You accepted a job offer. It came with a $10,000 sign-on bonus, a relocation package, or funding for a professional training program. But buried in the paperwork was a clause: if you leave before two years, you have to pay it all back. You signed. You felt trapped. For years in California, agreements like this were commonplace — and largely enforceable.

Effective January 1, 2026, that changed. Assembly Bill 692, signed by Governor Newsom and codified in California Business and Professions Code Section 16608 and Labor Code Section 926, now prohibits most of these so-called stay or pay agreements. Any such agreement signed on or after January 1, 2026 is void and unenforceable as an unlawful restraint on trade. And if your employer attempts to enforce one, you may be entitled to $5,000 in statutory damages, injunctive relief, and attorneys fees.^[1]

What Is a Stay or Pay Agreement?

A stay or pay provision is any contract term that forces a worker to repay money to an employer, a training provider, or a debt collector if the worker leaves before a specified date.^[2] They are sometimes called training repayment agreement provisions, commonly referred to by the acronym TRAPs. They have been used across industries to recoup costs that employers incur when bringing on new employees, including sign-on bonuses paid at hiring, relocation packages advanced to help workers move, tuition or certification costs paid during employment, and general training expenses tied to onboarding or professional development.

For many California workers, these provisions functioned as financial handcuffs. An employee who wanted to leave a toxic workplace, pursue a better opportunity, or simply needed to move for family reasons found themselves facing the prospect of owing thousands of dollars to their former employer — money that, in many cases, they had already spent on moving trucks, professional certifications, or simply paying their rent.

AB 692 directly targets this dynamic. The new law reflects and extends California's longstanding public policy, expressed in Business and Professions Code Section 16600 et seq., that contracts restraining workers from engaging in a lawful profession, trade, or business are void. Non-competes have been unenforceable in California for decades. Stay or pay agreements are now treated the same way.^[3]

What AB 692 Prohibits and Who It Protects

For employment contracts entered into on or after January 1, 2026, AB 692 makes it unlawful for an employer to include, or require a worker to sign as a condition of employment or a work relationship, any term that does any of the following upon the end of employment: requires the worker to repay a debt to an employer, training provider, or debt collector; authorizes the employer, training provider, or debt collector to collect on or resume collection of a debt; or imposes any monetary penalty, fee, or cost on the worker.^[4]

The law applies to any individual performing work in California, regardless of where the employer is headquartered or where the agreement was drafted. A California worker bound by a contract signed under New York law or in a different state still receives the protection of AB 692 if they perform their work in California.^[5] This is consistent with California's general approach to employee mobility, which has always prioritized the workplace location over the contract's choice of law.

The Narrow Exceptions: When Repayment Is Still Allowed

AB 692 is broad, but it is not a blanket prohibition on every repayment arrangement. Three narrow exceptions survive the new law, and each carries strict conditions that must all be met for the agreement to be enforceable.

Sign-on bonuses paid at the outset of employment. A discretionary or unearned monetary payment made at the start of employment may include a repayment obligation, but only if: the repayment terms are in a separate standalone agreement not embedded in the main employment contract; the worker is notified of their right to consult an attorney before signing and given at least five business days to do so; the repayment obligation does not accrue interest; the repayment period does not exceed two years from receipt of the bonus; the amount owed is prorated based on the date of departure; and repayment can only be triggered if the employee voluntarily resigns or is terminated for misconduct — not if they are laid off or constructively discharged.^[6]

Tuition for transferable credentials. Employers may still require repayment of tuition for a degree from an accredited third-party institution, but only if the credential is not required for the worker's current job, is genuinely transferable to other employers, and is offered in a separate agreement from the employment contract.^[7]

Government loan repayment programs. Agreements made under loan repayment assistance or forgiveness programs administered by a federal, state, or local government agency are exempt from AB 692's prohibitions.^[2]

What Happens to Workers Whose Agreements Are Void?

If a contract term violates AB 692, it is void and unenforceable as a matter of law — similar to how non-compete agreements have been treated in California for decades. But the law goes further than simply declaring the agreement void. Workers whose employers include or attempt to enforce a prohibited provision have a private right of action.^[2]

Under AB 692, a worker who is harmed by a prohibited repayment provision can sue for the greater of their actual damages or $5,000 per affected worker. They can also seek injunctive relief to stop the employer from enforcing the void clause and can recover reasonable attorneys fees and litigation costs.^[1] These remedies are cumulative, meaning they do not replace other protections available under California law, including wage and hour claims for unlawful paycheck deductions, claims under Business and Professions Code Section 16600, and actions under the Unfair Competition Law.

The law also covers situations where a void repayment obligation is assigned to or collected by a third party. If your former employer transferred your alleged debt to a collection agency and that agency is now contacting you over a clause that violates AB 692, the collection activity itself is prohibited and your right to sue applies to the collecting party as well.^[4]

The Bottom Line

AB 692 is a major expansion of California's commitment to worker mobility and economic freedom. For two decades, non-compete agreements have been unenforceable in California. Stay or pay provisions are now treated the same way — as unlawful restraints on trade that prevent workers from freely seeking better employment, fleeing toxic workplaces, or simply moving on with their lives without carrying a financial penalty imposed by a former employer.

If you signed a repayment agreement on or after January 1, 2026, and your employer is now attempting to enforce it, that agreement may be completely void under California law. If the repayment has already been deducted from your final paycheck, you may have a separate wage theft claim as well. At Smith Reback Law, we evaluate these situations for California workers at no cost and no obligation. If your employer is using a void contract to keep you financially trapped, we are ready to help you fight back.