California’s 2027 “Stay-or-Pay” Ban: Can Your Employer Make You Pay for Training?

For years, a quiet kind of contract has kept California workers stuck in jobs they wanted to leave. The terms often appear buried in an offer letter or onboarding packet: if you quit before a certain date, you owe the company thousands of dollars for the training they provided, the bonus they paid you when you started, or the cost of moving you across the country. Some workers have stayed in unhappy positions for years rather than face a five-figure bill on the way out. Others have left and then received demand letters, sometimes from debt collectors, threatening their credit and their savings.

Starting January 1, 2027, a new California stay-or-pay law will prohibit most of these repayment provisions in employment contracts. The law, Assembly Bill 692 as amended by AB 1697, gives California workers meaningful new protections, along with the right to sue when employers violate these rules.

Below, we’ll explain what the law does, what it does not cover, and what to do if you have been pressured to repay training costs or other employment-related expenses.

What “Stay-or-Pay” Agreements Look Like

Stay-or-pay agreements are contractual provisions that require an employee to pay the employer money if they leave the job before a certain date. The amounts and triggers vary, but the structure is similar across industries. An employee receives some form of upfront benefit — a signing bonus, paid training, professional certification, relocation assistance, or visa sponsorship — and signs a contract agreeing to repay all or part of that benefit if they resign or are terminated before the retention period ends.

These provisions go by several names. Some employers call them training repayment agreements, sometimes shortened to TRAPs. Others tuck them into clawback clauses, retention bonus terms, or relocation reimbursement schedules. The label matters less than what the provision actually does: it creates a financial penalty for leaving, which can keep an employee tied to a job long after they want out.

Stay-or-pay provisions have been particularly common in healthcare, financial services, technology, and any industry where employers invest heavily in onboarding or specialized training. They have also been used to recoup costs for immigration sponsorship, professional licensing fees, and tuition reimbursement programs. For a worker earning a modest salary, a $15,000 or $25,000 repayment demand can feel impossible to escape.

California has long been hostile to contracts that restrict worker mobility. The state has banned most non-compete agreements for decades, and recent legislation has extended those protections further. AB 692, as amended by AB 1697, is part of that same trajectory — an effort to remove financial barriers that effectively prevent workers from changing jobs.

What the California Stay-or-Pay Law Prohibits

The California stay-or-pay law adds a new section to the state’s Business and Professions Code that bans three broad categories of contract terms in employment agreements signed on or after January 1, 2027.

First, the law prohibits any contract term that requires a worker to repay the employer, a training provider, or a debt collector for a debt if employment ends. The word “debt” is defined broadly to include employment-related costs, education-related costs, and consumer financial products or services. In plain terms, if a contract says you have to pay back money to anyone connected to your job because you left, that provision is now unlawful.

Second, the law prohibits any contract term that lets an employer or debt collector start or restart collection efforts because employment ended. Some older agreements were structured as forgiven loans — the employer would advance money, treat it as a loan on the books, and agree not to collect as long as the employee stayed. Once the employee left, collection would begin. That structure is also banned under the new law.

Third, the law prohibits any contract term that imposes a penalty, fee, or cost on a worker because employment ended. The statute lists examples that are now off the table: replacement hire fees, retraining fees, quit fees, reimbursement of immigration or visa costs, liquidated damages, claims for lost goodwill, and claims for lost profits. The list is not exhaustive, which means similar fees not specifically named are likely covered too.

The law applies to a broad category of workers, not just traditional employees. The statute uses the term “worker” and includes prospective employees, meaning the protections can apply even before someone starts the job.

If a contract signed on or after January 1, 2027, contains one of these prohibited provisions, that provision is void and unenforceable. The agreement itself does not necessarily disappear — the rest of the contract may remain in effect — but the offending clause has no legal force.

When Employers Can Still Require Repayment

There are a handful of situations where repayment obligations can still be enforced, but each one comes with strict conditions. An agreement that fails to meet every condition does not qualify for the exception, even if it falls into one of these categories.

Government Loan Repayment Programs

If you participate in a federal, state, or local loan assistance or forgiveness program (for example, a public service loan forgiveness arrangement) the repayment terms tied to that program are not affected by AB 692. These are government-administered programs with their own rules, and the new law leaves them alone.

Tuition for a Transferable Credential

For tuition repayment to be valid, it must be for what the law calls a transferable credential, meaning a degree from an accredited institution that is not required for the worker’s current job and that the worker can take with them to another employer. For example, a nursing degree paid for by a hospital might qualify; a certification that only matters for one specific employer’s internal systems would not.

The repayment agreement also has to be separate from the employment contract itself. The repayment amount must be disclosed up front, prorated over a defined service period, and not accelerated upon separation. If the employer fires the worker for any reason other than misconduct, the worker owes nothing.

