A stay-or-pay term is a promise that a worker will hand money back to the employer — a signing bonus, a training cost, a relocation payment, or a flat exit fee — if the worker leaves before a set date. California has now placed the strictest limit in the country on these terms. This note walks through what Assembly Bill 692 changed, which repayment terms survive, and how to structure a payment that does not become an unlawful restraint. For the cross-state framework and the way these terms intersect with retention and AI-driven layoffs, see the stay-or-pay practice guide and the AI-pressure note on retention bonuses under competitor and AI pressure.
Are repayment terms enforceable?
Mostly no, for contracts entered on or after January 1, 2026. Business and Professions Code Section 16608, added by AB 692, treats an employment term that requires a worker to pay the employer back as an unlawful restraint, and Labor Code Section 926 makes a contract or term that violates Section 16608 void as a matter of public policy. On a touch screen, a tap shows all 2 sources in this group.
AB 692 reframes repayment not as an ordinary debt but as a mobility restraint, the same family of terms California has long disfavored. The statute reaches a term that requires the worker to pay the employer, and the void rule is keyed to a hard date.
The date matters: a term in an agreement signed before January 1, 2026 is not voided by Section 926 , but a term in an agreement entered on or after that date that requires the worker to pay falls within the ban unless one of the Section 16608(b)(2) exceptions applies . Firm commentary describes AB 692 as a broad prohibition on most employment-related repayment and exit-fee provisions. On a touch screen, a tap shows all 2 sources in this group.
Sources for this answer
Cal. Bus. & Prof. Code § 16608(b)(1)(A) makes it unlawful, for contracts entered into on or after January 1, 2026, to include in an employment contract a term requiring the worker to pay the employer, a training provider, or a debt collector for a debt if the worker's employment with a specific employer terminates, subject to the exceptions in § 16608(b)(2).
Except as provided in paragraph (2), for contracts entered into on or after January 1, 2026, it shall be unlawful to include in any employment contract, or to require a worker to execute as a condition of employment or a work relationship a contract that includes, a contract term that does any of the following: (A) 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.
See Cal. Bus. & Prof. Code § 16608(b)(1)(A).
California Labor Code Section 926 establishes that contracts violating Business and Professions Code Section 16608 are void, authorizes civil actions for violations, and mandates liability for actual damages, statutory penalties, injunctive relief, and attorney's fees.
A contract or contract term that violates Section 16608 of the Business and Professions Code is void as contrary to public policy only if entered into on or after January 1, 2026.
See California Labor Code Sec. 926.
California Assembly Bill 692, effective January 1, 2026, prohibits most employment-related repayment and exit-fee provisions by declaring them void as unlawful restraints on trade and providing workers with a private right of action for civil damages.
Assembly Bill (AB) 692 prohibits most employment‑related repayment and “exit‑fee” provisions in agreements that are entered into on or after January 1, 2026.
See Mayer Brown, A Deeper Dive Into California's New Limitations on Stay or Pay Clauses as of January 1, 2026.
California Assembly Bill 692, effective January 1, 2026, imposes strict limitations on repayment obligations for sign-on bonuses and prohibits them entirely for retention bonuses, while establishing private rights of action for non-compliant agreements.
effective Jan. 1, 2026, California Assembly Bill 692 (codified at Business & Professions Code section 16608 and Labor Code section 926) limits an employer’s ability to impose repayment obligations for these upfront sign-on and retention bonuses
See Greenberg Traurig, California Claws Back: New Limits on Stay-or-Pay Contracts Starting Jan. 1, 2026.
Can the employer claw back pay already earned?
For an agreement entered on or after January 1, 2026, an employer generally has no enforceable right to claw back pay, because Section 16608 makes a term requiring the worker to pay the employer when employment ends unlawful except as its exceptions provide, and Section 926 makes a term that violates Section 16608 void. On a touch screen, a tap shows all 2 sources in this group. The exception written for a bonus, Section 16608(b)(2)(D), covers only a discretionary or unearned payment made at the outset of employment and not tied to specific job performance, and only if all five of its conditions are met .
