California Delays Its ‘Stay-or-Pay’ Ban to 2027 and Adds New Exceptions (AB 1697)

On September 30, 2026, Governor Newsom signed AB 1697, an urgency law that pushes California’s ban on “stay-or-pay” contracts back one year, so it now covers only contracts entered into on or after January 1, 2027, and adds several new exceptions. The ban comes from AB 692, a 2025 law that was supposed to apply to contracts signed starting January 1, 2026.

A stay-or-pay clause makes you pay your employer back if you leave the job: a training repayment agreement, a bonus clawback, a “quit fee” or a debt that suddenly comes due when you resign. These clauses can cost workers thousands of dollars and keep people in jobs they want to leave. If you signed one, or are being asked to sign one, the new timeline and exceptions matter.

This post explains what AB 1697 changed, what it means for contracts signed in 2026, which repayment deals are still allowed, how the ban will protect you starting in 2027, and what to do if your employer is demanding repayment now.

What happened

AB 692 (Kalra), signed in October 2025, added Section 16608 to the Business and Professions Code and Section 926 to the Labor Code. It made it unlawful to put a term in an employment contract that requires a worker to repay a debt, or pay a penalty, fee or cost, if the job ends. As enacted, it applied to contracts entered into on or after January 1, 2026.

AB 1697, also by Assemblymember Ash Kalra, was signed on September 30, 2026 (Chapter 889, Statutes of 2026). Because it contains an urgency clause, it took effect the day it was signed. According to the chaptered bill text, it does three main things:

• Moves the start date. The ban now applies to contracts entered into on or after January 1, 2027. The AB 692 provisions are made inoperative from January 1 through December 31, 2026.
• Wipes out 2026 claims under AB 692. The Legislature stated that the amendments prevent liability from building up for acts between January 1, 2026 and the bill’s effective date, and that pending claims based on violations alleged during that period are moot.
• Adds and widens exceptions for certain retention bonuses, government-funded recruitment and retention programs, advanced paid time off, and inducement payments in the securities, insurance and investment advisory fields.

The Legislature said it wanted to give employers an additional year to remove “quit fees” and debt traps from their contracts, and to give unionized employers time to come into compliance.

Date	What happened
October 13, 2025	AB 692 signed; ban set to apply to contracts entered into on or after Jan. 1, 2026
January 1, 2026	Original start date for AB 692
September 30, 2026	AB 1697 signed and takes effect immediately as an urgency statute
Jan. 1 – Dec. 31, 2026	AB 692 provisions treated as inoperative
January 1, 2027	Stay-or-pay ban applies to contracts entered into on or after this date

By the numbersJanuary 1, 2027

What this means for California workers

If you signed a training repayment agreement or bonus clawback in 2026, Section 16608 and Labor Code 926 generally will not apply to it, because those laws now reach only contracts entered into on or after January 1, 2027. That is a real change. Our earlier article, why stay-or-pay contract clauses are a problem in California, was written when the ban was scheduled to start January 1, 2026; AB 1697 moved that date.

That does not mean every 2026 repayment clause is enforceable. AB 1697 keeps the rule that these provisions are cumulative with other laws, and it specifically preserves your rights under Labor Code 2802 (your employer must cover necessary business expenses), California’s independent contractor rules and the Unfair Competition Law. A clause that makes you pay for ordinary job training or equipment the employer should cover may still be challenged. California’s broad ban on restraints of trade, which is why non-compete agreements are void in California, can also come into play depending on the terms.

For contracts signed in 2027 and later, the ban is broad. It covers repayment terms written into the job contract itself and contracts you are required to sign as a condition of the job, whether written or oral.

