In this guide13 sections
California Labor Code section 926 voids “stay-or-pay” contract terms, such as training repayment agreements and quit fees, that make you pay your employer if you leave a job, and lets you sue for the greater of your actual damages or $5,000 per worker, but only for contracts entered into on or after January 1, 2027. The ban was first set to start in 2026. A 2026 amendment, AB 1697, made it inoperative for all of 2026 and added new exceptions.
Section 926 works together with Business and Professions Code §16608, which lists what is banned and what is allowed. This page is a statute guide to both. For background on what changed in 2026 and why, see our post on the AB 1697 delay, and for how these clauses show up in real job offers, see stay-or-pay clauses: what workers should know.
- Labor Code 926 voids contract terms that make you pay your employer when you leave, such as training repayment and quit fees.
- It applies only to contracts entered into on or after January 1, 2027; AB 1697 made it inoperative for all of 2026.
- If an employer uses a banned term, you can sue for the greater of actual damages or $5,000 per worker, plus attorney’s fees.
- Some repayment terms are still allowed if strict conditions are met, including certain sign-on bonuses, transferable-credential tuition, apprenticeships and advanced PTO.
- Contracts signed in 2026 fall outside section 926, but other laws, such as Labor Code 2802 and Business and Professions Code 16600, may still apply.
What Labor Code 926 says
| Subdivision | What it says (paraphrased) |
|---|---|
| (a) | A contract or term that violates Business and Professions Code §16608 is void as contrary to public policy, but only if entered into on or after January 1, 2027. |
| (b) | A worker subjected to the prohibited conduct, or a worker representative, may sue on behalf of that worker, other people similarly situated, or both. |
| (c) | A person found liable owes the greater of actual damages or $5,000 per worker, plus injunctive relief and reasonable attorney’s fees and costs. |
| (d) | Section 926 doesn’t limit other remedies available under §16608. |
| (e) | The section, as it read on January 1, 2026, is inoperative from January 1, 2026, to December 31, 2026, inclusive. |
When it takes effect
AB 692, passed in 2025, originally applied the ban to contracts entered into on or after January 1, 2026. AB 1697, signed by the Governor on September 30, 2026, as an urgency measure that took effect immediately, changed that. Under the current text of both sections:
- Contracts entered into during 2026 are outside the ban, and the versions of both sections that took effect on January 1, 2026, are inoperative for that year.
- Contracts entered into on or after January 1, 2027 are covered.
If you signed a repayment agreement in 2026, section 926 doesn’t void it. Other laws may still apply, as explained below.
Who it covers
Section 16608 defines “worker” broadly: “a natural person who is permitted to work for or on behalf of an employer,” including employees and prospective employees, and people in other work relationships, job training or skills training. “Employer” also reaches related companies, contractors, hiring parties and third-party agents, and the ban covers repayment demands from training providers and debt collectors as well as employers.
Whether you have to pay depends on when you signed and on the exact terms. A contract signed in 2027 or later may be void, and a 2026 one may still be challenged under other laws.
What is banned
For contracts entered into on or after January 1, 2027, section 16608 makes it unlawful to include in an employment contract, or to require a worker to sign as a condition of employment or a work relationship, a term that:
- requires you to pay a debt to an employer, training provider or debt collector if your work relationship with a particular employer ends;
- lets collection start or resume, or ends a forbearance on a debt, when that relationship ends; or
- imposes any penalty, fee or cost on you when that relationship ends.
“Penalty, fee, or cost” is defined to include replacement hire fees, retraining fees, quit fees, immigration or visa costs, liquidated damages, lost goodwill and lost profit. “Debt” includes employment-related and education-related costs, even if the debt is contingent.
Exceptions
Section 16608 allows these arrangements if every listed condition is met:
| Exception | Key conditions |
|---|---|
| Government loan repayment or forgiveness programs; government-grant-funded recruitment or retention programs | For grant programs, repayment must comply with the grant and not exceed its required service obligation |
| Tuition for a transferable credential (a degree from an accredited third-party institution, not required for your current job) | Offered separately from the employment contract; the credential isn’t a condition of employment; amount stated up front and no more than the employer’s cost; prorated with no accelerated payment; nothing owed if you are fired, unless for misconduct |
| State-approved apprenticeship programs | Program approved by the Division of Apprenticeship Standards |
| Discretionary or unearned payments, such as sign-on or retention bonuses, not tied to job performance | Separate agreement; notice of your right to consult a lawyer and at least five business days to do so; no interest; repayment prorated over a retention period of no more than two years; option to defer the payment until the period ends; repayment owed only if you choose to leave or are fired for misconduct |
| Leases, financing or purchases of residential property | Applies to housing contracts, including mortgage lending |
| Recruitment and retention payments in securities and insurance | Limited to agents and representatives of broker-dealers, investment advisers and insurers who are registered with the SEC or FINRA or licensed under specified California law; payment on top of regular pay; separate agreement; notice of the right to consult a lawyer for at least five business days; any interest capped at the IRS applicable federal rate |
| Advanced paid time off | Repayment only on voluntary separation; terms disclosed separately when you request the advance; capped at 40 hours; no interest |
The financial-services and advanced-PTO exceptions, the grant-funded program exception, and the removal of an “outset of employment” limit on bonuses were added by AB 1697.
