If you’ve ever asked a new hire to repay a signing bonus or training cost when they leave early, AB 692 California employers need to pay attention. This new law, in effect since January 1, 2026, voids most repayment and clawback clauses in employment agreements, and the penalties for getting it wrong start at $5,000 per employee.
This comes on the heels of other big shifts, like California’s pay transparency law that changed how Coachella Valley employers write job postings. AB 692 works the same way: it targets the fine print buried in offer letters and bonus agreements. The good news is that fixing it is straightforward once you know what to look for.
What Is AB 692 and Why It Matters for Your Business
The Law in Plain English
AB 692 is California’s new stay or pay law, and it changes how employers can recover money from workers who leave a job early. By default, the law voids agreements that require an employee to repay training costs, signing bonuses, or relocation assistance if they quit or are let go before a set date. It also blocks employers from resuming debt collection on those amounts after separation, and it adds a separation penalty on top of voiding the clause itself. In practice, that means the standard repayment language many small businesses have used for years likely no longer holds up in court.
Why Lawmakers Passed It
The law is part of a broader push in California to protect worker mobility, and it builds on the state’s existing ban on non-compete agreements. Lawmakers argued that stay or pay clauses trap workers in jobs they would otherwise leave, since the threat of owing thousands of dollars can outweigh a better offer elsewhere. AB 692 closes that gap by treating most repayment and clawback language the same way California already treats non-competes: unenforceable unless it fits a narrow exception.
What Agreements Are Affected
Training Repayment Agreements (TRAPs)
If your business asks new hires to sign an agreement requiring them to repay the cost of in-house training, certifications, or most job-related courses, that agreement is now void by default. This applies whether the training happened in a classroom, on the job, or through an outside vendor your business paid for directly.
Sign-On and Retention Bonus Clawbacks
AB 692 draws a clear line between a bonus paid upfront when someone joins your team and a bonus tied to staying through a later date. Upfront sign-on bonuses can still include a repayment clause if it meets a specific exception, covered below. Mid-employment retention bonuses with a repayment string attached generally do not qualify for that exception and are void.
Relocation and Tuition Reimbursement Clauses
The law defines debt broadly, and relocation assistance or tuition reimbursement tied to a repayment requirement counts. If you helped a new hire move to the Coachella Valley or paid for a course and expected repayment if they left within a certain window, that clause needs a second look under the new rules.
What’s Still Allowed Under AB 692
The Sign-On Bonus Exception
Sign-on bonuses are not banned outright. To stay enforceable, the repayment terms need to live in a separate agreement from the offer letter, give the new hire at least five business days to consult an attorney before signing, skip interest charges entirely, cap the repayment period at two years, and prorate any amount owed based on how long the employee actually worked.
The Transferable Credential Exception
There is a narrow carve-out for tuition tied to an accredited, transferable college degree that is not required for the employee’s current role. This exception is written tightly, so it will not cover most in-house training programs or job-specific certifications small businesses typically fund.
What Happens If You Get It Wrong
A repayment clause that violates AB 692 becomes void and unenforceable, which means you cannot collect on it even if the employee signed. Worse, the affected worker can sue for actual damages or a minimum of $5,000, whichever is greater, plus attorney’s fees. Multiple employees can join together in a single claim, which can turn one bad clause into a costly, business-wide problem quickly.
A Simple Compliance Checklist for Coachella Valley Employers
Start by auditing every offer letter, bonus agreement, and training program for repayment or clawback language. Separate any sign-on bonus terms from the main offer letter and into their own document. Add the required attorney-review notice and give new hires the full five business days before they sign. Remove interest charges and any open-ended repayment window, and prorate what is owed based on time actually worked. Finally, train your hiring managers so old boilerplate language does not make its way into a new contract by mistake.
How iPay Solutions Helps You Stay Ahead of Changes Like This
Keeping up with California employment law changes is a full-time job on its own, and most small business owners do not have the bandwidth to track every new bill. iPay Solutions offers HR-on-Demand support, so you have a team reviewing your offer letters and bonus agreements and staying current on California law without the cost of hiring in-house counsel.
FAQ: AB 692 and Employee Agreements
What is AB 692 in California?
AB 692 is a California law effective January 1, 2026 that bans most agreements requiring workers to repay training costs, bonuses, or relocation expenses if they leave a job early. It voids these repayment clauses and lets affected employees sue for at least $5,000 per violation, plus attorney’s fees.
Does AB 692 apply to my small business?
Yes. AB 692 applies to every California employer regardless of size, including small businesses in the Coachella Valley. If you use offer letters, bonus agreements, or training programs with any repayment requirement, this law applies to you and any contracts signed on or after January 1, 2026.
Can I still require employees to repay training costs in California?
In most cases, no. AB 692 blocks repayment requirements for in-house training, certifications, and most job-related courses. The only exception is tuition for a transferable college degree that is not required for the employee’s current role, and even that comes with strict conditions.
What happens if my employment contract violates AB 692?
The repayment clause becomes void and unenforceable, and the affected worker can sue for actual damages or a minimum of $5,000, whichever is greater, plus attorney’s fees. Multiple employees can also join together in one claim, which increases the potential cost significantly.
Are sign-on bonuses still legal in California after AB 692?
Yes, but only if you follow specific rules. The bonus agreement must be separate from the offer letter, give the employee five business days to consult an attorney, skip interest charges, cap the repayment period at two years, and prorate any repayment owed.
Does AB 692 affect contracts signed before 2026?
No. AB 692 is not retroactive, so agreements signed before January 1, 2026 are not affected. However, renewing, amending, or extending an older agreement after that date could count as creating a new contract, which would bring it under the law.
Not sure if your bonus agreements comply? iPay’s HR support team can check them today.
Get Ahead of AB 692 California Before It Costs You
AB 692 is one of the more overlooked employment law changes in California this year, but the $5,000-per-employee price tag makes it worth fixing now rather than after a claim shows up. Most employers just need to move a few clauses into the right document and add the required notice.
If bonuses or commissions are part of how you pay your team, it’s worth revisiting building a compliant commission and bonus structure at the same time you fix your repayment clauses. Our HR support team can review your offer letters and bonus agreements so nothing slips through before your next hire signs.