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Beginning January 1, 2026, California employers will enter a new legal landscape when it comes to training-repayment agreements, onboarding costs, and other contract terms that impose financial penalties when an employee leaves. Assembly Bill 692, now signed into law, effectively prohibits “quit fees” and most forms of repayment provisions tied to continued employment, declaring them unlawful restraints of trade.
If your business uses training-repayment agreements, signing bonuses with clawbacks, or employment contracts that impose fees when a worker resigns early, this law requires a careful second look.
What AB 692 Prohibits
For any employment or work-related contract entered on or after January 1, 2026, employers, training providers, and even third-party debt collectors may not include terms that:
- Require an employee or worker to repay a “debt” (broadly defined to include money, goods, education-related costs, or onboarding expenses) if they leave the job.
- Permit a company to resume collections or end forbearance on such a debt when the worker quits.
- Impose penalties, fees, or costs—including training expenses, liquidated damages, replacement-hire fees, immigration/visa fees, “lost profit,” or similar charges triggered by separation.
These arrangements are declared void and contrary to public policy when used in new contracts starting in 2026.
Important—but Narrow—Exceptions
AB 692 doesn’t shut the door on every type of repayment agreement. Five carefully carved exceptions remain:
- Government Loan-Assistance or Forgiveness Programs
Federal, state, and local programs remain untouched. - Repayment for Transferable Educational Credentials
Allowed only if the credential is genuinely transferable, not required for the job, offered in a separate standalone contract, fully disclosed in advance, prorated, non-accelerated on separation, and waived if the worker is terminated without misconduct. - Approved Apprenticeship Programs
Recognized state-approved apprenticeships may still include repayment terms consistent with program rules. - Signing Bonus Agreements (with strict rules)
Employers may reclaim the unearned portion of a true signing bonus, but only if:
- The agreement is separate from the employment contract.
- The worker gets five business days to consult counsel.
- The retention period is no longer than two years.
- Any repayment is pro-rated, interest-free, and not accelerated.
- The worker may defer receipt of the bonus to avoid repayment.
- Repayment is only triggered by voluntary resignation or termination for misconduct.5. Residential Property Loans or Financing
Mortgage-related agreements are unaffected.
Enforcement and Penalties
Employees may file a civil lawsuit for violations. Penalties include:
- Actual damages, or $5,000 per worker (whichever is greater)
- Injunctive relief
- Reasonable attorneys’ fees and costs.
What Employers Should Do Now
With the 2026 effective date approaching, employers should treat AB 692 as an opportunity to audit onboarding practices:
- Review existing employment agreements, training repayment provisions, and bonus structures.
- Scrutinize vendor or staffing-agency contracts that may contain hidden repayment terms.
- Eliminate clauses tying financial consequences to early separation, unless they fit squarely within an exception.
- Revise signing-bonus agreements to meet the new statutory safeguards.
- Train HR, recruiting, and management teams so prohibited terms don’t slip into offer letters or contractor agreements.
While AB 692 closes the door on a category of retention tools, it leaves plenty of space for lawful incentives, just not ones that turn into surprise invoices when someone leaves.
JMBM’s Labor & Employment attorneys counsel businesses and management on workplace issues, helping to establish policies that address problems and reduce job-related lawsuits. We act quickly to resolve claims and aggressively defend our clients in all federal and state courts, before the Department of Labor, the NLRB, and other federal, state and local agencies, as well as in private arbitration forums. We represent employers in collective bargaining negotiations and arbitration. If you have questions or need guidance on how these changes may affect your business, please contact a JMBM attorney.
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