# Stay-or-Pay and Employee Repayment in California[^about] A question-by-question summary of California stay-or-pay law after AB 692, including the Business and Professions Code Section 16608 ban on employee repayment and exit-fee terms for contracts entered on or after January 1, 2026, the narrow sign-on-bonus carve-out, the Labor Code Section 926 void rule and worker penalty, the treatment of training and relocation repayment, the bar on deducting repayment from final pay, and how Sections 925 and 16600.5 reach California workers regardless of out-of-state drafting. 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](/practice-guides/stay-or-pay) and the AI-pressure note on [retention bonuses under competitor and AI pressure](/practice-guides/ai-layoffs/retention-bonus-competitor-ai-pressure). ## Are repayment terms enforceable? {#repayment-enforceability} **Short answer.** 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 [^california-business-and-professions-code-sec-166][^california-labor-code-sec-926]. 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. "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."[^california-labor-code-sec-926] 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 [^california-business-and-professions-code-sec-166]. Firm commentary describes AB 692 as a broad prohibition on most employment-related repayment and exit-fee provisions [^mayer-brown-a-deeper-dive-into-california-s-new][^greenberg-traurig-california-claws-back-new-limi]. ## Can the employer claw back pay already earned? {#clawback-earned-comp} **Short answer.** 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 [^california-business-and-professions-code-sec-166-clawback][^california-labor-code-sec-926-clawback]. 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 [^ca-926-damages-gate]. "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."[^ca-926-damages-gate] > [!NOTE] > **Practice note.** > > 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 [^california-labor-code-sec-926-clawback][^ca-926-damages-gate]. ## Can repayment come out of the final paycheck? {#final-pay-deduction} **Short answer.** 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-labor-code-sec-926-deduction][^california-business-and-professions-code-sec-166-deduction]. 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 [^mayer-brown-a-deeper-dive-into-california-s-new-deduction][^greenberg-traurig-california-claws-back-new-limi-deduction]. ## Are training or tuition repayments treated differently? {#training-repayment} **Short answer.** 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 [^california-business-and-professions-code-sec-166-training][^california-labor-code-sec-926-training]. 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 [^california-labor-code-sec-926-training]. 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 [^ca-16608-carveout-training]. 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. "a degree that is offered by a third-party institution that is accredited and authorized to operate in the state"[^ca-16608-transferable-credential] 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 [^greenberg-traurig-california-claws-back-new-limi-training]. ## Does California law reach an out-of-state agreement? {#out-of-state-reach} **Short answer.** 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 [^california-labor-code-sec-925][^california-business-and-professions-code-sec-166-2]. 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. "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."[^california-labor-code-sec-925] Section 16600.5 reinforces this by applying California's restraint rules without regard to where or when the agreement was made [^california-business-and-professions-code-sec-166-2]. 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 [^greenberg-traurig-california-claws-back-new-limi-reach]. ## What structure is safest? {#safest-structure} **Short answer.** 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 [^california-business-and-professions-code-sec-166-safest][^greenberg-traurig-california-claws-back-new-limi-safest]. 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. "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."[^ca-16608-counsel-window] 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. "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."[^ca-16608-carveout-safest] 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 [^greenberg-traurig-california-claws-back-new-limi-safest]. > [!CAUTION] > **Drafting note.** > > 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 [^california-business-and-professions-code-sec-166-safest][^california-labor-code-sec-926-safest]. [^about]: By Steven Obiajulu, J.D. Published by [openagreements.org](https://openagreements.org). Last reviewed 2026-06-30. License: CC BY 4.0. Steven Obiajulu, J.D. is admitted in New York, not California. This article synthesizes California primary law and is not legal advice from a California-admitted attorney. This article is for informational purposes only and does not create an attorney-client relationship. [^california-business-and-professions-code-sec-166]: **California Business and Professions Code Sec. 16608(b)(1)(A)** — "requires the worker to pay" *California Business and Professions Code Sec. 16608(b)(1)(A).