Stay-or-Pay Contract Clauses in California: What Workers Should Know

A “stay-or-pay” clause makes you pay your employer back if you leave before a set date, usually for training, a sign-on bonus or relocation costs. California has passed a law that voids most of these clauses, but after a 2026 amendment the ban covers only contracts signed on or after January 1, 2027. If you signed one earlier, you may still have defenses under existing California wage and contract law, so don’t pay a repayment demand before checking.

What counts as a stay-or-pay clause

These terms show up under many names. Common versions include:

• Training repayment agreements (sometimes called TRAPs) that charge you for onboarding or job training if you quit early.
• Sign-on or retention bonus clawbacks that require you to return a bonus if you leave within a set period. (Disputes over earned bonuses and commissions are covered in unpaid commissions and bonuses.)
• Relocation repayment terms covering moving costs.
• Quit fees, replacement-hire fees or “liquidated damages” charged when you leave.
• Visa or immigration cost reimbursement demanded at separation.

Some clauses also let a debt collector start collecting, or end a payment pause, once you leave a specific employer.

California’s stay-or-pay law and the 2027 start date

AB 692 was signed in 2025 and added Business and Professions Code §16608 and Labor Code §926. As first written, it covered contracts signed on or after January 1, 2026.

On September 30, 2026, the governor signed AB 1697 (Chapter 889, Statutes of 2026), an urgency bill that took effect immediately. It made the law inoperative from January 1 through December 31, 2026, and moved the start date to contracts entered into on or after January 1, 2027. It also added and widened several exceptions. For other changes taking effect that day, see new California employment laws for 2027.

For contracts signed on or after that date, §16608 makes it unlawful to include, or require a worker to sign as a condition of employment, a term that:

• Requires the worker to pay the employer, a training provider or a debt collector a debt if the job ends.
• Lets collection start or resume, or ends a forbearance, when the worker leaves a specific employer.
• Imposes any penalty, fee or cost on the worker for leaving, such as quit fees, replacement-hire fees, liquidated damages or visa cost reimbursement.

A contract that breaks these rules is void as a restraint on a lawful profession, trade or business under Business and Professions Code §16600, the same statute that voids non-compete agreements in California.

The exceptions, and their conditions

“Misconduct” in these exceptions refers to the definition used for unemployment benefits in Unemployment Insurance Code §1256, which is narrower than “any reason your employer didn’t like.”

What you can recover under the new law

Under Labor Code §926, a worker subjected to a prohibited term, or a worker representative, can sue on behalf of that worker, other similarly situated workers, or both. A worker who wins may recover actual damages or $5,000 per worker, whichever is greater, plus injunctive relief and reasonable attorney’s fees and costs. These remedies add to, and don’t replace, remedies under other laws, including Labor Code §2802 and the Unfair Competition Law.

If you signed before 2027

AB 692 won’t apply to your contract, but that doesn’t make the clause enforceable. Depending on the facts, other California laws may help:

• Business expenses. Labor Code §2802 requires employers to cover necessary expenses employees incur in direct consequence of their job duties. Training your employer requires for its own operations may fall in that category, so a demand to repay it can be challenged.
• Taking back wages. Labor Code §221 makes it unlawful for an employer to collect or receive back any part of wages it already paid you.
• Restraints on leaving. Business and Professions Code §16600 voids contracts that restrain a lawful profession, trade or business, and it is read broadly.
• Illegal terms. Labor Code §432.5 bars employers from requiring you to agree in writing to a term they know is prohibited by law.

Your employer also can’t simply hold back your final paycheck. Under the Labor Commissioner’s final pay rules, all final wages are due on your last day if you are fired or laid off, and within 72 hours if you quit without notice. A short or late final check can trigger waiting-time penalties of up to 30 days of pay. The Labor Commissioner also says that losses from accidents or simple negligence are a cost of doing business, not something to take out of your pay (see its deductions FAQ).

Two examples

These are hypotheticals. Jordan, a medical assistant, signed a training agreement in March 2026 promising to repay $8,000 if he left within two years. He quits after a year. AB 1697 means the new ban doesn’t cover his 2026 contract. But if the training was required to do the job his employer hired him for, he may argue the cost is a business expense under §2802, and his employer can’t keep his final wages to collect it.

Priya signs an offer letter in February 2027 with a $10,000 sign-on bonus she must repay in full if she leaves for any reason within three years. The repayment term isn’t in a separate agreement, isn’t prorated and runs longer than two years, so it doesn’t fit the bonus exception. Under the new law, the term may be void and could support a claim for at least $5,000.

Red flags in a repayment demand

• Repayment owed even if you were laid off or fired without misconduct.
• A lump sum with no connection to what the training actually cost.
• No proration as you work more months.
• Vague descriptions of what the money covers.
• Threats of collections, credit reporting or a lawsuit to pressure a quick payment.
• Your final paycheck or a reference held back until you pay.

What to do if you get a demand

1. Don’t pay right away. Paying can make it harder to recover the money later, though you may still have options.
2. Gather the paperwork. Keep the agreement, your offer letter, the date you signed, training records and the demand letter.
3. Note who ended the job and why. Many exceptions turn on whether you quit or were fired, and for what reason.
4. Check your final pay. Compare your last check with what you were owed.
5. Get advice before you respond. A short call can tell you whether the clause is enforceable.

Frequently asked questions

Is my 2026 training repayment agreement void under AB 692?

Not under AB 692. AB 1697 made that law inoperative for 2026 and limited it to contracts entered into on or after January 1, 2027. Other laws, such as Labor Code §§2802 and 221, may still give you defenses.

Can my employer make me repay a sign-on bonus?

Sometimes. Under the new law, a bonus repayment term is allowed only if it meets every condition of the exception, including a separate agreement, five business days to consult a lawyer, proration and a retention period of no more than two years.

Can my employer take the repayment out of my final paycheck?

Generally, your employer must pay all final wages on time, and Labor Code §221 bars it from collecting back wages it already paid. Withholding final pay over a disputed repayment can lead to waiting-time penalties.

What if I was fired?

Several exceptions allow repayment only if you quit or were fired for misconduct, as defined for unemployment purposes. A layoff or a firing for poor fit usually doesn’t qualify.

Does this apply to non-compete agreements?

Non-competes are a separate issue. California already voids almost all employee non-compete agreements under Business and Professions Code §16600.

Talk to a California employment lawyer

Employees First Labor Law represents workers exclusively. If you’ve received a repayment demand or your final paycheck was withheld, we offer free virtual consultations to review your agreement. Contact us online or call (310) 853-3461.

This article is general information about California law as of 2026, not legal advice for your situation. Reading it does not create an attorney-client relationship.