Key Point:
- California’s AB 692 restricts “Stay-or-Pay” contracts, the clauses that require you to repay training costs, relocation, or signing bonuses if you quit or are terminated early, but AB 1697 delayed the effective date to January 1, 2027, and it applies only to contracts entered into, modified, or renewed on or after that date.
- When it takes effect, a covered Stay-or-Pay clause is generally void and unenforceable, much like a non-compete, unless it fits a narrow exception, and employers who violate it can face the greater of actual damages or a per-worker penalty plus attorney’s fees.
- If your employer is demanding repayment or deducting a “debt” from your final pay, a breach of contract and employment attorney can review whether it is enforceable.
Imagine being told that if you quit your job, you owe your employer thousands of dollars for “training” you never asked to be billed for. These arrangements, known as “Stay-or-Pay” contracts, became increasingly common, and California has moved to restrict them. At Bibiyan Law Group, our breach of contract and employment attorneys help California workers push back on these clauses and improper repayment demands. Here is what AB 692 means for employees and what the updated timeline changes.
What Is a "Stay-or-Pay" Contract?
A “Stay-or-Pay” provision (sometimes called a TRAP, or “Training Repayment Agreement Provision”) requires an employee to repay the employer if they leave before a set period. The supposed “debt” is often framed as:
- Training or education costs,
- Relocation or sign-on expenses,
- Quit fees or replacement and retraining penalties, or
- Signing or retention bonuses that must be returned if you quit or are fired early.
The practical effect is to trap workers in a job: leaving triggers a bill, which discourages employees from quitting, reporting problems, or moving to a better opportunity. Critics describe them as a modern restraint on worker mobility.
What Does AB 692 Do?
AB 692 makes covered Stay-or-Pay provisions void and unenforceable, similar to how California treats most non-compete agreements. Originally set to begin in 2026, the effective date was delayed by AB 1697 to January 1, 2027, and the restrictions apply to agreements entered into, modified, or renewed on or after that date. When a clause is covered, the employer bears the burden of showing it fits one of the law’s narrow exceptions.
The substantive ban sits in California Business and Professions Code section 16608, with related remedies in Labor Code section 926. The law is worded broadly to reach any agreement requiring repayment upon departure, whether the “debt” is owed to the employer, a training provider, or a debt collector. This fits California’s broader policy against restraints on employment, the same policy that makes most non-compete agreements unenforceable in the state.Â
The Narrow Exceptions
The law includes limited exceptions, and most carry detailed conditions that are easy to get wrong. Two of the most relevant:
- Sign-on and relocation payments. A repayment agreement for a discretionary payment at hire can be allowed only if it is separate from the employment contract, gives the employee time to consult an attorney, prorates any repayment over a capped period without interest, offers a deferral option, and requires repayment only if the worker leaves voluntarily or is terminated for misconduct. Recent changes under AB 1697 added flexibility on the timing of retention and relocation bonuses.
- Transferable credential tuition. Repayment can be allowed for the cost of a transferable, accredited degree that is not required for the current job, again subject to strict conditions. In-house training and most certificates do not qualify.
AB 1697 also added new carve-outs, including a financial-services exception for certain registered or licensed representatives and a limited allowance for recovering paid-time-off advances. The takeaway for employees is the same: the exceptions are narrow and technical, and a clause that does not meet every condition is not enforceable.Â
Handed a Stay-or-Pay clause or a repayment demand? Do not assume it is valid just because you signed it. Book your free consultation today and have the agreement reviewed first.
Why This Matters for Employees
A worker who wants to leave a bad job, or who is pushed out, can face a sudden repayment demand that functions as a financial penalty for basic mobility. That threat can also chill workers from asserting other rights, such as reporting wage violations, harassment, or unsafe conditions, for fear of triggering a clawback. By restricting these provisions, AB 692 takes away a tool employers have used to keep workers locked in place.
If a repayment demand is being used to retaliate against you for a protected activity, that may raise additional claims beyond the Stay-or-Pay issue. See our guidance on wrongful termination and workplace retaliation.
What If I Already Signed One?
A signature does not automatically make a Stay-or-Pay provision enforceable. Whether a clause can be enforced depends on the law’s requirements and exceptions, the type of “debt,” and the timing of the agreement, not just on the fact that you signed. If your employer is demanding repayment or threatening to, it is worth having the agreement reviewed before you pay anything or sign a release. This often overlaps with breach of contract and unpaid-wage issues, especially if the “debt” is being deducted from your final paycheck.