Signing and Retention Bonuses

AB 1697 expands this exception so it can apply to retention bonuses offered later in the employment relationship, not just signing bonuses paid at the outset. The repayment terms must appear in a standalone agreement, separate from the main employment contract. The worker must be told in writing that they have the right to consult an attorney before signing and must be given at least five business days to do so.

Any repayment obligation must be prorated over a retention period of no more than two years and cannot accrue interest. Repayment can only be triggered if the worker leaves voluntarily or is terminated for misconduct. Additionally, the worker must be given the option to defer receipt of the bonus until the end of the retention period, meaning they can choose to wait for the money instead of taking it upfront and risking repayment later.

Approved Apprenticeship Programs

This exception applies to apprenticeship contracts approved by the California Division of Apprenticeship Standards. These programs operate under a separate regulatory framework and are not covered by the new restrictions.

If your employer is relying on one of these exceptions but has not followed the procedural rules (for example, if the bonus repayment terms are folded into your main offer letter rather than a separate agreement, or if you were not told you had five business days to consult a lawyer) the exception likely does not apply, and the repayment provision may be unenforceable.

Government-Funded Recruitment and Retention Programs

Contracts entered into under a recruitment and retention program funded by a federal, state, or local government agency grant are also exempt. The employee’s repayment obligations must comply with the grant’s requirements and cannot exceed the service obligation the grant requires. This is a narrow exception aimed at specific publicly funded workforce programs.

Advanced Paid Time Off

Repayment of advanced PTO is permitted under limited circumstances. If an employer advances paid time off to a worker beyond what the worker has accrued, and the worker then voluntarily separates with a negative balance, the employer can require repayment. The amount owed is capped at 40 hours, interest is not allowed, and the terms have to be disclosed in writing separately from the primary employment contract when the worker requests the advance. The exception does not apply when the employer ends the relationship.

Financial Services Recruiting and Retention Payments

A dedicated carve-out exists for securities broker-dealers, registered investment advisers, insurance producers, and their affiliates. This exception has particular importance for workers in the financial services industry.

The exception permits repayment obligations arising from discretionary or unearned monetary payments made to induce a worker to join or remain affiliated with one of these firms. Recruiting and transition arrangements of this kind have long been a fixture of the industry, often structured as forgivable loans that convert to debt if the broker or adviser leaves early. To fall within the exception, the worker must either hold a registration with the SEC or FINRA, or be licensed under California’s securities, investment adviser, or insurance statutes.

The carve-out does come with conditions. The repayment terms must be in a separate agreement from the primary employment contract. The payment must be in addition to the worker’s regular compensation. The worker must be given at least five business days to consult with counsel before signing. And if interest accrues on an outstanding repayment obligation after separation, the rate cannot exceed the applicable federal rate published by the IRS. Notably, unlike the general bonus exception, this exception does permit interest on post-employment repayment obligations.

For brokers, registered representatives, financial advisers, and others in the industry, this means that transition packages and forgivable loan arrangements remain available to employers — but only if the paperwork meets the law’s conditions. If your firm is attempting to enforce a repayment obligation under one of these arrangements and the agreement does not comply with the exception’s requirements, the provision may not be enforceable.

If your employer is relying on one of these exceptions but has not followed the procedural rules (for example, if the bonus repayment terms are folded into your main offer letter rather than a separate agreement, or if you were not told you had five business days to consult a lawyer) the exception likely does not apply, and the repayment provision may be unenforceable.

What Happens When an Employer Violates the California Stay-or-Pay Law

AB 692 gives workers the right to sue. If an employer enters into a prohibited agreement on or after January 1, 2027, the affected worker can file a civil action — individually, on behalf of others in the same situation, or both. Available remedies include either the worker’s actual damages or $5,000 per worker, whichever is greater, along with court orders requiring the employer to stop the conduct and reimbursement of the worker’s attorneys’ fees and costs.

Violations are also treated as unfair competition under California labor law, which can open the door to additional remedies under separate statutes. The combination of statutory damages, attorneys’ fees, and the possibility of class or representative claims means that employers face real financial exposure for noncompliance.

One important timing point bears repeating: AB 692, as amended by AB 1697, is not retroactive. It applies only to agreements entered into on or after January 1, 2027. Contracts signed before that date are generally still enforceable under their original terms.

However, if a pre-2027 contract is renewed, extended, or materially modified after January 1, 2027, that change may be treated as a new agreement subject to the law. Workers who signed older agreements should not assume nothing has changed — the circumstances around any modification, renewal, or new offer can shift the analysis.

What to Do If You Are Pressured to Pay

If you are currently facing a repayment demand or thinking about leaving a job that has a stay-or-pay provision, there are practical steps worth taking before you respond.

Start with the date. Pull out the agreement and find the date you signed it. Agreements signed on or after January 1, 2027 are subject to the new law. Agreements signed before that date generally are not, though older provisions can still be challenged on other grounds — California courts have long scrutinized these agreements under existing law, and not every pre-2027 stay-or-pay clause was enforceable to begin with.