Unless the term fits an exception, the repayment promise itself is void, so there is nothing to claw back. The bonus exception reaches only a payment made at the outset of employment, and a sign-on bonus qualifies only if the repayment terms meet every (D) condition, from the separate agreement and counsel window to proration within two years and a separation that was the worker's choice or for misconduct . Worse for the employer, Section 926 turns the violation into an affirmative claim: a person found liable owes the worker actual damages or a fixed statutory sum per worker, whichever is greater, plus injunctive relief and attorney's fees.
Do not rely on a clawback clause to recover a bonus already paid to a California worker under an agreement entered on or after January 1, 2026. Unless the payment and the clause meet every condition of the Section 16608(b)(2)(D) sign-on exception, the clause is void under Section 926, and trying to enforce it exposes the employer to the worker's statutory remedy of actual damages or five thousand dollars per worker, whichever is greater, plus fees. On a touch screen, a tap shows all 3 sources in this group.
Sources for this answer
Cal. Bus. & Prof. Code § 16608(b)(1)(A) makes it unlawful, for contracts entered into on or after January 1, 2026, to include in an employment contract a term requiring the worker to pay the employer, a training provider, or a debt collector for a debt if the worker's employment with a specific employer terminates, subject to the exceptions in § 16608(b)(2).
Except as provided in paragraph (2), for contracts entered into on or after January 1, 2026, it shall be unlawful to include in any employment contract, or to require a worker to execute as a condition of employment or a work relationship a contract that includes, a contract term that does any of the following: (A) 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.
See Cal. Bus. & Prof. Code § 16608(b)(1)(A).
California Labor Code Section 926 establishes that contracts violating Business and Professions Code Section 16608 are void, authorizes civil actions for violations, and mandates liability for actual damages, statutory penalties, injunctive relief, and attorney's fees.
A contract or contract term that violates Section 16608 of the Business and Professions Code is void as contrary to public policy only if entered into on or after January 1, 2026.
See California Labor Code Sec. 926.
Cal. Bus. & Prof. Code § 16608(b)(2)(D) exempts a contract for a discretionary or unearned payment at the outset of employment, not tied to specific job performance, only if the repayment terms are in a separate agreement, the employee is told of the right to consult an attorney and given at least five business days, any repayment carries no interest and is prorated over a retention period of at most two years from receipt, the worker may defer receipt instead, and the separation was at the employee's sole election or the employer's election for misconduct.
(D) A contract for the receipt of a discretionary or unearned monetary payment, including a financial bonus, at the outset of employment that is not tied to specific job performance, provided that all of the following conditions are met: (i) The terms of any repayment obligation are set forth in a separate agreement from the primary employment contract. (ii) The employee is notified that they have the right to consult an attorney regarding the agreement and provided with a reasonable time period of not less than five business days to obtain advice of counsel prior to executing the agreement. (iii) Any repayment obligation for early separation from employment is not subject to interest accrual and is prorated based on the remaining term of any retention period, which shall not exceed two years from the receipt of payment. (iv) The worker has an option to defer receipt of the payment to the end of a fully served retention period without any repayment obligation. (v) Separation from employment prior to the retention period was at the sole election of the employee, or at the election of the employer for misconduct.
See Cal. Bus. & Prof. Code § 16608(b)(2)(D).
Labor Code section 926 gives a worker or worker representative a civil action for a section 16608 violation, with liability of actual damages or $5,000 per worker, whichever is greater, plus injunctive relief and attorney's fees.
Any person found liable for a violation of this section shall be liable for actual damages sustained by the worker or workers on whose behalf the case is brought, or five thousand dollars ($5,000) per worker, whichever is greater, in addition to injunctive relief, and reasonable attorney's fees and costs.
See Cal. Lab. Code § 926(c).
Can repayment come out of the final paycheck?
No. If the underlying repayment term is void under Section 16608 and Section 926, the employer has no lawful basis to take the amount out of the worker's wages, including the final paycheck. On a touch screen, a tap shows all 2 sources in this group.
California already restricts deductions from wages to narrow, authorized categories, and a void repayment obligation is not one of them. Because AB 692 voids the repayment term itself, an employer cannot convert it into a final-pay deduction; firm commentary treats the prohibition as sweeping in most repayment and exit-fee structures. On a touch screen, a tap shows all 2 sources in this group.