How This Connects to Your Final Pay
Watch for employers trying to deduct an alleged training “debt” from wages you have already earned. Separate from the AB 692 timeline, California strictly limits deductions from final pay, and earned wages generally cannot be withheld to satisfy a disputed Stay-or-Pay claim. If money was taken out of your last check, you may have an unpaid wages claim regardless of when your agreement was signed.
Had a training “debt” pulled from your last paycheck? That may be an unpaid wages violation on its own. Book your free consultation today to see what you can recover.
What You Can Do
- Do not pay a clawback demand reflexively. Get the agreement reviewed first.
- Keep the contract and any repayment demands, emails, or paycheck deductions.
- Note the timing. The restrictions apply to covered agreements entered into, modified, or renewed on or after January 1, 2027, and an attorney can assess how the law affects yours.
- Talk to an employment attorney before paying or signing anything.
Facing a Repayment Demand? Have Your Agreement Reviewed
A Stay-or-Pay clause can feel like a locked door, but a signature does not make it enforceable, and California law is moving in employees’ favor. Before you pay a disputed demand or let an alleged “debt” come out of your final check, find out where you actually stand. The employment attorneys at Bibiyan Law Group can review your agreement, assess whether the provision is enforceable, and push back on improper repayment demands, paycheck deductions, or retaliation tied to your departure. We represent employees only, never employers, and we work on a contingency basis: your consultation is free, and you owe no attorney’s fee unless we recover for you. Book your free consultation today or call (310) 438-5555.
Frequently Asked Questions
What is a “Stay-or-Pay” contract?
 It is a provision requiring an employee to repay the employer, often for training, relocation, or a signing bonus, if they leave or are terminated before a set period. The effect is to financially discourage workers from quitting.
What does AB 692 do in California?Â
AB 692 restricts Stay-or-Pay contracts, making covered clauses void and unenforceable unless they fit narrow exceptions. Following AB 1697, the law applies to contracts entered into, modified, or renewed on or after January 1, 2027.
Can my employer make me repay training costs if I quit in California?Â
It depends on the clause and the timing. Many Stay-or-Pay provisions will be unenforceable under AB 692, but the analysis turns on the exceptions and the date of the agreement. A signature alone does not make the clause enforceable, so have it reviewed before paying anything.
Can my employer deduct a training “debt” from my final paycheck?Â
California strictly limits deductions from earned wages, and earned final pay generally cannot be withheld to satisfy a disputed Stay-or-Pay claim. If money was deducted, you may have an unpaid wages claim regardless of the AB 692 timeline.
Sources
- Cal. Bus. & Prof. Code § 16608, Contracts Requiring Payment Upon Cessation of Employment, https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=BPC§ionNum=16608.
- Cal. Lab. Code § 926, Employer Repayment Agreements; Remedies, https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=LAB§ionNum=926.
- Assemb. Bill 692, 2025–2026 Reg. Sess. (Cal. 2025), Employment Contracts: Required Repayment of Employer Expenditures, https://leginfo.legislature.ca.gov/faces/billTextClient.xhtml?bill_id=202520260AB692.
- Assemb. Bill 1697, 2025–2026 Reg. Sess. (Cal. 2026), Stay-or-Pay Provisions: Effective Date and Exceptions, https://leginfo.legislature.ca.gov/faces/billTextClient.xhtml?bill_id=202520260AB1697.
- Cal. Dep’t of Indus. Relations, Div. of Lab. Standards Enf’t, Deductions from Wages, https://www.dir.ca.gov/dlse/faq_deductions.htm.
- Cal. Dep’t of Indus. Relations, Div. of Lab. Standards Enf’t, Paydays, Final Wages, https://www.dir.ca.gov/dlse/faq_paydays.htm.
Disclaimer: This is for informational purposes only and does not constitute legal advice. It does not create an attorney-client relationship. Legal results are not guaranteed and vary by case. Bibiyan Law Group P.C. also operates as Tomorrow Law.
David Bibiyan, a top attorney at Tomorrow Lawâ„¢, specializes in employment law, fiercely defending employees in cases of discrimination, harassment, wrongful termination, and wage issues. Known for his deep legal knowledge and dedication, he consistently secures favorable outcomes through skillful negotiation and litigation. His passion for justice drives his commitment to workers’ rights and fair employment practices.