Can Your California Employer Make You Repay Training Costs or a Bonus When You Quit? (2027 Stay-or-Pay Rules)

Mostly no. For contracts entered into on or after January 1, 2027, California makes it unlawful for an employer to require you to pay a debt, fee or penalty because your job ends, with a short list of exceptions that come with strings attached. If you signed a sign-on bonus, training or advanced paid time off agreement and wonder whether it would hold, or you are an employer who uses those agreements, this guide walks through the statute in plain language.

I am Mac Malbrough. I hold a J.D. and an MS-HRM, I am not an attorney, and this is general information, not legal advice. I read the chaptered text of both bills on the California Legislative Information site on November 4, 2026, and every rule below comes from it. For a specific agreement, an employment attorney should read the actual document.

What is a stay-or-pay agreement, and what changed?

A stay-or-pay agreement says you owe money if you leave before a set date. The money might be a sign-on bonus, a training cost, a relocation payment, or a “replacement fee.” Workers often sign these in the same stack of papers as the offer letter, and they usually learn what they mean on the way out the door.

The first law was AB 692, signed October 13, 2025 as Chapter 703. It added Section 16608 to the Business and Professions Code and Section 926 to the Labor Code, and it was written to reach contracts signed on or after January 1, 2026. Then AB 1697 by Assemblymember Kalra, Chapter 889, was signed September 30, 2026 as an urgency statute. It moved the start date to January 1, 2027, added exceptions, and says it prevents liability from accruing for acts between January 1, 2026 and the day the new bill took effect. Any pending claim based on that period is moot.

Which contracts does the law reach?

It reaches contracts entered into on or after January 1, 2027. A repayment agreement you signed in 2025 or 2026 is not covered by this statute, though other California laws might still apply to it, which is a question for an attorney. The law covers any “worker,” and the definition goes well past employees: it includes a prospective employee and a person in a job training program or skills training program. It also treats an employer broadly, reaching a parent company, affiliate, contractor, hiring party or third-party agent.

If you are changing jobs next month, this means a new agreement signed in January or later is under the new rules, and one signed in December is not. That is a good reason to ask when a bonus agreement will be dated before you accept an offer. My guide to comparing two job offers shows where repayment terms belong in the comparison.

What does the general ban cover?

Section 16608 says it is unlawful to put certain terms in an employment contract, or to require a worker to sign a contract with them as a condition of employment or a work relationship. The banned terms include:

• Requiring you to pay an employer, a training provider or a debt collector a debt if your employment ends.
• Letting an employer, training provider or debt collector start or resume collecting a debt, or end a pause on collection, when your employment ends.
• Imposing any penalty, fee or cost on you because your employment ends. The statute names a replacement hire fee, retraining fee, quit fee, immigration or visa cost reimbursement, liquidated damages, lost goodwill and lost profit.

The definition of debt is broad too. It can include education-related costs, and it applies whether the debt is certain, contingent or incurred voluntarily. In my reading, a “training repayment agreement” that bills you when you resign is a stay-or-pay term unless it fits one of the exceptions.

When can an employer still require you to repay a bonus?

Only when the payment and the agreement both meet the bonus exception. The exception covers a discretionary or unearned monetary payment, including a financial bonus, that is not tied to specific job performance. All five of these conditions must be met:

1. The repayment terms are in a separate agreement from the main employment contract.
2. You are told you have the right to consult an attorney and are given a reasonable time of not less than five business days to get advice before signing.
3. Any repayment for leaving early is prorated over the remaining retention period, which cannot exceed two years from the day you receive the payment, and no interest accrues.
4. You have the option to defer receiving the payment until the end of a fully served retention period, with no repayment obligation at all.
5. You separated at your own choice, or the employer ended your job for misconduct. If the employer lays you off or fires you for a reason other than misconduct, the exception does not support repayment.

Two readings matter here. A bonus that is earned for specific job performance falls outside this exception, so a repayment clause on earned pay is a red flag to bring to an attorney. And the deferral option is a condition of the exception, not a favor. If you want help weighing a particular offer, my piece on counter-offer phrases beyond base pay has the language for asking.

What about advanced paid time off?

AB 1697 adds a narrow exception for advanced PTO. If an employer advances paid time off beyond what you have accrued, the repayment obligation that arises when you leave voluntarily is allowed only if three things are true. The terms are clearly disclosed to you, separate from the main contract, when you ask for the advance. The repayment does not exceed 40 hours. And no interest accrues. A new hire who asks for a week off before accruing any, and an employer that agrees, can use this exception. An advance with a larger clawback does not fit it.

