California Prohibits “Stay or Pay” Agreements - HR ALERTS

California Prohibits “Stay or Pay” Agreements

Effective: January 1, 2026

Signed October 13, 2025 (AB 692) and beginning January 1, 2026, California employers of all sizes will be prohibited from using “stay or pay” provisions in employment contracts. These clauses require employees to repay a fee, training cost, or other amount when they resign or are terminated.

The law broadly defines “contracts” to include any promise or agreement—written, oral, express, or implied. Limited exceptions apply, such as for certain tuition repayment programs.

Action Item

Employers should review all agreements, offer letters, and handbook language that include repayment or penalty provisions. Consult with legal counsel to determine if modifications are needed to ensure compliance with AB 692.

Colorado Connection

While this change directly affects California employers, it’s worth noting that Colorado has already enacted similar protections. Under HB 24-1324, effective in 2024, Colorado restricts employers from requiring repayment of training or education costs unless the training provides a transferable credential and the repayment terms are reasonable and transparent. These developments show a growing trend toward limiting or prohibiting repayment provisions nationwide, emphasizing the importance of reviewing any “stay or pay” or training repayment language across your workforce.

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