Imagine completing a 12-month nursing training program, your employer paid for, only to discover that your employment contract requires you to pay back $15,000 if you leave within three years. You’re trapped. The job pays below market. The conditions are deteriorating. But the threat of a five-figure debt keeps you clocking in every morning.
For thousands of California workers, this was reality. Stay-or-pay agreements, sometimes called training repayment agreement provisions, or TRAPs, have been used by employers across healthcare, trucking, tech, and the trades to lock employees into jobs by threatening financial penalties for leaving.
That changed on January 1, 2026, when the California stay or pay law (AB 692) took effect, making California one of the most aggressive states in banning these provisions. If you signed a stay-or-pay agreement in California, this law may mean your contract is now void, and your employer could owe you money.
Here’s what every California employee needs to know about the new California “stay or pay” law.
What Is a “Stay-or-Pay” Agreement?
A stay-or-pay agreement is any contract provision that requires an employee to pay their employer if they separate from the company, whether they quit, are laid off, or are terminated within a certain time period. These provisions take several common forms.
Training repayment agreements require employees to reimburse the cost of employer-sponsored training, certifications, or education if they leave before a set date. A trucking company that pays for your CDL training, for example, might require you to repay $8,000 if you leave within two years.
Relocation clawback provisions require employees to reimburse moving or relocation expenses if they leave within a specified window, often 12 to 24 months.
Sign-on bonus repayment clauses require employees to return part or all of a signing bonus if they don’t stay for a required period.
Education repayment agreements (sometimes called “employer-sponsored education bonds”) tie the cost of tuition reimbursement or professional certification to continued employment.
In practice, these agreements function as financial handcuffs that trap employees in jobs they want to leave. Workers who feel underpaid, mistreated, or unsafe on the job are forced to weigh their well-being against a debt they may not be able to afford. The power imbalance is enormous, and until the California stay or pay law was passed, California did little to stop it.
What the California Stay or Pay Law Changes for Employees (Effective January 1, 2026)
AB 692 added new provisions to the California Business and Professions Code (§ 16608) and the Labor Code (§ 926), creating one of the nation’s strongest employee protections against stay-or-pay agreements.
Here is what the law does:
Prohibits most stay-or-pay provisions. Employers cannot require employees to repay training costs, education expenses, relocation costs, or other employment-related expenditures as a condition of leaving a job. Any contract clause that imposes a financial penalty for separation is presumed void.
Voids existing agreements. Stay-or-pay provisions that were already in place before January 1, 2026, are now unenforceable under the California stay or pay law. This means your employer cannot collect on a training repayment agreement you signed in 2023 or 2024.
Creates a private right of action. Employees can sue their employers for violating AB 692. If you were subject to an illegal stay-or-pay provision, you can recover actual damages or a statutory penalty of $5,000 per employee, whichever is greater.
Awards attorney’s fees. Employees who prevail in a stay-or-pay dispute are entitled to recover reasonable attorney’s fees and court costs. This removes the financial barrier that keeps many workers from filing suit.
Allows injunctive relief. Courts can issue orders preventing employers from continuing to use or enforce stay-or-pay agreements.
Covers all forms of separation. The law applies whether you resign, are laid off, or are terminated. Your employer cannot enforce a stay-or-pay clause regardless of the reason for your departure.
The California stay or pay law is designed to end a practice that critics, including the California Legislature, have compared to indentured servitude. Stay-or-pay agreements disproportionately impacted low-wage workers in industries like trucking, healthcare, retail management, and tech who had the least power to negotiate.
What’s Still Allowed Under AB 692
AB 692 is broad, but it is not unlimited. There are narrow exceptions California employees should understand.
Discretionary sign-on bonuses that are genuine incentives, not tied to training costs or operational expenses, may still include repayment terms if the bonus is truly voluntary and not a disguised stay-or-pay mechanism. The distinction matters: if the “bonus” is structured as reimbursement for costs the employer would have incurred anyway, it likely falls under the ban.
Retention bonuses paid as a reward for staying through a specific date or event (such as a merger or product launch) may still include clawback provisions, provided they meet the statutory requirements for a bona fide bonus.
Bona fide loans that are separate from the employment relationship, such as a personal loan that happens to be made by an employer, are not covered, though courts will scrutinize whether the “loan” is actually a disguised stay-or-pay provision.
The key takeaway: if the money your employer spent was connected to your ability to perform your job, the repayment clause is almost certainly banned. Employers cannot repackage training costs as “bonuses” or “loans” to evade the California stay or pay law.
Examples of Stay-or-Pay Agreements That Are Now Illegal in California
To understand the real-world impact of this law, consider these scenarios, each based on common patterns employment attorneys see across the state.
