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California’s Assembly Bill 692 prohibits “stay-or-pay” provisions within employment contracts

6/10/26

By: Mariam Grace and Daniel Parker Jett

Assembly Bill No. 692 (“Bill”) went into effect on January 1, 2026. The new Bill adds Section 16608 to the Business and Professions Code and Section 926 to the Labor Code. The new law prohibits the use of “stay-or-pay” agreements entered into on or after January 1, 2026. “Stay or pay” is shorthand nomenclature for provisions within an employment agreement which require employees to re-pay the employer and/or another entity for expenditures incurred by the employer in reliance on the expected ongoing employment relationship (such as for extensive training or course work) if the employee does not continue his or her employment with that particular employer.

For employment agreements created since January 1, 2026, it is unlawful to require a worker to execute as a condition of employment, or to include within an employment contract, any terms that, upon termination of the worker’s employment: (A) require the worker to pay an employer, training provider, or debt collector for a debt; (B) authorize the employer, training provider, or debt collector to resume or initiate collection of or end forbearance on a debt; (C) impose any penalty, fee, or cost on a worker.

Employees who have signed such an agreement since January 1, 2026, may file for themselves or other employees against the employer and recover the greater of actual damages sustained by the employees or $5,000 per employee, plus injunctive relief, attorney’s fees and costs and costs of suit.

The new law makes explicit exceptions and allows for repayment contracts relating to:

• Any loan repayment assistance program or loan forgiveness program provided by a federal, state, or local governmental agency.
• Repayment of the cost of tuition for a transferable credential that: (1) is offered separately from any contract for employment; (2) does not require obtaining the transferable credential as a condition of employment; (3) that specifies the repayment amount before the worker agrees to the contract; (4) that does not require repayment to the employer by the worker if the worker is terminated, except if the worker is terminated for misconduct; (5) and provides a prorated repayment amount during any required employment period that is proportional to the total repayment amount and the length of the required employment period and does not require an accelerated payment schedule if the worker separates from the employment.
• Enrollment in an apprenticeship program approved by the Division of Apprenticeship Standards.
• Receipt of a discretionary or unearned monetary payment, including a financial bonus, at the outset of employment that is not tied to specific job performance.
• Leasing, financing, or purchasing a residential property, including, but not limited to, a contract pursuant to the California Residential Mortgage Lending Act.

We strongly advise that employers review their employment agreements and revise them accordingly to comport with the new law.

For more information, please contact Mariam Grace  at mariam.grace@fmglaw.com, Daniel Parker Jett at daniel.jett@fmglaw.com or your local FMG attorney.

Information conveyed herein should not be construed as legal advice or represent any specific or binding policy or procedure of any organization. Information provided is for educational purposes only. These materials are written in a general format and not intended to be advice applicable to any specific circumstance. Legal opinions may vary when based on subtle factual distinctions. All rights reserved. No part of this presentation may be reproduced, published or posted without the written permission of Freeman Mathis & Gary, LLP.