The End of “Stay-or-Pay”: California Bans Training Repayment Contracts in 2026

For years, businesses have used “training repayment agreements” as a safety net. The logic was simple: if we invest thousands in training you, you should stay long enough for us to see a return on that investment, if you leave early, you pay us back.

As of January 1, 2026, that safety net is largely gone.

Under the new law AB 692, it is unlawful to include “stay or pay” clauses in employment contracts signed on or after this date. Specifically, you cannot require a worker to repay a “debt” –including costs for training, education, relocation, or immigration–if their employment ends.

What is Strictly Prohibited?

You can no longer charge employees for:

• Internal training programs.
• Relocation expenses if they quit.
• Visa or immigration processing costs.

The “Narrow Exceptions”: When Can You Ask for Repayment?

The law isn’t a total ban, but the exceptions are specific and strict. You may still use repayment agreements only in these scenarios:

• Government Loan Forgiveness: Contracts tied to government-agency loan repayment programs.
• Transferable Credentials: You can require repayment for tuition for a credential that has value outside your company (like a CPA license or nursing certification). However, the repayment must be prorated, capped at your actual cost, and cannot be collected if you fire the employee without cause.
• Sign-On & Retention Bonuses: You can still use “clawback” provisions for cash bonuses, but you must follow new rules:
  • It must be a separate agreement, not buried in the offer letter.
  • The employee gets 5 business days to review it before signing.
  • The repayment must be prorated (no lump sums) and interest-free.
  • The retention period cannot exceed two years.

Rethinking Retention

This law forces a shift from “handcuffs” to culture. Instead of locking employees in with debt, focus on what makes them want to stay: “opportunities to grow professionally” and a supportive environment.

Action item: Review your offer letters and employee handbooks now. If you have standard “repayment” language, it needs to be removed or revised before 2026.

Unsure if your bonus agreement is legal?

Let Griswold LaSalle review your contracts to protect your interests.