Stay-or-Pay Agreements Present Big Risks in California

California employers should take a close look at any agreement that requires a worker to repay money, training costs, bonuses, relocation expenses, or similar amounts if the worker leaves employment.

Assembly Bill 692, effective for contracts entered into on or after January 1, 2026, restricts many so-called “stay-or-pay” provisions. In general, the law targets contract terms that require a worker to pay an employer, training provider, or debt collector because the employment relationship ends.

The practical concern is simple: provisions that once looked like retention tools may now look like unlawful restraints on worker mobility. Common documents to review include offer letters, relocation agreements, tuition reimbursement agreements, sign-on bonus agreements, training repayment provisions, independent contractor agreements, and separation-related repayment terms. This does not mean every reimbursement or repayment arrangement is automatically unlawful. But employers should stop using broad, automatic repayment clauses tied to separation without careful review. The highest-risk terms are those that impose a financial penalty simply because the worker resigns, is terminated, or does not remain employed for a required period.

Employers should ask:

• Does the agreement require repayment because employment ends?

• Is the amount tied to actual costs, or does it function like a penalty?

• Does the repayment obligation discourage the employee from leaving?

• Was the agreement entered into on or after January 1, 2026?

• Is there a statutory exception or defensible business basis?

The safer path is to shift from retention-by-penalty to retention-by-design. Competitive compensation, clear advancement opportunities, reasonable training investments, and carefully drafted reimbursement policies are less likely to create enforcement risk.

For California employers, this is also a good time to clean up legacy templates. Even if older agreements are not treated the same way as new contracts, outdated forms often get reused without anyone noticing.

A quick contract audit now can prevent a much more expensive dispute later.