By: Laura D. Smolowe, Juliette West

On January 1, 2026, Assembly Bill (AB) 692 will take effect in California, amending the Labor Code and Business and Professions Code to prohibit certain “stay-or-pay” provisions in employment contracts. Such provisions are commonplace; for example, many companies offer incentive or retention bonuses which can be clawed back if the worker leaves before a specified date. Similar provisions are sometimes referred to as training repayment agreement provisions (TRAPs). These now-regulated clauses traditionally required workers to reimburse employers for costs associated with work-related training, education, relocation, or other expenses if they leave employment before a specified date. These contractual provisions are the target of the new California law.

AB 692, which will be added as Section 16608 to the Business and Professions Code and Section 926 to the Labor Code, prohibits employers from including “in any employment contract, or to require a worker to execute as a condition of employment or a work relationship a contract” that does any of the following:

• “Requires the 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 or end forbearance on a debt if the worker’s employment or work relationship with a specific employer terminates.”
• “...

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