With the start of the new year, California Assembly Bill 692 (AB 692) is now in effect, introducing sweeping new restrictions on employment agreements that include so-called “stay-or-pay” provisions — terms requiring employees to repay money or incur financial consequences if they leave employment before a specified period. These provisions have become increasingly common in connection with training programs, relocation benefits, and sign-on or retention incentives, and many employers are now reassessing whether their existing practices comply with the new law.
AB 692 reflects California’s longstanding public policy against contractual restraints that limit employees’ ability to pursue other work opportunities. Much like the state’s sweeping restrictions on non-compete agreements, the Legislature has made clear that imposing financial penalties at the time of termination is disfavored when they effectively discourage workers from changing jobs. Now that AB 692 has taken effect, employers should understand how it impacts offer letters, onboarding documents, and incentive arrangements used in 2026 and beyond.
