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.
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 . Firm commentary describes AB 692 as a broad prohibition on most employment-related repayment and exit-fee provisions.
Sources for this answer
Primary law
A.1 California Business and Professions Code Sec. 16608(b)(1)(A)Supports the cited proposition. (California Business and Professions Code Sec. 16608(b)(1)(A))
requires the worker to pay
See California Business and Professions Code Sec. 16608(b)(1)(A).
Primary law
A.2 California Labor Code Sec. 926California 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.
Law-firm commentary
A.3 Mayer Brown commentaryCalifornia 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.
Commentary
A.4 Greenberg Traurig commentaryCalifornia 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?
No. A term that requires the worker to pay the employer back is the very thing Section 16608 reaches, and Section 926 makes such a term void for agreements entered on or after January 1, 2026, so the employer has no enforceable contract right to recover the money.
Because the repayment promise itself is void, there is nothing to claw back. An employer cannot recover a paid signing or retention bonus through a clawback clause that requires the worker to pay it back. 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. 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.
Sources for this answer
Primary law
B.1 California Business and Professions Code Sec. 16608(b)(1)(A)Supports the cited proposition. (California Business and Professions Code Sec. 16608(b)(1)(A))
requires the worker to pay
See California Business and Professions Code Sec. 16608(b)(1)(A).
Primary law
B.2 California Labor Code Sec. 926California 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.
Primary law
B.3 Cal. Lab. Code § 926 (AB 692)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.
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.
Sources for this answer
Primary law
C.1 California Labor Code Sec. 926California 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.
Primary law
C.2 California Business and Professions Code Sec. 16608(b)(1)(A)Supports the cited proposition. (California Business and Professions Code Sec. 16608(b)(1)(A))
requires the worker to pay
See California Business and Professions Code Sec. 16608(b)(1)(A).
Law-firm commentary
C.3 Mayer Brown commentaryCalifornia 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.
Commentary
C.4 Greenberg Traurig commentaryCalifornia 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?
They are restricted, not exempt — but Section 16608 leaves two narrow paths open. A term that requires the worker to pay the employer back sweeps in training, tuition, and relocation repayment along with bonus repayment, so a bare training-repayment agreement (a TRAP) is presumptively void; it survives only if it fits the sign-on-bonus carve-out or the separate tuition exception the statute draws for a transferable credential offered outside the employment contract.
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 bare TRAP is treated like any other repayment term and is void for agreements entered on or after January 1, 2026 . The statute leaves two openings. The first is the sign-on-bonus carve-out: a repayment obligation that carries no interest, is prorated over a retention period capped at two years, and lets the worker defer receipt . The second is a separate tuition exception — repayment of tuition for a transferable credential offered apart from the employment contract, which the statute defines narrowly as a degree from an accredited third-party institution.
So a tuition program tied to a portable, third-party degree offered outside the employment contract can fall outside the ban, while an in-house training cost packaged as a repayment string generally cannot. Firm commentary reads the statute as barring repayment outright for ordinary retention bonuses while permitting only these limited structures .
Sources for this answer
Primary law
D.1 California Business and Professions Code Sec. 16608(b)(1)(A)Supports the cited proposition. (California Business and Professions Code Sec. 16608(b)(1)(A))
requires the worker to pay
See California Business and Professions Code Sec. 16608(b)(1)(A).
Primary law
D.2 California Labor Code Sec. 926California 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.
Primary law
D.3 Cal. Bus. & Prof. Code § 16608 (AB 692)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).
Primary law
D.5 Cal. Bus. & Prof. Code § 16608 (AB 692)Section 16608 defines a transferable credential as a degree offered by an accredited, state-authorized third-party institution, which anchors the tuition exception for credentials offered outside the employment contract.
a degree that is offered by a third-party institution that is accredited and authorized to operate in the state
See Cal. Bus. & Prof. Code § 16608.
Commentary
D.4 Greenberg Traurig commentaryCalifornia 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.
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.
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
Primary law
E.1 California Labor Code Sec. 925California 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.
Primary law
E.2 California Business and Professions Code Sec. 16600.5(a)Supports the cited proposition. (California Business and Professions Code Sec. 16600.5(a))
regardless of where and when the contract was signed
See California Business and Professions Code Sec. 16600.5(a).
Commentary
E.3 Greenberg Traurig commentaryCalifornia 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?
Avoid repayment terms for California workers. If a payment must carry a repayment string, the only defensible path is the narrow Section 16608 sign-on carve-out: a stand-alone written agreement, at least five business days for the worker to consult counsel before signing, a prorated obligation that carries no interest, a retention period capped at two years, and a worker option to defer receipt — not a flat retention clawback.
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 it fits the strict sign-on carve-out — a separate agreement, a five-business-day counsel window, no interest, proration, a two-year cap, and a defer option — so the conservative move is to drop repayment and use forward-looking retention pay instead.
Sources for this answer
Primary law
F.1 California Business and Professions Code Sec. 16608(b)(1)(A)Supports the cited proposition. (California Business and Professions Code Sec. 16608(b)(1)(A))
requires the worker to pay
See California Business and Professions Code Sec. 16608(b)(1)(A).
Primary law
F.3 California Labor Code Sec. 926California 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.
Primary law
F.4 Cal. Bus. & Prof. Code § 16608 (AB 692)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).
Primary law
F.5 Cal. Bus. & Prof. Code § 16608 (AB 692)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).
Commentary
F.2 Greenberg Traurig commentaryCalifornia 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.