Sources for this answer
California Labor Code Section 926 establishes that contracts violating Business and Professions Code Section 16608 are void, authorizes civil actions for violations, and mandates liability for actual damages, statutory penalties, injunctive relief, and attorney's fees.
A contract or contract term that violates Section 16608 of the Business and Professions Code is void as contrary to public policy only if entered into on or after January 1, 2026.
See California Labor Code Sec. 926.
Cal. Bus. & Prof. Code § 16608(b)(1)(A) makes it unlawful, for contracts entered into on or after January 1, 2026, to include in an employment contract a term requiring the worker to pay the employer, a training provider, or a debt collector for a debt if the worker's employment with a specific employer terminates, subject to the exceptions in § 16608(b)(2).
Except as provided in paragraph (2), for contracts entered into on or after January 1, 2026, it shall be unlawful to include in any employment contract, or to require a worker to execute as a condition of employment or a work relationship a contract that includes, a contract term that does any of the following: (A) 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.
See Cal. Bus. & Prof. Code § 16608(b)(1)(A).
California Assembly Bill 692, effective January 1, 2026, prohibits most employment-related repayment and exit-fee provisions by declaring them void as unlawful restraints on trade and providing workers with a private right of action for civil damages.
Assembly Bill (AB) 692 prohibits most employment‑related repayment and “exit‑fee” provisions in agreements that are entered into on or after January 1, 2026.
See Mayer Brown, A Deeper Dive Into California's New Limitations on Stay or Pay Clauses as of January 1, 2026.
California Assembly Bill 692, effective January 1, 2026, imposes strict limitations on repayment obligations for sign-on bonuses and prohibits them entirely for retention bonuses, while establishing private rights of action for non-compliant agreements.
effective Jan. 1, 2026, California Assembly Bill 692 (codified at Business & Professions Code section 16608 and Labor Code section 926) limits an employer’s ability to impose repayment obligations for these upfront sign-on and retention bonuses
See Greenberg Traurig, California Claws Back: New Limits on Stay-or-Pay Contracts Starting Jan. 1, 2026.
Are training or tuition repayments treated differently?
Training, tuition, and relocation repayment terms have no general exemption: for contracts entered on or after January 1, 2026, Section 16608 makes a term requiring the worker to pay an employer or training provider for a debt when employment ends unlawful except as its exceptions provide, and Section 926 makes a term that violates Section 16608 void. On a touch screen, a tap shows all 2 sources in this group. The exceptions written for education and training costs are narrow: a contract under a government loan repayment assistance or loan forgiveness program, a contract for the tuition cost of a transferable credential that meets five conditions, and a contract related to enrollment in an apprenticeship program approved by the Division of Apprenticeship Standards. On a touch screen, a tap shows all 3 sources in this group.
A training-repayment-agreement provision, often shortened to TRAP, asks a worker to repay the cost of training if they leave early. Because Section 16608 targets the repayment obligation itself rather than the label, a TRAP in an agreement entered on or after January 1, 2026 is void unless it fits one of the Section 16608(b)(2) exceptions. On a touch screen, a tap shows all 2 sources in this group.
The tuition exception in Section 16608(b)(2)(B) covers a contract for the cost of tuition for a transferable credential only if the contract is offered separately from any employment contract, does not make obtaining the credential a condition of employment, states the repayment amount in advance and caps it at the employer's cost, prorates repayment over any required employment period without accelerating it on separation, and requires no repayment if the employer terminates the worker other than for misconduct .
The credential itself must be a third-party degree that is portable, not training the current job requires .
Section 16608(b)(2)(C) separately excludes a contract related to enrollment in an apprenticeship program approved by the Division of Apprenticeship Standards . Section 16608(b)(2)(A) excludes a contract entered into under a loan repayment assistance or loan forgiveness program provided by a federal, state, or local governmental agency . The sign-on exception in Section 16608(b)(2)(D) is written for the worker's receipt of a discretionary or unearned monetary payment at the outset of employment, and it does not mention training costs .