Next, look at what the agreement actually requires. Is it asking you to repay a signing bonus? Training costs? Relocation expenses? Visa sponsorship fees? A broker transition payment? The category matters because different rules and exceptions apply to different types of payments. A signing bonus repayment, for example, has very specific procedural requirements under the new law, and an employer who skipped those steps may not be able to enforce the provision. Financial services employees in particular should look closely at whether the firm complied with the industry-specific carve-out added by AB 1697.

Then consider how the employer is enforcing the provision. Aggressive collection tactics, threats to report you to credit bureaus, or pressure to sign new agreements after you have given notice can themselves create legal issues. Document everything — keep copies of the original agreement, any demand letters, emails, and notes from phone calls.

If you are being asked to sign a new repayment agreement under pressure, do not sign without having it reviewed. The five-business-day attorney consultation period built into the law for bonus repayment agreements exists for a reason. An employer who refuses to give you that time, or who pushes you to sign on the spot, is likely not following the rules.

Red Flags in Employment Agreements

Certain provisions in an offer letter or employment contract deserve a closer look before you sign. Watch for the following:

• Training or onboarding repayment clauses buried in the main employment agreement. Under the new law, tuition repayment provisions generally need to be in a separate, standalone document. If they are folded into your offer letter or main contract, that is often a problem.

• Bonus clawback language without a deferral option. If a signing or retention bonus comes with repayment terms but does not give you the choice to defer the bonus until the end of the retention period, the provision likely does not meet the law’s requirements.

• Repayment triggered by any termination, not just misconduct. A clause that requires you to pay back a bonus or training costs even when the employer fires you for reasons other than misconduct is a warning sign.

• Demands for reimbursement of immigration or visa costs. The new law specifically lists immigration and visa cost reimbursement as a prohibited category in agreements signed on or after January 1, 2027.

• Liquidated damages, “lost goodwill,” or “lost profits” clauses. These are exactly the kinds of penalties the law targets. Broad financial penalties triggered by your departure will be unlawful in most circumstances.

• Financial services transition loans with excessive interest or missing procedural safeguards. For brokers, advisers, and insurance producers, the industry-specific carve-out requires a separate agreement, attorney consultation rights, and interest capped at the applicable federal rate. Transition packages that skip these requirements may not qualify for the exception. 

• Pressure to sign on the spot. For bonus repayment agreements, the law requires that you be given at least five business days to consult an attorney. An employer who refuses to give you that time is not following the rules.

An employment contract review by an experienced lawyer before signing can help you understand what you are agreeing to and whether any of the provisions would even hold up in court. Many workers sign these agreements without realizing how much financial exposure they are taking on, only to face a demand letter years later when they try to leave.

How Girard Bengali Approaches These Cases

An employment attorney in California with experience in worker mobility issues can help you understand whether an agreement is enforceable and what your options are if your employer is demanding employee training reimbursement or other repayment after you leave. The team at Girard Bengali has represented workers facing a wide range of unlawful contract provisions, including agreements that restrict mobility, deny earned compensation, or impose penalties for leaving a job.

The securities and employment law firm has particular experience with disputes involving the financial services industry, including matters affecting brokers, registered representatives, and investment advisers. The industry-specific carve-out added by AB 1697 adds a layer of complexity for financial services workers; recruiting packages and transition loans remain permissible under certain conditions, but the conditions matter. Workers facing enforcement of these arrangements benefit from counsel who understands both California employment law and the regulatory landscape of the financial services industry.

Girard Bengali’s approach starts with a careful review of the agreement and the circumstances around how it was signed, followed by a clear explanation of the worker’s options under California law. When an employer attempts to enforce a provision that violates the California stay-or-pay law or other California protections, the California employment lawyers at Girard Bengali can help workers push back through negotiation, formal legal proceedings, or both. The firm understands that workers facing repayment demands are often under significant financial and emotional pressure, and consultations are confidential.

The Bigger Picture for California Workers

AB 692, as amended by AB 1697, fits into a broader effort by California to protect worker mobility and economic freedom. The state has banned most non-compete agreements for over a century, expanded those protections in recent years, and now closed off another route employers have used to keep workers tied to their jobs. The California stay-or-pay law does not eliminate every form of repayment agreement, but it does sharply limit the circumstances in which employers can demand money from workers who choose to leave.

For workers, that means that a signing bonus, a training program, or a relocation package no longer has to feel like a trap. And for those who have already received a repayment demand under an agreement that may not comply with the law, there is now a clear path to challenge it.

If you have questions about a specific employment agreement, a repayment demand you have received, or whether a contract you are being asked to sign complies with California law, the team at Girard Bengali is available for a confidential consultation to help you understand your options. Contact us today for a confidential consultation.