Stay-or-Pay Contracts Are Illegal in California: What Workers Can Do (2026)
- Tom Feher, Esq.
AB 692, effective January 1, 2026, makes most California stay-or-pay contracts signed on or after that date unlawful: Business and Professions Code 16608 bars any employment contract term that makes a worker repay a debt, restart debt collection, or pay a penalty, fee, or cost because the job ends. A worker can sue under Labor Code 926 for actual damages or $5,000 per worker, whichever is greater, plus injunctive relief and attorney fees. Older agreements are not automatically void, but they can still be challenged under Labor Code 2802, Business and Professions Code 16600, and the Unfair Competition Law (Business and Professions Code 17200), which the new law expressly preserves. Workers who already had money deducted from final paychecks can demand repayment under Labor Code 221 plus waiting-time penalties of up to 30 days of wages under Labor Code 203. Our employment attorneys are already advising tech, healthcare, and trucking workers facing repayment demands. This guide covers what AB 692 voids, what stays enforceable, and the steps to claw back what was taken.
Key Takeaways
- AB 692 bans most stay-or-pay contracts in California. For contracts entered into on or after January 1, 2026, Business and Professions Code 16608 makes it unlawful to require a worker to repay training costs, a signing bonus, or relocation expenses because they leave.
- The ban is not retroactive. An agreement signed before 2026 is not voided by AB 692, but it can still be attacked under Labor Code 2802, Business and Professions Code 16600, and the Unfair Competition Law.
- Illegal paycheck deductions must stop. Employers cannot deduct training costs from your wages, and you may recover amounts already taken.
- Limited exceptions exist. Government loan-repayment programs, separately signed and prorated tuition contracts for a transferable credential, state-approved apprenticeships, and discretionary signing bonuses with a separate, interest-free, prorated repayment agreement.
- You may be entitled to compensation. Labor Code 926 provides actual damages or $5,000 per worker, whichever is greater, plus injunctive relief and attorney fees, on top of wage recovery and interest.
- Time limits apply to filing claims. Contact an employment attorney promptly to preserve your rights and maximize potential recovery.
How Feher Law Can Help You Fight Back
If your employer is threatening you with repayment demands or has already taken money from your paycheck, you don’t have to face this alone. Our team has experience standing up to employers who take advantage of workers through illegal contract provisions.
We can review your employment agreement to determine if it violates AB 692 (Business and Professions Code 16608) or existing law such as Labor Code 2802. If it does, we’ll explain your options clearly, whether that means recovering money you’ve already paid, stopping ongoing wage deductions, or pursuing additional damages.
Our approach is straightforward. We listen to your story, investigate your case, and fight for the outcome you deserve. You shouldn’t have to pay your employer for the privilege of quitting a job. Learn more about how no win no fee claims work in California so you understand your options for pursuing a case without upfront costs.
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If your employer is demanding repayment for training costs, call Feher Law at (310) 340-1112Â for a free consultation.
What Are Stay-or-Pay Contracts?
Stay-or-pay contracts require workers to repay their employers for training or education costs if they leave before a certain date. These agreements typically lock employees into jobs for one to three years. If you quit, or even get fired, before that time is up, you owe money.
These contracts go by several names:
- Training Repayment Agreement Provisions (TRAPs)
- Stay-or-pay provisions
- Training cost repayment agreements
- Education repayment clauses
Some employers use these contracts fairly, investing in genuine professional development. But many companies abuse them. They inflate “training costs” to include basic onboarding. They extend repayment periods beyond what’s reasonable. And they use the threat of debt to keep workers from leaving bad situations.
Industries Where TRAPs Were Most Common
Before AB 692, stay-or-pay contracts appeared across many California industries. Healthcare, trucking, tech, and retail were especially affected. Workers in these fields often signed TRAPs without fully understanding what they agreed to.
Consider this hypothetical scenario: A worker in Torrance signs on with a trucking company that promises “free” CDL training. Buried in the paperwork is a clause requiring two years of employment or repayment of $12,000. Six months in, the worker realizes the company regularly violates safety rules. But leaving means a massive debt. Before AB 692, this worker had few options beyond a Labor Code 2802 or unfair-competition challenge.
What Does California's AB 692 Actually Say?
Assembly Bill 692, signed into law on October 13, 2025 (Chapter 703), adds Business and Professions Code 16608 and Labor Code 926. It took effect on January 1, 2026 and applies to contracts entered into on or after that date. It is one of the strongest worker protections against TRAPs in the country.
Under Section 16608, an employer cannot include in an employment contract, or require as a condition of employment, any term that (A) makes the worker pay the employer, a training provider, or a debt collector a debt when the job ends, (B) restarts or ends forbearance on debt collection when the job ends, or (C) imposes any penalty, fee, or cost on a worker because the job ends. The law defines “penalty, fee, or cost” to include replacement-hire fees, retraining fees, quit fees, immigration or visa cost reimbursement, liquidated damages, lost goodwill, and lost profit. A term that violates the section is a restraint of trade void under Business and Professions Code 16600, but only for contracts entered into on or after January 1, 2026.
