As CDF reported last year, California enacted Assembly Bill 692 (AB 692), which banned employment contracts known as TRAPs that required employees to pay penalties, fees or costs commonly tied to training if the employee ended the relationship. The TRAP law was effective January 1, 2026, and exposed employers to damages or $5,000 per worker (whichever is greater), plus injunctive relief and attorney’s fees, in individual or class-wide actions.
The good news for employers is that the California Legislature passed Assembly Bill 1697 (AB 1697), that pushes the start date back one year to January 1, 2027, modifies and adds several exceptions, and removes potential exposure for 2026. Governor Newsom is expected to sign it, and if signed, it will take effect immediately.
While the new law will not be enforceable until January 1, 2027, the intent is to allow employers to eliminate “debt traps” and quit fees. However, we expect Plaintiffs’ counsel to continue to pursue claims that such agreements do not comply with other California laws, including Business and Professions Code section 16600, Labor Code section 2802, and the Unfair Competition Laws.
Employers that already attempted to meet the original January 1, 2026 deadline may wish to revisit their revisions to ensure compliance.
AB 1697 leaves existing exceptions largely intact. For example, employers may require employees to repay tuition for certain...
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