What about tuition, certifications and apprenticeships?

The statute keeps a path for tuition repayment tied to a transferable credential, and the conditions are specific. The credential must be one the worker does not need for the current job and that is useful beyond the current employer. The contract must be offered separately from the employment contract and cannot make the credential a condition of the job. It must state the repayment amount before you agree, and the amount cannot exceed what the credential cost the employer. Repayment must be prorated over the required employment period with no accelerated payment schedule if you leave. And you owe nothing if you are terminated, unless the termination is for misconduct.

Training that only serves the current job, such as onboarding on the employer’s own software, does not meet the credential test. In my view, that is the training that deserves the most scrutiny.

What other exceptions exist?

The statute lists several more, and they are unlikely to touch most workers:

• Government loan repayment or loan forgiveness programs, and recruitment and retention programs funded by a government grant, if repayment follows the grant terms and does not exceed the service the grant requires.
• Contracts for enrollment in an apprenticeship program approved by the Division of Apprenticeship Standards.
• Contracts to lease, finance or buy residential property, including mortgages under the California Residential Mortgage Lending Act.
• Certain inducement payments between securities broker-dealers, insurance producers or investment advisers and their registered or licensed agents, with their own conditions, including an interest cap after separation.

The statute also says its remedies add to, and do not replace, other laws, including the Labor Code’s expense reimbursement rules and the Unfair Competition Law.

What happens if the agreement breaks the law?

A term that violates Section 16608 is void as contrary to public policy, but only if the contract was entered into on or after January 1, 2027. Labor Code Section 926 lets a worker, or a worker representative, bring a civil action for the worker and for others in the same position. A person found liable owes actual damages or $5,000 per worker, whichever is greater, plus injunctive relief and reasonable attorney’s fees and costs.

That per-worker figure is why a template used across a whole workforce is a real exposure for an employer. One bad clause in a form signed by 40 employees is 40 potential claims. My note on the California noncompete ban covers the neighboring rule on restraints on leaving, and the 2027 employment law roundup shows where this law sits with the others.

What should a worker or an employer check? A six-point checklist

Workers can use this list before signing. Employers can use the same list to audit every agreement in the file.

1. Date: Was the agreement entered into on or after January 1, 2027? Workers should ask when it will be dated. Employers should sort every agreement by signing date and treat the 2027 ones as covered.
2. Separate paper: Is the repayment term in its own agreement, apart from the offer letter or employment contract? Workers should ask for it separately. Employers should pull any repayment clause out of the main contract.
3. Five business days: Does the agreement tell you that you may consult an attorney and give you at least five business days to do it? Employers should add the notice and keep proof of the date it was delivered.
4. Proration and interest: Does the amount owed shrink in proportion to time served, over no more than two years, with no interest? Employers should rebuild any flat clawback so it prorates.
5. Deferral option: Can the worker choose to receive the payment at the end of the retention period with nothing to repay? Employers should write the option in and tell workers about it.
6. Who ends the job: Does repayment apply only if the worker leaves by choice, or the employer ends the job for misconduct? Workers should read the layoff and firing language. Employers should confirm repayment never triggers when the employer ends the job for any other reason.

If an agreement fails any point and it falls outside the tuition, PTO and other exceptions above, treat the repayment term as unenforceable and have an attorney confirm before anyone relies on it, or pays on it.

If the goal is for training to change behavior, not to lock people in, read why training does not stick and a four-step follow-through plan.

What should you do this week?

If you are a worker, gather every agreement you have signed that mentions bonuses, training or repayment, and mark the date and the exit terms on each one. If you are about to accept an offer, put the six questions above into an email to the recruiter before you sign. For the exact wording of that email and the rest of the pay conversation, my salary negotiation script pack is $49.

If you are an employer, pull every offer letter, bonus letter and training agreement and sort them by date and by what they repay. My California employee handbook template is a starting point for the policy language, and the free live sessions include a quarterly California law update where I walk through changes like this one. To book a time to talk, see the HR compliance check-up.

Sources

• AB 1697 (Kalra), Chapter 889, Statutes of 2026, approved September 30, 2026, read November 4, 2026
• AB 692 (Kalra), Chapter 703, Statutes of 2025, approved October 13, 2025, read November 4, 2026
• Business and Professions Code Section 16608 and Labor Code Section 926, as amended by AB 1697, in the chaptered text above

McKinley holds a J.D. but is not a licensed attorney. Articles here are general information, not legal advice. For your specific situation, talk with an employment attorney.

Data current as of November 2026. Sources are linked where each figure appears.