AB 692 and the End of Most 'Stay-or-Pay' Contracts in California

What the statute reaches

The core prohibition targets contracts that make a worker pay the employer back on separation: training repayment agreement provisions (TRAPs), relocation clawbacks, immigration-sponsorship cost recovery, equipment charges, and similar terms dressed up as loans.

The restriction is not retroactive, so it applies to contracts entered into on or after the effective date. That is cold comfort for employers using an onboarding packet that has not been reviewed since 2024.

The narrow path that remains for sign-on and retention bonuses

• The repayment terms must sit in a separate agreement, not buried in an offer letter or handbook acknowledgment.
• The worker must be given at least five business days to have a lawyer review it.
• Any repayment obligation must be prorated over a period no longer than two years.
• The worker must be allowed to defer payment until the end of the retention period.

Exposure for getting it wrong

• The offending contract or provision is void and unenforceable.
• Workers have a private right of action.
• Statutory damages of at least $5,000 per worker, plus injunctive relief and attorneys' fees.
• Representative claims under PAGA, which turns a template problem into a workforce-wide problem.

A practical cleanup list for employers

• Pull every offer letter, bonus agreement, training agreement, and relocation letter currently in use and identify any repayment trigger.
• Rebuild sign-on and retention bonus documents as standalone agreements with the review period, proration, and deferral terms the statute requires.
• Replace repayment leverage with retention design — vesting cash, milestone bonuses, and equity schedules that reward staying rather than penalizing leaving.
• Train recruiters and hiring managers, who often improvise commitments that contradict the written documents.
• Coordinate with the noncompete rules already in force: California prohibits noncompetes and requires notice to certain former employees whose agreements contained them.

If you are a worker facing a repayment demand

Do not pay in response to a demand letter before the agreement is reviewed. If the contract was entered into in 2026 and does not meet the statutory conditions, it may be void — and the demand itself can create exposure for the employer.