So a tuition program tied to a portable third-party degree can fall outside the ban if it meets every (B) condition, and an apprenticeship contract can if the program is approved by the Division of Apprenticeship Standards; an in-house training cost packaged as a repayment obligation generally cannot. On a touch screen, a tap shows all 2 sources in this group.
Sources for this answer
Cal. Bus. & Prof. Code § 16608(b)(1)(A) makes it unlawful, for contracts entered into on or after January 1, 2026, to include in an employment contract a term requiring the worker to pay the employer, a training provider, or a debt collector for a debt if the worker's employment with a specific employer terminates, subject to the exceptions in § 16608(b)(2).
Except as provided in paragraph (2), for contracts entered into on or after January 1, 2026, it shall be unlawful to include in any employment contract, or to require a worker to execute as a condition of employment or a work relationship a contract that includes, a contract term that does any of the following: (A) 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.
See Cal. Bus. & Prof. Code § 16608(b)(1)(A).
California Labor Code Section 926 establishes that contracts violating Business and Professions Code Section 16608 are void, authorizes civil actions for violations, and mandates liability for actual damages, statutory penalties, injunctive relief, and attorney's fees.
A contract or contract term that violates Section 16608 of the Business and Professions Code is void as contrary to public policy only if entered into on or after January 1, 2026.
See California Labor Code Sec. 926.
Cal. Bus. & Prof. Code § 16608(b)(2)(A) provides that the section does not apply to a contract entered into under a loan repayment assistance program or loan forgiveness program provided by a federal, state, or local governmental agency.
(2) This section does not apply to any of the following: (A) A contract entered into under any loan repayment assistance program or loan forgiveness program provided by a federal, state, or local governmental agency.
See Cal. Bus. & Prof. Code § 16608(b)(2)(A).
Cal. Bus. & Prof. Code § 16608(b)(2)(B) excludes a contract for repayment of the tuition cost of a transferable credential only if it is offered separately from any employment contract, does not require obtaining the credential as a condition of employment, specifies in advance a repayment amount no greater than the employer's cost, prorates repayment over any required employment period without accelerating it on separation, and requires no repayment if the worker is terminated other than for misconduct.
(B) A contract related to the repayment of the cost of tuition for a transferable credential that meets all of the following requirements: (i) The contract is offered separately from any contract for employment. (ii) The contract does not require obtaining the transferable credential as a condition of employment. (iii) The contract specifies the repayment amount before the worker agrees to the contract, and the repayment amount does not exceed the cost to the employer of the transferable credential received by the worker. (iv) The contract provides for a prorated repayment amount during any required employment period that is proportional to the total repayment amount and the length of the required employment period and does not require an accelerated payment schedule if the worker separates from the employment. (v) The contract does not require repayment to the employer by the worker if the worker is terminated, except if the worker is terminated for misconduct.
See Cal. Bus. & Prof. Code § 16608(b)(2)(B).
Cal. Bus. & Prof. Code § 16608(b)(2)(C) provides that the section does not apply to a contract related to enrollment in an apprenticeship program approved by the Division of Apprenticeship Standards.
(C) A contract related to enrollment in an apprenticeship program approved by the Division of Apprenticeship Standards.
See Cal. Bus. & Prof. Code § 16608(b)(2)(C).
Cal. Bus. & Prof. Code § 16608(b)(2)(D) exempts a contract for a discretionary or unearned payment at the outset of employment, not tied to specific job performance, only if the repayment terms are in a separate agreement, the employee is told of the right to consult an attorney and given at least five business days, any repayment carries no interest and is prorated over a retention period of at most two years from receipt, the worker may defer receipt instead, and the separation was at the employee's sole election or the employer's election for misconduct.
(D) A contract for the receipt of a discretionary or unearned monetary payment, including a financial bonus, at the outset of employment that is not tied to specific job performance, provided that all of the following conditions are met: (i) The terms of any repayment obligation are set forth in a separate agreement from the primary employment contract. (ii) The employee is notified that they have the right to consult an attorney regarding the agreement and provided with a reasonable time period of not less than five business days to obtain advice of counsel prior to executing the agreement. (iii) Any repayment obligation for early separation from employment is not subject to interest accrual and is prorated based on the remaining term of any retention period, which shall not exceed two years from the receipt of payment. (iv) The worker has an option to defer receipt of the payment to the end of a fully served retention period without any repayment obligation. (v) Separation from employment prior to the retention period was at the sole election of the employee, or at the election of the employer for misconduct.
