California AB 692 Now in Effect: Employment Contract Restrictions Employers and Workers Must Know

California AB 692 Now in Effect (2026): Employment Contract Restrictions Every Sacramento Worker and Employer Should Know

Effective January 1, 2026, California Assembly Bill 692 (AB 692) fundamentally reshapes how employment contracts can be structured across California. This new law places strict limits on training repayment agreements, “stay-or-pay” clauses, and other debt-based employment contract restrictions that previously discouraged workers from leaving a job.

For workers and employers in the greater Sacramento area, AB 692 California law represents one of the most significant employment contract reforms in recent years.

What Is California AB 692?

California Assembly Bill 692 (AB 692) prohibits employers from including contract provisions that require workers to incur financial penalties, debt repayment, or collection actions simply for ending an employment or training relationship.

The law applies to contracts entered into on or after January 1, 2026 and amends both the California Business and Professions Code and Labor Code, reinforcing the state’s long-standing public policy against restraints on trade and employee mobility.

In short, AB 692 California 2026 ensures that workers are free to leave a job without being financially trapped.

Why Assembly Bill 692 Was Passed

AB 692 directly targets California debt training repayment agreements (TRAPs)—arrangements that required workers to repay training costs, bonuses, or fees if they left before a certain date.

Legislators identified these provisions as a growing method of economic coercion, particularly in lower-wage and early-career industries. Assembly Bill 692 strengthens worker protections by declaring these clauses void and unenforceable in most circumstances.

Key Provisions of AB 692 California Law

For any qualifying agreement signed on or after January 1, 2026, California AB 692 makes it unlawful to include provisions that:

• Require Debt Repayment: Obligating a worker to repay an employer, training provider, or third-party debt collector after separation.
• Trigger Debt Collection: Allowing the initiation or resumption of collections once the worker leaves employment.
• Impose Exit Fees or Penalties: Fees, liquidated damages, or costs tied specifically to quitting, resignation, or termination.

Importantly, the law defines “worker” broadly, covering:

• Employees
• Prospective employees
• Interns and trainees
• Participants in job or training programs

Examples of Prohibited Employment Contract Clauses

Under AB 692 California employment contract restrictions, the following provisions are generally invalid for new agreements:

• Training Repayment Agreements (TRAPs): Mandatory repayment of employer-provided or required training costs.
• Clawback Provisions: Forced repayment of relocation, onboarding, or sign-on bonuses outside narrow exceptions.
• Separation or Replacement Fees: Charges triggered when a worker resigns or changes jobs.

These provisions are now presumed to function as unlawful restraints on worker mobility.

Limited Exceptions Under AB 692

While AB 692 is broad, it does allow narrow, carefully defined exceptions, including:

• Government Loan or Forgiveness Programs: Official state or federal loan repayment and forgiveness programs remain enforceable.
• Transferable Educational Tuition Repayment: Tuition reimbursement for general degrees or certifications (e.g., MBA, CPA) is allowed only if:
  • The credential is transferable beyond the job
  • Repayment is prorated
  • Repayment is not accelerated
• Approved Apprenticeship Agreements: Certain registered apprenticeship programs are exempt.
• Signing or Retention Bonuses (Strict Requirements): Repayment may be allowed only if all statutory safeguards are met, including:
  • Separate written agreement
  • Clear notice of the right to consult an attorney
  • Prorated repayment over no more than two years
  • No obligation to repay before the retention period ends

Failure to meet any requirement voids the provision.

Enforcement, Penalties, and Legal Exposure

Violating California Assembly Bill 692 can expose employers to serious consequences, including:

• Statutory damages of at least $5,000 per affected worker
• Actual damages, if higher
• Injunctive relief preventing enforcement
• Attorney’s fees and costs payable to the worker

These penalties apply per worker, making noncompliance extremely costly for Sacramento-area employers.

Practical Guidance Under AB 692 California 2026

For Employers

• Audit offer letters and employment agreements immediately
• Eliminate standard training repayment language
• Ensure bonus agreements strictly comply with AB 692 requirements
• Consult employment counsel before using repayment provisions

For Workers

• You generally cannot be forced to repay training costs for quitting
• Debt collection threats may be unlawful
• Withholding final wages for training debt may violate California law

How Shimoda & Rodriguez Law, PC Can Help

At Shimoda & Rodriguez Law, PC, we have extensive experience representing California workers harmed by unlawful employment contract restrictions, wage violations, and retaliation.

AB 692 is a powerful tool for employees, but enforcement requires legal action. If your employer has attempted to impose a training repayment agreement, exit fee, or stay-or-pay clause, our team can help you:

• Evaluate whether your contract violates AB 692
• Stop unlawful debt collection efforts
• Pursue statutory damages and attorney’s fees