer ends.
• The bill does not apply to tuition repayment requirements and retention bonuses that meet certain conditions.
• If signed by the governor, the bill will take effect on January 1, 2026.

Historically, some employers have offered to pay for employee training, school tuition, or other benefits, on the condition that the employee remain employed for a specified period of time. Under such arrangements, employees who leave the company before the promised period of employment may be contractually obligated to repay the employer’s costs.

Although such agreements are legal in many contexts, some employee advocates have contended that such agreements are unfair, in that employees may perceive that they are restrained from seeking other employment due to the repayment obligation. California’s attorney general issued a legal alert in 2023, criticizing certain “employee-driven debt products.”

Assembly Bill (AB 692) would prevent employers from including some forms of repayment...

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