See Cal. Bus. & Prof. Code § 16608(b)(2)(D).
Cal. Bus. & Prof. Code § 16608(a)(10) defines a transferable credential as a degree offered by an accredited third-party institution authorized to operate in California that is not required for the worker's current employment and is transferable and useful for employment beyond the current employer.
“Transferable credential” means a degree that is offered by a third-party institution that is accredited and authorized to operate in the state, is not required for a worker’s current employment, and is transferable and useful for employment beyond the worker’s current employer.
See Cal. Bus. & Prof. Code § 16608(a)(10).
Does California law reach an out-of-state agreement?
Usually yes for a California worker. Labor Code Section 925 limits an employer's ability to force a California-based employee to litigate elsewhere or under another state's law, and Business and Professions Code Section 16600.5 extends California's restraint rules regardless of where and when the contract was signed, so a choice-of-law clause does not reliably move a California worker's repayment term outside AB 692. On a touch screen, a tap shows all 2 sources in this group.
Multistate employers often select a friendlier state's law. California pushes back on two fronts. Section 925 restricts forcing a worker who primarily resides and works in California into an out-of-state forum or law as a condition of employment.
Section 16600.5 reinforces this by applying California's restraint rules without regard to where or when the agreement was made . Even so, firm commentary cautions that the precise reach of these provisions over a fully out-of-state employer, payor, and agreement is not yet fully settled by case law .
Sources for this answer
California Labor Code Section 925 prohibits employers from requiring California-based employees to waive their rights to California venue or substantive law in employment contracts, unless the employee is represented by independent legal counsel.
An employer shall not require an employee who primarily resides and works in California, as a condition of employment, to agree to a provision that would do either of the following: (1) Require the employee to adjudicate outside of California a claim arising in California.
See California Labor Code Sec. 925.
Cal. Bus. & Prof. Code § 16600.5(a) provides that a contract void under California's restraint-of-trade chapter is unenforceable regardless of where and when it was signed.
Any contract that is void under this chapter is unenforceable regardless of where and when the contract was signed.
See Cal. Bus. & Prof. Code § 16600.5(a).
California Assembly Bill 692, effective January 1, 2026, imposes strict limitations on repayment obligations for sign-on bonuses and prohibits them entirely for retention bonuses, while establishing private rights of action for non-compliant agreements.
effective Jan. 1, 2026, California Assembly Bill 692 (codified at Business & Professions Code section 16608 and Labor Code section 926) limits an employer’s ability to impose repayment obligations for these upfront sign-on and retention bonuses
See Greenberg Traurig, California Claws Back: New Limits on Stay-or-Pay Contracts Starting Jan. 1, 2026.
What structure is safest?
The safest structure for a California worker carries no repayment term, because for contracts entered on or after January 1, 2026, Section 16608 makes it unlawful to include in an employment contract a term requiring the worker to pay the employer for a debt if the worker's employment with that employer ends, subject to narrow exceptions . One exception covers a discretionary or unearned payment, such as a bonus, made at the outset of employment and not tied to specific job performance: its repayment obligation is lawful only if it is set out in a separate agreement, the worker is told of the right to consult an attorney and given at least five business days to do so before signing, the obligation carries no interest and is prorated over a retention period of no more than two years from receipt, the worker may instead defer receipt to the end of that period, and the worker left by their own choice or was terminated for misconduct. On a touch screen, a tap shows all 3 sources in this group.
Because Section 16608 voids most repayment obligations, the safest design is simply not to use one. Where a sign-on payment must be protected, the carve-out is exacting. It requires that the worker be told of the right to consult an attorney and given a real window to do so before signing.
It also caps and de-risks the repayment itself — no interest, proration over a retention period that cannot exceed two years, and an option for the worker to defer receipt instead of taking on any repayment obligation.
Firm guidance reads the statute to bar repayment outright for ordinary retention bonuses, so reserve this structure for genuine sign-on payments rather than routine retention awards .