The full text of AB 692 sets out these key provisions:
- Ban on debt-repayment and quit-fee terms tied to leaving a job, for contracts signed on or after January 1, 2026
- A private right of action under Labor Code 926 for actual damages or $5,000 per worker, whichever is greater, plus injunctive relief and attorney fees, which can be brought on behalf of similarly situated workers
- Existing remedies preserved under Labor Code 2802, the ABC-test misclassification rules, and the Unfair Competition Law
- Exceptions for certain government loan programs, transferable-credential tuition contracts, apprenticeships, and discretionary signing bonuses
Limited Exceptions Under the Law
Section 16608(b)(2) carves out four categories: a loan repayment or forgiveness program run by a government agency; a tuition contract for a transferable credential that is signed separately from the employment contract, is not required for the job, states the repayment amount up front at no more than the employer’s cost, prorates it over the required employment period, and waives repayment if the worker is terminated for anything other than misconduct; an apprenticeship approved by the Division of Apprenticeship Standards; and a discretionary signing bonus with a separate repayment agreement that is interest-free, prorated, and comes with notice of the right to consult a lawyer and at least five business days to do so.
These exceptions are limited. If your employer required the training as part of your job, or folded the repayment clause into the employment contract itself, the exception likely does not apply. Courts will look at the substance of the agreement, not just what the employer called it.
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Not sure if your agreement falls under an exception? Contact Feher Law  for a free case review.
Signs Your Employer Is Violating the Law
Many California employers haven’t updated their practices since AB 692 took effect. Others are hoping workers don’t know about the new law. Recognizing violations is the first step toward protecting yourself.
Your employer may be breaking the law if they:
- Threatened termination or legal action if you don’t agree to a training repayment clause
- Deducted money from your paycheck to recover training costs after you gave notice
- Demanded a lump-sum payment when you resigned or were terminated
- Sent you to collections over alleged training debts
- Required repayment for basic onboarding or job-specific training that only benefits them
- Refused to provide your final paycheck until you signed a repayment agreement
The California Department of Industrial Relations handles wage complaints and can provide guidance on enforcement. Workers who believe their rights were violated can file complaints directly with the state.
Here’s another hypothetical scenario to consider: An employee in Long Beach completes a company-required software certification. She later accepts a better job offer. Her employer sends a letter demanding $8,000 for “training costs” and threatens to report the debt to credit agencies. If her agreement was signed on or after January 1, 2026, this demand violates Business and Professions Code 16608; if it was signed earlier, the demand can still be challenged under Labor Code 2802 and the Unfair Competition Law because the training was required for the job, not voluntary.
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Steps to Take If You're Affected
If you’ve signed a stay-or-pay contract or your employer is demanding repayment, taking action quickly can protect your rights. California law now provides real remedies for workers in your situation.
Gather your documentation. Find copies of any employment agreements, training contracts, or repayment demands. Save emails, texts, and letters from your employer about training costs or repayment.
Calculate what you’ve paid. If your employer has already deducted money from your wages or you’ve made payments, add up the total. You may be entitled to recover these amounts.
Don’t sign anything new. Employers sometimes try to get workers to sign new agreements or “acknowledge” debts. You’re not required to sign, and doing so could complicate your case.
Consult with an attorney. Employment law can be complex, and employers often have legal teams of their own. An experienced lawyer can evaluate your situation and explain your options.
The U.S. Department of Labor provides additional federal resources for workers navigating wage and employment disputes. However, for personalized guidance on your specific situation, legal counsel is invaluable. If you’ve experienced retaliation after asserting your rights, read our guide on what to do if you got hurt at work and they fired you to understand how California protects workers from employer retaliation.
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Dealing with illegal training repayment demands? Feher Law is ready to help. Call (310) 340-1112Â today.
Potential Compensation for Workers
Workers whose employers violated AB 692 or the wage laws may be entitled to several forms of compensation. The specific remedies depend on your situation, but California law provides meaningful protections.
Potential recoveries include:
- Return of wages illegally deducted for training repayment
- Recovery of payments made under an unenforceable stay-or-pay agreement
- Statutory damages of at least $5,000 per worker under Labor Code 926 for a contract covered by the 2026 ban
- Statutory penalties for willful violations of California labor law
- Interest on amounts wrongfully withheld
- Attorney’s fees in successful cases
California law often requires employers who violate wage protections to pay not only the amounts owed but also penalties and the worker’s legal costs. This means pursuing your case may not cost you anything out of pocket.
Every case is different. The compensation you might receive depends on what your employer did, how much money is involved, and other factors specific to your situation.
How Feher Law Guides You Through the Process
Navigating employment disputes can feel overwhelming, especially when you’re up against a former employer with more resources. At Feher Law, we take that burden off your shoulders. Our team handles every aspect of your case so you can focus on moving forward.
When you contact us, we start with a free consultation. We’ll review your employment agreement, listen to what happened, and give you an honest assessment of your options. There’s no pressure and no obligation.
If you have a case, we’ll gather evidence, communicate with your employer, and pursue every available remedy under California law. We know how employers think, and we know how to hold them accountable when they break the rules.
You don’t have to accept illegal treatment from your employer. And you don’t have to fight back alone.