Penalties and remedies
- The term is void: a covered contract term that violates §16608 can’t be enforced.
- Damages: actual damages or $5,000 per worker, whichever is greater.
- Injunctive relief to stop the employer from using or enforcing the term.
- Attorney’s fees and costs for a worker who wins.
- Group claims: a worker or worker representative can sue for others similarly situated.
A covered term is also treated as a contract restraining a lawful profession, trade or business, which is void under Business and Professions Code §16600, the same statute that makes most non-compete agreements void in California.
Deadlines
Section 926 doesn’t state a filing deadline. Without a specific deadline, the general statutes of limitations in the Code of Civil Procedure would apply. They include one year for an action on a statute for a penalty or forfeiture given to an individual (Code Civ. Proc. §340(a)) and three years for other liabilities created by statute (Code Civ. Proc. §338(a)). Which one applies to a section 926 claim hasn’t been settled, so act as early as you can, ideally within one year.
If you signed in 2026
Section 926 won’t help with a 2026 contract, but other laws might, depending on the terms:
- Labor Code §2802 requires an employer to indemnify you for “all necessary expenditures or losses” you incur because of your job duties. See our §2802 explainer.
- Labor Code §221 makes it unlawful for an employer to collect back any part of wages it already paid you, and Labor Code §224 allows withholding from wages only in narrow situations.
- Business and Professions Code §16600 voids contracts that restrain you from a lawful profession, trade or business.
Whether any of these defeats a particular repayment demand depends on the facts, so have the agreement reviewed before you pay.
Related sections
| Section | What it does |
|---|---|
| Bus. & Prof. Code §16608 | Lists the banned stay-or-pay terms and the exceptions |
| Bus. & Prof. Code §16600 | Voids contracts that restrain a lawful profession, trade or business |
| Labor Code §2802 | Employer must reimburse necessary work expenses |
| Labor Code §221 | Employer can’t collect back wages it paid |
| Labor Code §224 | Limits deductions from wages |
How it plays out
💡 Example: Marcus, a hypothetical warehouse supervisor, is hired in March 2027. His offer includes a $6,000 sign-on bonus under a separate retention agreement that gives him five business days to talk to a lawyer, charges no interest, lets him defer the bonus until the retention period ends, and sets a 24-month retention period. The offer letter also says he owes a $3,000 “training fee” if he quits within a year. The training-fee term is void under section 926. If the employer tries to enforce it, Marcus can seek the greater of his actual damages or $5,000, plus attorney’s fees. The bonus agreement fits the exception for discretionary payments. If Marcus chooses to leave after 18 months, 6 of the 24 months remain, so a prorated repayment would be 6 ÷ 24 × $6,000 = $1,500, with no interest. If he is laid off rather than fired for misconduct, he owes nothing.
What to do
- Note the date you signed any repayment, bonus or training agreement. The 2027 start date decides whether section 926 applies.
- Check whether repayment terms are in a separate document and whether you were told you could consult a lawyer, with at least five business days to decide.
- Keep copies of the agreement, the offer letter and any demand for payment.
- Don’t let an employer take a “repayment” out of your final paycheck without getting advice; see our final pay explainer.
- Talk to an employment lawyer before you pay a demand or sign a new agreement.
Frequently asked questions
When does the California stay-or-pay ban apply?
It covers contracts entered into on or after January 1, 2027. Under AB 1697, section 926 and §16608 are inoperative for 2026, so contracts signed during 2026 are outside the ban.
Can my employer make me repay training costs if I quit?
For contracts entered into on or after January 1, 2027, a term requiring repayment of training costs when you leave is generally void, unless it fits an exception such as tuition for a transferable credential that meets every condition.
Can I be asked to repay a sign-on bonus?
Possibly. A bonus repayment term can be valid if it is in a separate agreement, gives you at least five business days to consult a lawyer, charges no interest, is prorated over a retention period of no more than two years, lets you defer the payment, and applies only if you choose to leave or are fired for misconduct.
What can I recover if my employer violates section 926?
The greater of your actual damages or $5,000 per worker, plus injunctive relief and reasonable attorney’s fees and costs.
Does section 926 cover independent contractors and job applicants?
The definition of “worker” in §16608 includes prospective employees and reaches other work relationships and job training. Whether it covers your situation depends on the facts.
Sources
- Labor Code §926
- Business and Professions Code §16608
- Business and Professions Code §16600
- Labor Code §2802, §221 and §224
- Code of Civil Procedure §338 and §340
Workers only. Never employers.
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This article provides general information about California law and is not legal advice for any specific situation. Reading it does not create an attorney-client relationship. Past results do not guarantee a similar outcome.