The nursing program trap. Maria completed an employer-sponsored LVN-to-RN bridge program. Her employment contract required her to repay $20,000 in training costs if she left within three years. When her unit became dangerously understaffed, Maria wanted to transfer to a safer facility but couldn’t afford the repayment. Under the California stay or pay law, Maria’s repayment clause is void. She can leave freely, and she may be entitled to damages.
The trucking CDL clawback. James was recruited by a national freight company that paid for his CDL training. His contract included a $9,500 repayment clause with a two-year minimum employment requirement. When the company cut his routes, and his income dropped by 30%, James felt stuck. AB 692 invalidates that clause entirely.
The tech bootcamp repayment. Priya was hired as a junior developer after completing a 16-week coding bootcamp sponsored by her employer. The offer letter required repayment of $14,000 if she left within 18 months. When Priya received a better offer from a competitor, the repayment clause forced her to turn it down. That clause is now unenforceable.
The relocation expense clawback. David relocated from Texas to Los Angeles for a management position. His employer covered $7,500 in moving costs, with a contract requiring repayment if David left within one year. When David was demoted without explanation after six months, he wanted to resign, but the relocation repayment loomed. Under AB 692, that provision cannot be enforced.
These are not edge cases. Stay-or-pay agreements have been used as leverage across industries to suppress employee mobility, depress wages, and discourage workers from reporting unsafe or illegal workplace conditions.
What to Do If You Signed a Stay-or-Pay Agreement Before 2026
If you signed a training repayment agreement, relocation clawback, or similar stay-or-pay contract before AB 692 took effect, here is what you should know.
The law applies retroactively to enforcement. While the agreement may have been signed before 2026, employers cannot enforce it after January 1, 2026. If your employer is currently threatening collection, withholding wages, or deducting repayment amounts from your final paycheck, they may be violating the law.
Document everything. Save your employment contract, any correspondence about repayment, pay stubs showing deductions, and records of any threats or retaliation related to leaving your job.
Know the statute of limitations. Claims under the California stay or pay law are subject to California’s standard statute of limitations for statutory violations. The sooner you consult an attorney, the stronger your position.
Deductions from final pay are separately illegal. California Labor Code § 221 already prohibits employers from making unauthorized deductions from employee wages. If your employer deducted training costs or other repayment amounts from your final paycheck without your written consent, you may have an additional wage claim with penalties.
You may be owed money. If your employer already collected repayment from you, whether through payroll deductions, direct billing, or debt collection, you may be able to recover those amounts plus the $5,000 statutory penalty under AB 692.
The bottom line: a stay-or-pay agreement you signed years ago does not bind you today. California has made its position clear that these provisions are against public policy, and employees have the right to change jobs without financial punishment.
Frequently Asked Questions About the California Stay or Pay Law
Can my employer sue me for quitting after they paid for my training?
Under AB 692, employers generally cannot sue to recover training costs tied to your employment. If your employer files suit to enforce a prohibited stay-or-pay provision, you can raise the statute as a defense and seek attorney’s fees for having to defend a claim based on a void contract.
Does AB 692 apply to sign-on bonuses?
It depends on how the bonus is structured. A genuine, discretionary sign-on bonus may still include repayment terms. However, if the “bonus” is actually a disguised reimbursement for training, onboarding, or operational costs, it falls under the ban. Courts will look at the substance of the payment, not the label.
What if I signed a training repayment agreement in 2024?
The California stay or pay law renders these agreements unenforceable regardless of when they were signed. Your employer cannot collect on a stay-or-pay provision after January 1, 2026, even if you agreed to it years earlier.
Can my employer deduct training costs from my final paycheck?
No. California law (Labor Code § 221) prohibits unauthorized deductions from wages. If your employer withheld training repayment costs from your final paycheck, you may have both an AB 692 claim and a separate wage theft claim with additional penalties.
How much can I recover if my employer violated AB 692?
You can recover actual damages or $5,000 per employee, whichever is greater, plus reasonable attorney’s fees and court costs. If your employer also made illegal deductions from your wages, you may be entitled to waiting time penalties and additional statutory damages under California’s wage and hour laws.
How Bibiyan Law Group Can Help
At Bibiyan Law Group, we represent California employees, not corporations. Our employment attorneys have recovered more than $400 million in settlements and verdicts for workers across the state, including employees who were trapped by unfair employment contracts and unlawful workplace practices.
If you signed a stay-or-pay agreement and are worried about leaving your job, our employment attorneys can review your contract and advise you on your rights under the California stay-or-pay law. We handle training repayment agreement disputes, relocation clawback cases, and all forms of unlawful stay-or-pay enforcement across California.
Contact Bibiyan Law Group for a free, confidential consultation. There are no upfront fees; we only get paid when you do.
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.