"Stay-or-Pay" No More: California's New Limits On Training And Retention Agreement Payback

California Assembly Bill 692 (AB 692) will significantly change the way employers structure employee "stay-or-pay" agreements. Effective January 1, 2026, most repayment obligations triggered by an employee's resignation or separation will be prohibited. AB 692 was enacted to prevent employers from using financial penalties to discourage employees from changing jobs. The Legislature view "stay-or-pay" provisions as undermining worker mobility and placing undue financial pressure on employees.

AB 692 builds on existing California law that already require employers to pay for all mandatory job-related training, including associated working time and travel. Under the new law, only one narrow category of training repayment agreement survives: tuition support for obtaining a "transferable credential." The statute defines this as a degree from an accredited third-party institution that is not required for the employee's current job and is transferable to employment beyond the current employer. Notably, the law does not define "degree," and the legislative history offers no further clarification. Without guidance, employers must assume a conservative interpretation – meaning certificates, certifications, short courses, trainings, and most professional development programs will not qualify for the exception.

Contracts to repay the cost of tuition for a transferable credential are permitted if:

• the tuition contract is in a separate agreement from an employment contract;
• the transferable credential is not a condition of employment;
• the specified repayment amount cannot exceed the actual cost of the credential paid by employer;
• repayment is prorated without acceleration; and
• repayment is not required unless the worker is terminated for misconduct.

AB 692 also creates a separate and limited bonus exception. Contracts for discretionary or unearned payments at the start of employment and not tied to performance, such as sign-on bonuses, are permitted if all of the following conditions are met:

• repayment terms are in a separate agreement from an employment contract;
• employee is notified of their right to consult an attorney about the agreement and is given at least five business days to do so;
• 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
• employee may defer receipt of payment to end of retention period without obligation; and
• repayment is only required if the separation is at the employee's sole discretion or due to employee misconduct.

The statute also provides exceptions for (1) contracts under a loan repayment assistance program or loan forgiveness program provided by a federal, state, or local governmental agency; (2) contracts for an apprenticeship program approved by the Division of Apprenticeship Standards; and (3) contracts related to the lease, financing, or purchase of residential property, including those pursuant to the California Residential Mortgage Lending Act.

The new law creates a private right of action authorizing an employee who has been subjected to a violation of AB 692 to bring a civil action on behalf of that employee, other persons similarly situated, or both. Violators will be liable for actual damages or $5,000 per employee (whichever is greater), plus reasonable attorneys' fees, without limiting any other remedies available outside the new law.

Given these significant changes and penalties, employers should proactively review training, tuition reimbursement, and bonus arrangements. Agreements that impose repayment after separation, particularly for certificates, training, or courses, will no longer be enforceable in the New Year. Employers may need to redesign training programs as voluntary benefits reimbursed incrementally while the employee remains employed or shift toward compensation strategies that do not trigger repayment restrictions.

Employers should work closely with counsel to revise affected agreements before the January 2026 effective date.

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