California AB 692 Restricts Repayment Agreements: Summary and Next Steps

Companies with employees working in California, take note! AB 692 is now law and will likely require an audit and restructuring of your repayment agreements. XONEX is urging companies to consult with their counsel on repayment verbiage and implementation.

Please read on for more details:

What is AB 692?

California Assembly Bill 692 (AB 692) was signed into law by Governor Gavin Newsom on October 13, 2025. It prohibits most "stay-or-pay" provisions (also known as training repayment agreement provisions or TRAPs) in employment contracts. These are clauses that require employees or workers to repay training costs, sign-on bonuses, relocation expenses, or other costs if they leave the job before a specified period.

The law adds Section 16608 to the Business and Professions Code and Section 926 to the Labor Code. It views such provisions as unlawful restraints on trade under Business & Professions Code § 16600 (California's long-standing ban on non-competes).

AB 692 applies only to contracts entered into on or after January 1, 2026 — existing agreements (before that date) are not retroactively void or unlawful.

Who Does AB 692 Impact?

AB 692 applies to anyone working in California, regardless of employer or signing location:

• Agreements signed while in California apply even if the employee later moves to another state;

• Agreements signed prior to moving to California may apply once work begins in the state;

• Multi-state programs that include California (ex. Rotational and Nomad programs) are included.

  
  

What Does AB 692 prohibit?

For contracts on or after January 1, 2026, employers cannot:

• Include or require (as a condition of employment or a work relationship) any term that requires a worker to pay the employer, a training provider, or a debt collector if the worker's employment terminates (regardless of whether the worker quits, is fired, or is laid off);

• Impose penalties, fees, or repayment obligations triggered solely by termination.

This broadly covers:

• Training Repayment Agreement Provisions (TRAPs)

• Repayment of sign-on or retention bonuses (with limited exceptions)

• Relocation cost repayments

• Tuition assistance (unless it meets strict exceptions)

• Any "exit fee" or similar debt tied to leaving

Are There Any Exceptions Where Repayment Clauses May be Allowed?

Yes, there are exceptions, including:

1. Tuition/educational assistance. Only if the education leads to a transferable credential (e.g., degree or certification usable elsewhere) and is not required for the employee's current role.

2. Discretionary sign-on bonuses at the outset of employment (new hires or rehires). Repayment allowed only if all of these are met:

• Separate agreement from the main employment contract

• Worker gets written notice of right to consult an attorney and at least 5 business days to do so

• Repayment is prorated (based on time remaining in the retention period)

• Retention period ≤ 2 years

• No interest accrues

• Worker can defer receiving the bonus until the end of the period (avoiding repayment)

• Repayment triggered only if separation is at the worker's sole discretion or due to misconduct (not if employer terminates without cause)

3. State-approved apprenticeship programs. Governed by the Division of Apprenticeship Standards.

4. Certain property-related contracts (e.g., residential mortgages).

Retention bonuses paid to existing employees after the start of employment generally do not qualify for the sign-on exception and are prohibited.

Are There Penalties for Non-Compliance?

Yes, there are penalties for non-compliance, including:

• The clause is void and unenforceable;

• Workers (or their representatives) can sue for:

• Actual damages or statutory damages of at least $5,000 per worker (whichever is greater)

• Injunctive relief

• Attorney's fees and costs

• Violations may also constitute unfair competition under Business & Professions Code § 17200.

  
  

What’s Next? XONEX Suggests Clients Take the Following Steps:

1. Audit existing templates and practices. Review all offer letters, employment agreements, training contracts, bonus plans, relocation policies, and tuition assistance programs for prohibited clauses.

2. Update all necessary contracts. Remove or revise stay-or-pay provisions. Do not carry them forward into new agreements.

3. Restructure incentives if needed:

• Pay bonuses at the end of the retention period instead of upfront.

• Use forfeitable (not repayable) bonuses.

• For sign-on bonuses wanting repayment protection, strictly follow the exception requirements (separate agreement, 5-day review, proration, etc.).

4. Train HR, recruiters, and managers. Your HR frontline should understand what is allowed vs. prohibited; companies should require legal/HR review of custom offers.

5. Do not amend pre-2026 agreements. The law is prospective; modifying old agreements could unintentionally bring them under the new rules.

6. Engage employment counsel. Companies should engage legal counsel as soon as possible to audit and restructure repayment agreements and other relevant contracts.

   
   

For the official bill text, see the California Legislative Information site: https://leginfo.legislature.ca.gov/faces/billNavClient.xhtml?bill_id=202520260AB692

The relocation industry’s response to AB-692 is unfolding. We will continue to provide updates as we gain a better understanding of best practices. In this interim, we encourage all clients to coordinate with their legal teams on reviewing and amending all relevant contracts.