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Ready to take the next step? Contact Feher Law or call us at (310) 340-1112  for your free consultation.
Frequently Asked Questions
Can my employer report training debt to credit bureaus after AB 692?
No, employers cannot legitimately report training debt that violates Business and Professions Code 16608. Debts stemming from illegal stay-or-pay provisions are unenforceable under California law. Reporting invalid debt to credit agencies exposes employers to additional liability. Document all collection attempts and consult an attorney about recovering damages for credit harm.
Can I recover training payments made before AB 692 took effect?
Recovery may be possible, but the route depends on when you signed. The AB 692 ban and its $5,000-per-worker remedy apply only to contracts entered into on or after January 1, 2026 (Labor Code 926). For older agreements, repayments and paycheck deductions can still be challenged under Labor Code 2802, Labor Code 221, and the Unfair Competition Law. Statutes of limitations affect recovery timelines, so prompt legal consultation is essential. Workers should gather payment records and contact an employment attorney immediately.
Does AB 692 protect workers misclassified as independent contractors?
AB 692 defines “worker” broadly to include employees, prospective employees, and anyone permitted to work or train for a business, so a contractor label does not take you outside the law. California also uses the ABC test to determine true employment status regardless of contract labels, and misclassified workers retain full employee rights under state law. An attorney can evaluate whether your classification was proper.
Can employers fire workers who refuse to sign stay-or-pay agreements?
Terminating employees for refusing illegal contracts constitutes wrongful termination under California law. Workers who assert their rights against unlawful stay-or-pay provisions are protected from retaliation. Employers cannot lawfully condition employment on signing unenforceable agreements. Document all termination circumstances and seek immediate legal counsel.
Can my employer fire me for filing a retaliation complaint?
No. Terminating an employee for filing a retaliation complaint constitutes illegal retaliation under California Labor Code Section 1102.5 and federal whistleblower protections. Such actions strengthen your original claim and may result in additional damages, including punitive damages for egregious employer conduct following your complaint.
What is the deadline for filing a stay-or-pay violation claim?
Deadlines vary based on violation type, as wage claims and contract disputes have different limitation periods. Most California wage claims must be filed within three years, though some violations allow longer. Similar to how California car accident statute of limitations restrict injury claims, waiting too long forfeits your rights. Contact an attorney promptly after discovering violations.
What compensation can workers receive for AB 692 violations?
Workers may recover illegally deducted wages, payments made under void agreements, statutory penalties, and interest. California law also awards attorney’s fees in successful employment cases, eliminating out-of-pocket legal costs. Willful violations trigger enhanced penalties beyond basic wage recovery. Total compensation depends on violation severity and amounts wrongfully taken.
Estimate your case value: Use our free Wrongful Termination Settlement Calculator for a quick estimate of what your case could be worth, or speak directly with a Torrance employment lawyer for a personalized review.
Last reviewed by Thomas Feher, Esq. – September 2026
Frequently Asked Questions
Are stay-or-pay contracts illegal in California?
Yes, for contracts entered into on or after January 1, 2026. AB 692 added Business and Professions Code 16608, which makes it unlawful to require a worker to repay a debt, restart debt collection, or pay any penalty, fee, or cost because their employment ends. AB 1076 and Business and Professions Code 16600.1 govern non-compete clauses, which is a separate rule.
What is a stay-or-pay contract?
A clause that requires an employee to repay training costs, signing bonuses, relocation expenses, or tuition if they leave before a set period. California treats these as restraints on trade and refuses to enforce them in most situations.
Can my employer still sue me to recover training costs?
Not under a contract signed on or after January 1, 2026, unless it fits one of the narrow exceptions in Business and Professions Code 16608: a government loan repayment program, a separately signed and prorated tuition contract for a transferable credential that is not required for the job, a Division of Apprenticeship Standards apprenticeship, or a discretionary signing bonus with a separate, prorated, interest-free repayment agreement and at least five business days to consult a lawyer. Older agreements are not automatically void, but they can be challenged under Labor Code 2802 and the Unfair Competition Law.
What can I recover if my employer enforced an illegal stay-or-pay clause?
For a contract covered by the 2026 ban, Labor Code 926 lets you sue for your actual damages or $5,000 per worker, whichever is greater, plus injunctive relief and attorney fees, and the case can be brought on behalf of similarly situated workers. Wages deducted from a paycheck are recoverable under the Labor Code regardless of the contract date. Class and representative actions are common where employers used the same template.
Does this apply to contracts signed before 2024?
AB 692 does not. Its ban and the $5,000 remedy reach only contracts entered into on or after January 1, 2026 (Labor Code 926). The February 14, 2024 notice requirement in Business and Professions Code 16600.1 applies to non-compete clauses, not training repayment terms. Older stay-or-pay agreements can still be challenged under Labor Code 2802 and the Unfair Competition Law, so have the contract reviewed rather than paying.
What should I do if my employer is threatening to collect?
Do not pay and do not sign a settlement without legal review. Save the contract, the demand letter, and any communications. We handle these cases on contingency and the fee-shifting statute means the employer typically pays our fees.
