Effective January 1, 2026, California’s AB 692 will significantly alter an employer’s ability to require workers to repay money or costs when employment ends. Employers should take prompt steps to review and update all offer letters and repayment agreements, including, but not limited to, sign-on bonuses, and tuition-repayment programs to avoid exposure.

For employment contracts entered on or after January 1, 2026, AB 692 makes it unlawful for an employer to include, or otherwise require as a condition of employment, a term that:

1. Requires the employee (or prospective employee) to pay an employer, a training provider, or a debt collector for a debt if the employment or work relationship ends.
2. Authorizes the employer, a training provider, or a debt collector to collect or end forbearance on a debt if the employment or work relationship ends.
3. Imposes any penalty, fee, or cost on the worker or employee if the relationship ends.

The statute broadly defines debt as “money, personal property, or their equivalent that is due or owing . . . from a natural person to another person, including, but not limited to, employment-related costs, education-related costs, or a consumer financial product or service, regardless of whether the debt is certain, contingent, or incurred voluntarily.”

The bottom line is that employment contracts or agreements containing clawbacks tied to continued employment will be significantly curtailed beginning January 1, 2026.

Limited exceptions: What...

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