Have you ever been told you’d owe your employer money if you quit?
Maybe it was a training repayment agreement you signed on your first day. Maybe it was a clause buried in your offer letter saying you’d have to pay back relocation costs if you left within two years. Maybe it was a sign-on bonus with a clawback provision that felt more like a leash than a perk.
These arrangements — sometimes called “stay-or-pay” agreements — have been used for years to discourage workers from leaving. As of January 1, 2026, California has put sharp limits on them.
Note: This is general information, not legal advice for your specific situation.
What Is a Stay-or-Pay Agreement?
A stay-or-pay agreement is any contract term that requires a worker to repay the employer — or face penalties, fees, or debt collection — if the worker’s employment ends before a certain date. They go by different names depending on the industry:
- Training Repayment Agreement Provisions (TRAPs). Common in trucking, healthcare, tech bootcamps, and staffing agencies. You agree to repay the cost of employer-provided training if you leave within a set window.
- Relocation clawbacks. The company pays to move you, then requires repayment if you leave within one to three years.
- Sign-on bonus repayment. You receive an upfront payment that converts to a debt if you separate before the retention period ends.
- Education repayment. The employer funds a degree or certification and requires you to stay — or pay it all back.
These clauses can run into the tens of thousands of dollars. For many workers, that’s enough to keep them in a job they’d otherwise leave — even a job where they’re being mistreated.
What AB 692 Changed
Assembly Bill 692 — now part of the California Labor Code — makes it unlawful for an employment contract entered into on or after January 1, 2026, to do any of the following:
- Require a worker to repay the employer (or a training provider, or a debt collector) if their employment ends;
- Authorize the start or resumption of debt collection against a worker because employment ends; or
- Impose any penalty or fee on a worker because employment ends.
In plain terms: if you signed a new agreement on or after January 1, 2026, your employer generally cannot make you pay for leaving.
There Are a Few Narrow Exceptions
AB 692 isn’t a blanket ban on every repayment arrangement. A few categories survive, but they come with strict conditions:
Transferable credentials
An employer can still require repayment for tuition support toward a transferable credential — meaning a degree from an accredited third-party institution that is not required for the employee’s current job and is useful beyond that employer. Even then, the repayment must be prorated (so it shrinks over time), offered separately from any employment contract, and can’t be a condition of employment.
Sign-on bonuses
Sign-on bonus clawbacks are still permitted, but with guardrails. The employer must give the worker at least five business days to consult an attorney before signing. The retention period can’t exceed two years. Repayment must be prorated, can’t accrue interest, and is only triggered if the worker leaves voluntarily or is terminated for misconduct. And the worker must have the option to defer receiving the bonus until the end of the retention period — essentially opting out of any repayment obligation entirely.
Government programs and apprenticeships
Contracts under government loan repayment or forgiveness programs, and state-approved apprenticeship programs, are also exempt.
Why This Law Matters for Workers
Stay-or-pay clauses don’t just cost money. They change the power dynamic in the workplace.
When a worker knows that quitting means owing $10,000 or $20,000, it becomes much harder to:
- Leave a job where wage theft is happening;
- Report safety violations or illegal conduct;
- Push back on misclassification, missed breaks, or unpaid overtime;
- Accept a better job offer.
That’s the real cost. These agreements don’t just trap workers financially — they silence them. AB 692 is designed to break that cycle.
What If You Already Signed One?
AB 692 applies to agreements entered into on or after January 1, 2026. If you signed a stay-or-pay clause before that date, the new law doesn’t automatically void it — but that doesn’t mean it’s enforceable. California courts have been skeptical of these provisions for years, and other legal theories (including Labor Code section 2802 and the unfair business practices statute) may still apply to older agreements.
If your employer is threatening to collect under a pre-2026 agreement, it’s worth having a lawyer look at the specific language.
What If Your Employer Violates AB 692?
Workers who are subjected to an unlawful stay-or-pay provision can bring a private lawsuit — on their own behalf, on behalf of other similarly situated workers, or both. Remedies include:
- Actual damages or $5,000 per employee — whichever is greater;
- Reasonable attorneys’ fees.
That means even if the employer never actually collects the repayment, having the clause in the contract may be enough to create liability.
What You Can Do
- Read your employment agreement. Look for any language about repayment, clawbacks, or penalties tied to leaving. If it’s in there, note what it says and when you signed it.
- Don’t pay without getting advice. If your employer is demanding repayment — whether under a training agreement, relocation clause, or sign-on bonus — don’t assume you owe it. The terms may not hold up.
- Keep your paperwork. Offer letters, training agreements, relocation packages, bonus letters — anything that references a repayment obligation.
- Talk to a lawyer. A California employment attorney can review the language, tell you whether it’s enforceable, and explain your options.
Getting a bill from a former employer for training or relocation costs can feel intimidating. But in California, the rules have shifted. You may not owe what they say you owe.
If you’re being asked to repay your employer for training, relocation, or a sign-on bonus — or if a stay-or-pay clause is keeping you from leaving a bad job — Lebe Law can review your situation. Free, confidential consultation: https://lebelaw.com/contact.
This article is for general informational purposes only and does not constitute legal advice. Reading this article does not create an attorney-client relationship with Lebe Law, APLC. Every situation is different. If you have questions about your specific circumstances, consult a licensed California attorney. Prior results do not guarantee a similar outcome.
