Jobs often come with strings attached, whether you work in a factory, a restaurant or an office. A new California law is designed to cut down on certain unexpected costs that employers try to push on workers when they decide to leave.
California’s new “stay or pay” law bans employers from forcing workers to repay costs, such as for recruitment and training, or pay general fees if they leave within certain time limits. It is part of a broader effort to protect employees’ freedom to move.
Effective January 1, 2026, employers can no longer make you sign an agreement saying you owe them money if you quit “early.” Employment contracts after January 1, 2026, that include these kinds of penalties are illegal and unenforceable, at least with respect to the “stay or pay” provisions.
At Justice Law Corporation, our California employment class action attorneys help working people fight back to protect their rights on the job and ensure fair pay. We are seasoned attorneys who have dedicated our careers to assisting people in wage and hour, discrimination, and other cases.
The new “stay or pay” law marks an important shift in favor of working people in California. Here is what you need to know.
How ‘Stay or Pay’ Contracts Work
A wide range of employers include “stay or pay” policies in their contracts to reduce employee attrition and related expenses. The policies generally require workers to remain for a certain period or reimburse employers for expenses if they leave before that time.
These are some of the expenses that employers often include in “stay or pay” contracts:
- Recruitment
- Relocation
- Training
- Visa/immigration
- Sign-on bonuses
- Retention bonuses
Employers routinely describe the clawback provisions as a matter of fairness. They put up money to attract and keep workers, so they argue that they should be able to get some of that investment back when employees bolt at the drop of a hat.
But the contracts can also trap people in their jobs, especially when quitting comes with significant financial penalties. Workers have reported staying in jobs they do not want – or even feel unsafe or underpaid in – just because the financial penalty for leaving is too high.
That is where the new law, Assembly Bill 692, comes in.
“Placing a de facto ‘exit fee’ on a worker who chooses to leave a job is deceitful and unethical,” Assemblymember Ash Kalra said after introducing the measure in March. “By ending these exploitative stay-or-pay contracts, AB 692 will empower workers to leave jobs where they may be facing poor working conditions, whether that means safety hazards, harassment, or otherwise toxic work environments.”
Lawsuits against PetSmart over the national chain’s repayment agreements for pet groomers highlighted the traps the deals can pose for workers. The company reportedly charges groomers $5,000 or more for training fees if they do not continue working for at least two years. The fee is supposed to cover what PetSmart calls an extensive training program, but employees have alleged that they learned the craft of grooming on the job for paying customers.
What the New Law Bans and Does Not Ban
AB 692 generally prohibits employers from requiring employees who leave to repay costs the employer has incurred. It also covers job applicants who ultimately decide not to take the roles for which they applied.
The law applies to new contracts, those entered into on or after January 1, 2026. Contracts entered before that time may still be enforceable.
There are a few exceptions to the general ban on “stay or pay” provisions. Most notably, employers can continue to claw back certain sign-on and retention bonuses, as well as tuition reimbursement expenses. Bonuses cannot be tied to employee performance, however, and the repayment terms must be spelled out in separate agreements. Tuition reimbursement must be for a credential that is transferable to other jobs outside of the employer.
Non-Competes Are Also a Thing of the Past
The new law bolsters employees’ right to move freely among jobs. It builds on California’s ban on non-compete agreements, which went into effect in 2024.
Non-compete agreements generally prohibit employees from working for competitors and from starting similar businesses for certain periods after leaving their jobs. Under California law, the agreements are widely considered illegal and unenforceable.
The ban on non-competes has some very narrow exceptions for sales of businesses or dissolutions of partnerships. Otherwise, employees in California cannot be barred from accepting jobs with competitors, starting new businesses in the same industry or engaging in similar professional activities after leaving their jobs.
Enforcing Your Rights on The Job
Anyone who has been underpaid for minimum wages or overtime has the right to take legal action to recover the money they are owed. That includes workers who are simply not paid the minimum wage or who are not paid the higher overtime rate. It also includes people who are shortchanged by employers who make them work through required breaks or perform duties off the clock.
Employees in California can file claims with the California Labor Commissioner and the U.S. Department of Labor, requesting investigations. Workers can also file lawsuits against their employers for unpaid wages, seeking back pay, interest, and other remedies.
Groups of workers pursuing wage and hour claims can join together to take action. Employment class actions help workers level the playing field with large corporations by allowing them to sue together in a single case.
Our California Employment Class Action Attorneys Can Help
If you believe that your employer is violating your rights on the job, whether it is by being underpaid or in other terms and conditions, you do not need to go it alone. A California employment class action attorney at Justice Law Corporation can help you evaluate your claim and understand your rights and options.
Our office is conveniently located in Pasadena. Contact us at (818) 230-7502 to schedule a free consultation with a California employment class action attorney.