* [^california-labor-code-sec-926]: **California Labor Code Sec. 926** — "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." *California Labor Code Sec. 926.* [^mayer-brown-a-deeper-dive-into-california-s-new]: **Mayer Brown commentary** — "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." *Mayer Brown, A Deeper Dive Into California's New Limitations on Stay or Pay Clauses as of January 1, 2026.* [^greenberg-traurig-california-claws-back-new-limi]: **Greenberg Traurig commentary** — "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" *Greenberg Traurig, California Claws Back: New Limits on Stay-or-Pay Contracts Starting Jan. 1, 2026.* [^california-business-and-professions-code-sec-166-clawback]: **California Business and Professions Code Sec. 16608(b)(1)(A)** — "requires the worker to pay" *California Business and Professions Code Sec. 16608(b)(1)(A).* [^california-labor-code-sec-926-clawback]: **California Labor Code Sec. 926** — "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." *California Labor Code Sec. 926.* [^ca-926-damages-gate]: **Cal. Lab. Code § 926 (AB 692)** — "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." *Cal. Lab. Code § 926(c).* [^california-labor-code-sec-926-deduction]: **California Labor Code Sec. 926** — "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." *California Labor Code Sec. 926.* [^california-business-and-professions-code-sec-166-deduction]: **California Business and Professions Code Sec. 16608(b)(1)(A)** — "requires the worker to pay" *California Business and Professions Code Sec. 16608(b)(1)(A).* [^mayer-brown-a-deeper-dive-into-california-s-new-deduction]: **Mayer Brown commentary** — "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." *Mayer Brown, A Deeper Dive Into California's New Limitations on Stay or Pay Clauses as of January 1, 2026.* [^greenberg-traurig-california-claws-back-new-limi-deduction]: **Greenberg Traurig commentary** — "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" *Greenberg Traurig, California Claws Back: New Limits on Stay-or-Pay Contracts Starting Jan. 1, 2026.* [^california-business-and-professions-code-sec-166-training]: **California Business and Professions Code Sec. 16608(b)(1)(A)** — "requires the worker to pay" *California Business and Professions Code Sec. 16608(b)(1)(A).* [^california-labor-code-sec-926-training]: **California Labor Code Sec. 926** — "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." *California Labor Code Sec. 926.* [^ca-16608-carveout-training]: **Cal. Bus. & Prof. Code § 16608 (AB 692)** — "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." *Cal. Bus. & Prof. Code § 16608(b).* [^ca-16608-transferable-credential]: **Cal. Bus. & Prof. Code § 16608 (AB 692)** — "a degree that is offered by a third-party institution that is accredited and authorized to operate in the state" *Cal. Bus. & Prof. Code § 16608.* [^greenberg-traurig-california-claws-back-new-limi-training]: **Greenberg Traurig commentary** — "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" *Greenberg Traurig, California Claws Back: New Limits on Stay-or-Pay Contracts Starting Jan. 1, 2026.* [^california-labor-code-sec-925]: **California Labor Code Sec. 925** — "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." *California Labor Code Sec. 925.* [^california-business-and-professions-code-sec-166-2]: **California Business and Professions Code Sec. 16600.5(a)** — "regardless of where and when the contract was signed" *California Business and Professions Code Sec. 16600.5(a).* [^greenberg-traurig-california-claws-back-new-limi-reach]: **Greenberg Traurig commentary** — "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" *Greenberg Traurig, California Claws Back: New Limits on Stay-or-Pay Contracts Starting Jan. 1, 2026.* [^california-business-and-professions-code-sec-166-safest]: **California Business and Professions Code Sec. 16608(b)(1)(A)** — "requires the worker to pay" *California Business and Professions Code Sec. 16608(b)(1)(A).* [^greenberg-traurig-california-claws-back-new-limi-safest]: **Greenberg Traurig commentary** — "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" *Greenberg Traurig, California Claws Back: New Limits on Stay-or-Pay Contracts Starting Jan. 1, 2026.* [^ca-16608-counsel-window]: **Cal. Bus. & Prof. Code § 16608 (AB 692)** — "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." *Cal. Bus. & Prof. Code § 16608(b).* [^ca-16608-carveout-safest]: **Cal. Bus. & Prof. Code § 16608 (AB 692)** — "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." *Cal. Bus. & Prof. Code § 16608(b).* [^california-labor-code-sec-926-safest]: **California Labor Code Sec. 926** — "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." *California Labor Code Sec. 926.*