Many employers pay a signing bonus or advance incentivize a candidate to accept an employment offer.  Some employers pay for education or training for an employee to enhance skills or further the possibility of promotion within a company.  These payments often come with strings attached, as employers understandably want to make sure that they receive value for the payment.  In most cases, the employer requires the employee to work for a “retention period” over which the bonus or training payment is earned; if employment ends during the retention period, all or some of the bonus or training amount must be repaid by the worker to the employer.  These arrangements, known as “stay or pay” contracts, are about to change.

Effective January 1, 2026, Assembly Bill 692 places severe restrictions on the ability of an employer to require repayment of fees paid for training or any payment made to an employee unless certain conditions are met.  Any contract entered after January 1, 2026, that fails to comply with AB 692 will be deemed an unlawful restraint preventing the worker from engaging in a lawful profession, trade, or business.  Further, any worker subject to such an unlawful contract may bring action or class action on behalf of all those workers similarly situated seeking actual damages or $5,000 per worker, whichever is greater, plus attorney’s fees and costs.

More specifically, AB 692 prohibits employers from including a provision in any employment contract, or requiring a worker to execute a contract as a condition of employment, that requires the worker to pay the employer, a training provider, or a debt collector for a debt if the worker’s employment terminates.  The prohibition includes contracts that authorize the employer, a training provider, or a debt collector to resume or initiate collection of, or end forbearance on, a debt upon the termination of employment.  Imposing penalties, fees or costs upon termination of employment is also forbidden.

There are several important exceptions to AB 692.  It does not apply to government loan programs and contracts for an apprenticeship program approved by the Division of Apprenticeship Standards.  Contracts for the leasing, financing or purchasing of residential property are also allowed.  Contracts for the repayment of tuition for a transferable credit are permitted if the agreement is separate from any employment contract and is not required as a condition of employment.  Further, tuition repayment agreements must specify the repayment amount before the employee signs the contract, and that amount cannot exceed the employer’s cost.  In addition, the contract for repayment must provide for a prorated repayment amount during any required employment or retention period that is proportional to the total repayment amount and the length of the required employment period and does not require an accelerated payment if the worker separates from the employment.  Finally, the tuition contract must not require repayment to the employer by the worker if the worker is terminated, except if the worker is terminated for “misconduct” (which has same meaning as in Section 1256 of the Unemployment Insurance Code).

The repayment of signing bonuses or other discretionary or unearned payments at the outset of employment that is not tied to job performance is allowed if certain conditions are met.  The terms for repayment must be included in an agreement that is separate from any employment contract.  The employee must be notified of the right to consult with counsel and provided at least 5 business days to do so prior to the execution of the agreement.  Any repayment obligation for early separation must not be subject to interest and must be prorated based on the term of the retention period, which should not exceed two years from the initial payment or bonus.  The contract must give the worker the option to defer payment until the end of the fully served retention period with no repayment obligation.  Most importantly, a repayment obligation triggered by separation during the retention period must only be for employer termination for misconduct or due to the election of employee.

Stay or pay contracts will remain a useful tool for employers to attract and retain talented workers.  However, employers who are not careful to adapt to the new requirements imposed by AB 692 will find the contract to be far more expensive than they anticipated. 

This blog is presented under protest by the law firm of Ervin Cohen & Jessup LLP. It is essentially the random thoughts and opinions of someone who lives in the trenches of the war that often is employment law–he/she may well be a little shell-shocked. So if you are thinking “woohoo, I just landed some free legal advice that will fix all my problems!”, think again. This is commentary, people, a sketchy overview of some current legal issue with a dose of humor, but commentary nonetheless; as if Dennis Miller were a lawyer…and still mildly amusing. No legal advice here; you would have to pay real US currency for that (unless you are my mom, and even then there are limits). But feel free to contact us with your questions and comments—who knows, we might even answer you. And if you want to spread this stuff around, feel free to do so, but please keep it in its present form (‘cause you can’t mess with this kind of poetry). Big news: Copyright 2025. All rights reserved; yep, all of them.

If you have any questions about this article, contact the writer directly, assuming he or she was brave enough to attach their name to it. If you have any questions regarding this blog or your life in general, contact Kelly O. Scott, Esq., commander in chief of this blog and Head Honcho (official legal title) of ECJ’s Employment Law Department.