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The new exceptions in AB 1697

AB 692 already allowed a few kinds of repayment deals: government loan forgiveness programs, tuition for a transferable degree (with strict conditions, including no repayment if you are fired other than for misconduct), state-approved apprenticeships, and housing leases or loans. AB 1697 adds or expands these:

• Retention bonuses. AB 692 allowed repayment of a bonus paid “at the outset of employment.” AB 1697 drops that limit, so a mid-employment retention bonus can also qualify. The repayment terms must be in a separate agreement; you must be told you can consult a lawyer and get at least five business days to do so; repayment must be prorated, interest-free and tied to a retention period of no more than two years; you must have the option to take the money at the end of the period with no repayment risk; and you can only be charged if you quit or are fired for misconduct.
• Government-funded programs. Recruitment or retention bonuses paid through a government grant, if the repayment terms follow the grant and do not exceed its service obligations.
• Advanced paid time off. If you ask for PTO beyond what you have accrued and later quit, you can be required to repay it, but only up to 40 hours, with no interest, and only if the terms were disclosed separately when you asked for the advance.
• Financial services inducements. Payments to registered or licensed securities agents, insurance producers and investment adviser representatives to join or stay with a firm, with a separate agreement, notice of the right to counsel and an interest cap.

💡 Example: In 2027, Ana accepts a $6,000 retention bonus with a 24-month retention period under an agreement that meets every condition above. She resigns after 18 months. The most she can owe is the prorated share for the 6 months she did not serve: $6,000 × 6/24 = $1,500, with no interest. If she had been laid off instead, she would owe nothing.

Your rights under California’s stay-or-pay law

For covered contracts entered into on or after January 1, 2027, Business and Professions Code 16608 makes it unlawful to include a term that requires you to pay your employer, a training provider or a debt collector for a debt if your job ends; lets them start or resume collection of a debt when you leave; or imposes any penalty, fee or cost because you leave. The law lists examples such as replacement hire fees, retraining fees, quit fees, liquidated damages, lost profits and reimbursement of immigration or visa costs.

A contract that violates Section 16608 is void as a restraint on your ability to work. Under Labor Code 926, you (or a worker representative) can sue on your own behalf and for others in the same situation. A violator is liable for your actual damages or $5,000 per worker, whichever is greater, plus injunctive relief and reasonable attorney’s fees and costs.

Separately, an employer generally cannot take a claimed repayment out of your last paycheck on its own. California’s wage deduction rules are strict, and holding back final wages can trigger waiting time penalties for a late final paycheck of up to 30 days of pay. AB 1697 is one of several job-mobility changes covered in our guide to new California employment laws for 2027.

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What to do now

1. Find every agreement you signed. Look for offer letters, training agreements, bonus agreements and handbook acknowledgments, and note the date you signed each one.
2. Check the date. Contracts entered into on or after January 1, 2027 fall under the new ban. Earlier contracts need to be reviewed under other California laws.
3. Read the bonus terms closely. A clawback that is not in a separate agreement, charges interest, lasts more than two years or applies when you are laid off does not fit the retention bonus exception.
4. Do not sign new paperwork under pressure. For a bonus repayment agreement, the law requires notice of your right to talk to a lawyer and at least five business days to do so.
5. Do not pay a demand right away. If you get a repayment demand or collection letter after leaving, keep it and get advice before paying.
6. Check your final paycheck. If money was withheld to cover a claimed debt, write down the amounts and dates.
7. Talk to an employment lawyer. A short review can tell you whether the clause is enforceable and whether you have claims of your own.

By the numbers$5,000

Frequently asked questions

Is California’s stay-or-pay ban in effect right now?

AB 1697 is in effect, but the ban it rewrote applies only to contracts entered into on or after January 1, 2027. For contracts signed before then, other California laws may still limit what your employer can collect.

I signed a training repayment agreement in 2026. Do I have to pay?

Not necessarily. Section 16608 will generally not apply, but the clause may still be unenforceable if it shifts ordinary business expenses to you or otherwise conflicts with California law. It depends on the exact terms.

Can my employer still claw back a sign-on bonus?

Yes, but only within the exception’s limits for 2027 contracts: separate agreement, notice of the right to counsel, at least five business days to review, prorated and interest-free repayment, a retention period of two years or less, an option to defer the bonus, and no repayment if you are let go other than for misconduct.

Does AB 1697 affect non-compete agreements?

No. Non-competes remain void in California under Business and Professions Code 16600 and related sections. AB 1697 deals only with repayment and exit-fee terms.

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Sources

• California Legislative Information: AB 1697 (Chapter 889, Statutes of 2026), chaptered bill text
• California Legislative Information: AB 692 (2025), chaptered bill text
• The National Law Review: California revises stay-or-pay provisions under AB 1697
• CalPeculiarities: California resets the clock and rewrites the AB 692 playbook

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