Do not paste an out-of-state stay-or-pay or training-repayment clause into a California offer letter. For agreements entered on or after January 1, 2026, the repayment obligation is void under Section 16608 and Section 926 unless the clause and the payment meet every condition of an applicable Section 16608(b)(2) exception. The conservative move is to drop repayment and use forward-looking retention pay instead. On a touch screen, a tap shows all 3 sources in this group.
Sources for this answer
Cal. Bus. & Prof. Code § 16608(b)(1)(A) makes it unlawful, for contracts entered into on or after January 1, 2026, to include in an employment contract a term requiring the worker to pay the employer, a training provider, or a debt collector for a debt if the worker's employment with a specific employer terminates, subject to the exceptions in § 16608(b)(2).
Except as provided in paragraph (2), for contracts entered into on or after January 1, 2026, it shall be unlawful to include in any employment contract, or to require a worker to execute as a condition of employment or a work relationship a contract that includes, a contract term that does any of the following: (A) 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.
See Cal. Bus. & Prof. Code § 16608(b)(1)(A).
California Labor Code Section 926 establishes that contracts violating Business and Professions Code Section 16608 are void, authorizes civil actions for violations, and mandates liability for actual damages, statutory penalties, injunctive relief, and attorney's fees.
A contract or contract term that violates Section 16608 of the Business and Professions Code is void as contrary to public policy only if entered into on or after January 1, 2026.
See California Labor Code Sec. 926.
Cal. Bus. & Prof. Code § 16608(b)(2)(D) exempts a contract for a discretionary or unearned payment at the outset of employment, not tied to specific job performance, only if the repayment terms are in a separate agreement, the employee is told of the right to consult an attorney and given at least five business days, any repayment carries no interest and is prorated over a retention period of at most two years from receipt, the worker may defer receipt instead, and the separation was at the employee's sole election or the employer's election for misconduct.
(D) A contract for the receipt of a discretionary or unearned monetary payment, including a financial bonus, at the outset of employment that is not tied to specific job performance, provided that all of the following conditions are met: (i) The terms of any repayment obligation are set forth in a separate agreement from the primary employment contract. (ii) The employee is notified that they have the right to consult an attorney regarding the agreement and provided with a reasonable time period of not less than five business days to obtain advice of counsel prior to executing the agreement. (iii) Any repayment obligation for early separation from employment is not subject to interest accrual and is prorated based on the remaining term of any retention period, which shall not exceed two years from the receipt of payment. (iv) The worker has an option to defer receipt of the payment to the end of a fully served retention period without any repayment obligation. (v) Separation from employment prior to the retention period was at the sole election of the employee, or at the election of the employer for misconduct.
See Cal. Bus. & Prof. Code § 16608(b)(2)(D).
Section 16608(b) conditions the sign-on carve-out on advising the worker of the right to consult an attorney and giving at least five business days to obtain advice of counsel before executing the agreement.
right to consult an attorney regarding the agreement and provided with a reasonable time period of not less than five business days to obtain advice of counsel prior to executing the agreement.
See Cal. Bus. & Prof. Code § 16608(b).
Section 16608(b) conditions the sign-on carve-out on a repayment obligation that accrues no interest, is prorated over a retention period that cannot exceed two years, and that the worker may opt to defer until the retention period is fully served.
Any repayment obligation for early separation from employment is not subject to interest accrual and is prorated based on the remaining term of any retention period, which shall not exceed two years from the receipt of payment. (iv) The worker has an option to defer receipt of the payment to the end of a fully served retention period without any repayment obligation.
See Cal. Bus. & Prof. Code § 16608(b).
California Assembly Bill 692, effective January 1, 2026, imposes strict limitations on repayment obligations for sign-on bonuses and prohibits them entirely for retention bonuses, while establishing private rights of action for non-compliant agreements.
effective Jan. 1, 2026, California Assembly Bill 692 (codified at Business & Professions Code section 16608 and Labor Code section 926) limits an employer’s ability to impose repayment obligations for these upfront sign-on and retention bonuses
See Greenberg Traurig, California Claws Back: New Limits on Stay-or-Pay Contracts Starting Jan. 1, 2026.