California's stay-or-pay ban, AB 692
AB 692 (2025), amended by AB 1697 (2026): Business and Professions Code § 16608 and Labor Code § 926. It applies to contracts signed on or after January 1, 2027.
Law coming Contracts signed from January 1, 2027.
California signed its stay-or-pay ban, AB 692, on October 13, 2025, to start on January 1, 2026. On September 30, 2026 the governor signed AB 1697, an urgency law that took effect the same day. It moved the start to contracts signed on or after January 1, 2027, cancelled any claims for 2026 and added three new exceptions.
The law has no exception for relocation money, so a relocation clawback only holds if it is set up like a discretionary bonus and meets the same five conditions (our reading of the text).
From 2027 the ban is one of the widest in the country. It covers any term that makes you pay your employer, a training provider or a debt collector if your job ends, and any "penalty, fee, or cost" for leaving, which the law says includes quit fees, replacement hire fees, retraining fees, visa costs and lost profit. It protects job applicants and people in training programs as well as employees.
What it means for each kind of repayment
For contracts signed on or after January 1, 2027:
Training costs
Void
A sign-on bonus
Only with conditions
- It is in a separate agreement from your employment contract.
- You were told you could talk to a lawyer about it and given at least 5 business days to do so.
- There is no interest, and what you owe goes down month by month over a retention period of no more than 2 years.
- You could have chosen to take the payment at the end of the period instead, owing nothing.
- You only repay if you quit, or are fired for misconduct.
Relocation money
Only with conditions
- It is in a separate agreement from your employment contract.
- You were told you could talk to a lawyer about it and given at least 5 business days to do so.
- There is no interest, and what you owe goes down month by month over a retention period of no more than 2 years.
- You could have chosen to take the payment at the end of the period instead, owing nothing.
- You only repay if you quit, or are fired for misconduct.
Tuition or a course you chose
Only with conditions
- It pays for a degree from an accredited school that your job does not require and that is useful beyond this employer.
- It is in a separate agreement, and the degree is not a condition of your job.
- The amount was stated before you agreed, and is no more than what the employer paid.
- What you owe goes down over the required period, with no lump sum if you leave.
- You owe nothing if you are let go, unless it is for misconduct.
A fee or penalty for leaving
Void
What the law leaves out
- Government loan repayment and loan forgiveness programs, and recruitment or retention bonuses paid from a government grant.
- A state-approved apprenticeship.
- Recruiting payments to registered brokers, advisers and insurance agents, under their own conditions.
- Paid time off given in advance, up to 40 hours, if you were told separately.
- Leases, loans and purchase contracts.
If your contract breaks it
- A clause that breaks the law is void: you owe nothing under it.
- You (or a group acting for workers) can sue for your actual losses or $5,000, whichever is more, plus lawyer fees.
Where to complain: California Labor Commissioner.
This is general information, not legal advice. For your own contract, a lawyer or your state's labor department can tell you where you stand.
Questions
When does AB 692 take effect?
For contracts signed on or after January 1, 2027. AB 1697, signed on September 30, 2026, moved the start from January 1, 2026 and cancelled any claims for 2026.
Does AB 692 apply to my contract from 2026?
No. A stay-or-pay term signed in 2026 isn't void under AB 692. Older rules still apply, such as Labor Code § 2802, which makes employers pay necessary business expenses.
Can a California employer claw back a sign-on bonus?
From 2027, only under a separate agreement that gives you 5 business days to see a lawyer, charges no interest, shrinks month by month over at most 2 years, lets you defer the bonus instead, and only applies if you quit or are fired for misconduct.
Get one email when California's law changes
Pick your state. The day a law there passes, starts or changes, we write once with what it means for your contract.
Sources
- AB 1697, chaptered text (Chapter 889, Statutes of 2026), California Legislative Information, read November 8, 2026.
- AB 1697 history, California Legislative Information, read November 8, 2026.
- AB 692 history (Chapter 703, Statutes of 2025), California Legislative Information, read November 8, 2026.
- California's stay-or-pay law effective date delayed, and additional important changes, Morgan Lewis, October 1, 2026.