This article continues our Friday’s Five series highlighting the major new California employment laws taking effect in 2026. In recent weeks, we’ve covered several significant bills impacting employers — from expanded employee rights and new recordkeeping requirements to pay transparency updates and workplace enforcement changes.

This week, we turn to Assembly Bill 692 (Kalra) — California’s latest move to strengthen worker mobility and curb restrictive employment practices. Effective January 1, 2026, AB 692 targets so-called “stay-or-pay” or training repayment agreement provisions (TRAPs) — a growing trend among employers seeking to discourage workers from leaving early by requiring repayment of training or relocation costs.California’s legislature continues its trend of expanding employee mobility protections. With AB 692, effective January 1, 2026, employers can no longer rely on “stay-or-pay” or training repayment agreement provisions (TRAPs) to discourage employees from leaving their jobs early.

Here are five key takeaways for employers:

1. AB 692 Closes the Loophole Around Non-Compete Alternatives

While California has long banned non-compete agreements under Business & Professions Code section 16600, some employers turned to “stay-or-pay” agreements — clauses requiring employees to repay training or relocation costs if they leave before a certain time. These TRAPs operated in a legal gray area, sometimes enforced, sometimes struck down as unconscionable. AB 692 eliminates that uncertainty by expressly prohibiting them altogether

2. New Code Sections Make Repayment Clauses Unlawful

The bill adds Business & Professions Code section 16608 and Labor Code section 926, making it illegal for an employer to require repayment of training expenses, relocation costs, or other hiring-related fees if an employee quits or is terminated. This prohibition applies broadly — even if the agreement was signed voluntarily

3. Limited Exceptions Exist

AB 692 allows only narrow exceptions:

  • Government-sponsored loan forgiveness or tuition programs
  • Agreements for transferable educational credentials, such as degrees or professional certifications, if strict criteria are met
  • State-approved apprenticeship programs
    These exceptions ensure legitimate educational arrangements remain valid while eliminating coercive repayment schemes

For example, the transferable-credential tuition programs exemption is likely one that most employers could utilize — but only if every one of the following five conditions is met:

  1. Separate contract
    The tuition-repayment agreement must be offered separately from the employment contract — it can’t be bundled with an offer letter or onboarding paperwork.
  2. Not a condition of employment
    The employee cannot be required to obtain the credential as a condition of getting or keeping their job.
  3. Clear, capped cost disclosure
    The contract must state the total repayment amount up front, and that amount cannot exceed the employer’s actual cost of the credential.
  4. Prorated repayment schedule
    If the employer requires a minimum service period, any repayment obligation must be prorated — proportionate to the time already served — and cannot include an accelerated payment schedule if the worker resigns.
  5. No repayment if terminated without misconduct
    The worker cannot be required to repay the tuition amount if they are terminated, except when the termination is for legally defined misconduct under Unemployment Insurance Code §1256.

4. Severe Penalties for Violations

Employers that violate AB 692 can face statutory damages of at least $5,000 per employee, plus attorney’s fees, costs, and injunctive relief. In short — a single improper agreement could become a costly class or PAGA-style lawsuit

5. Action Steps for Employers

  • Audit offer letters and training agreements for any repayment or “clawback” provisions.
  • Update relocation and reimbursement policies to ensure they don’t condition repayment on continued employment.
  • Train HR and management teams about the new restrictions before 2026.
  • Consult counsel before implementing tuition-assistance or credential-based programs to ensure compliance with the law’s narrow exceptions.

Bottom line:
AB 692 is another reminder that California strongly protects employee freedom to change jobs. Employers should remove any “stay-or-pay” provisions from their onboarding materials and agreements before January 1, 2026.