California moves its “stay-or-pay” ban to 2027
AB 1697 delayed California's ban on repayment clauses by a year and added new exceptions. The ban applies to offer letters, bonus agreements, and training agreements entered into on or after January 1, 2027.
Reviewed by Laurence S. Bezinover · Published
What changed
In 2025, AB 692 banned employment terms that require a worker to repay an employer, a training provider, or a debt collector when the job ends (Lab. Code § 926; Bus. & Prof. Code § 16608). The ban was set to apply to agreements made on or after January 1, 2026.
On September 30, 2026, the Governor signed AB 1697 as an urgency measure, so it took effect immediately. As amended, the ban applies only to agreements entered into on or after January 1, 2027. Agreements made during 2026 are not covered, and pending claims over conduct earlier in 2026 became moot. New or expanded exceptions cover certain retention bonuses, repayment of up to 40 hours of advanced paid time off when an employee leaves voluntarily, and recruiting or retention payments for certain securities, investment-adviser, and insurance professionals.
Who it affects
Employers that recover training costs, relocation costs, or sign-on bonuses when an employee leaves early, and employees asked to sign those terms.
Questions to raise with counsel
- Employers: which offer letters, bonus agreements, and training agreements carry a repayment term, and will versions entered into on or after January 1, 2027 fit an exception?
- Employees: does a repayment clause in an agreement entered into on or after January 1, 2027 fit one of the exceptions, or may it be unenforceable?
- Both: what is the exposure for a noncompliant clause, given that AB 692 lets a worker recover actual damages or $5,000, whichever is greater, plus attorney's fees?
Sources
This briefing is general information about California law, not legal advice for your situation. Reading it does not create an attorney-client relationship.