1. Which Agreements Fall under the 2027 Rules?
Check when the parties entered into the repayment agreement. A worker who signed in 2025 and leaves in 2027 does not fall within the new restrictions solely because of the departure date.
What AB 1697 Changed
AB 692 added Business and Professions Code section 16608 and Labor Code section 926. AB 1697, signed September 30, 2026, changed their application to contracts entered into on or after January 1, 2027. The amendment took effect immediately and made the earlier provisions inoperative throughout 2026.
Earlier Contracts Still Need Legal Review
Older contracts do not become enforceable simply because the new restrictions do not apply. Labor Code section 2802 requires reimbursement of necessary employment expenses, and existing wage and contract rules may provide separate grounds to challenge repayment.
Keep the original agreement and later amendments. A renewal or replacement may require review to determine when the relevant contract was entered into.
2. Which Repayment Terms Does California Stay-or-Pay Law Restrict?
Section 16608 targets terms in employment contracts, or agreements required as a condition of employment or a work relationship, that impose financial consequences when that relationship ends. Employers, training providers, and debt collectors fall within its scope.
Look at the Trigger Behind the Charge
A clause may require repayment directly, end a pause in collection, or impose a quit fee. Listed charges include replacement-hire fees, retraining fees, immigration or visa-cost reimbursement, liquidated damages, lost goodwill, and lost profit.
| Payment or Charge | Main Issue to Examine |
|---|---|
| Required job training | Whether the charge shifts business costs or penalizes departure |
| Degree tuition | Whether the credential and agreement satisfy the tuition exception |
| Signing or retention bonus | Whether the payment and repayment terms satisfy the monetary-payment exception |
| Relocation payment | Whether its substance fits an exception, rather than relying on its label |
| Advanced PTO | Whether the voluntary-separation exception and its limits apply |
Required job training
- Main Issue to ExamineWhether the charge shifts business costs or penalizes departure
Degree tuition
- Main Issue to ExamineWhether the credential and agreement satisfy the tuition exception
Signing or retention bonus
- Main Issue to ExamineWhether the payment and repayment terms satisfy the monetary-payment exception
Relocation payment
- Main Issue to ExamineWhether its substance fits an exception, rather than relying on its label
Advanced PTO
- Main Issue to ExamineWhether the voluntary-separation exception and its limits apply
3. Bonus and Tuition Exceptions Have Different Requirements
Signing a separate document is only one requirement for certain exceptions. The payment must also qualify, and the agreement must satisfy the conditions attached to that exception.
Discretionary or Unearned Monetary Payments
The general monetary-payment exception covers payments, including bonuses, that are discretionary or unearned and not tied to specific job performance. The amended text no longer limits this exception to payments at the outset of employment.
The agreement must satisfy each of these conditions:
- Repayment terms in an agreement separate from the primary employment contract.
- Notice of the right to consult an attorney and at least five business days to obtain advice before signing.
- Interest-free repayment prorated over a retention period of no more than two years from payment.
- An option to receive the payment after completing the retention period without repayment obligations.
- Early separation solely at the employee’s election, or termination by the employer for misconduct.
Earned compensation requires separate analysis. Calling wages a “bonus” does not resolve their legal status. Employers should distinguish these payments from compensation already earned under their employee benefits and compensation plans.
Tuition for a Transferable Credential
The tuition exception concerns a degree from an accredited third-party institution authorized to operate in the state. The degree must not be required for the worker’s current employment and must be useful beyond the current employer.
The employer must offer the agreement separately from the employment contract and disclose the repayment amount before the worker agrees. Obtaining the credential cannot be a condition of employment.
Repayment cannot exceed the employer’s cost. It must decrease proportionally during the required employment period, without accelerating the payment schedule upon separation. Employer-initiated termination cannot trigger repayment unless it is for misconduct.
Other Exceptions Require Their Own Review
The statute also excludes qualifying government loan programs, certain government-grant-funded recruitment or retention bonuses, approved apprenticeships, and residential-property contracts.
AB 1697 also added exceptions for certain payments to registered or licensed financial-services agents or representatives, and for advanced paid time off (PTO). The financial-services exception has separate conditions, including limits on interest after separation.
The PTO exception applies to voluntary separation and limits repayment to the equivalent of 40 hours. The employer must disclose the terms separately when the worker requests the advance, and cannot charge interest. Neither exception creates automatic permission to deduct wages.
4. Repayment after Quitting Is Different from a Payroll Deduction
Even an enforceable repayment obligation does not automatically permit an employer to collect it from wages. Contract enforcement and payroll withholding require separate legal analysis.
Resignation, Layoff, and Misconduct
For the general monetary-payment exception, a voluntary departure differs from a layoff or ordinary employer-initiated termination. An employer cannot satisfy the misconduct condition merely by labeling the discharge “for cause.” Section 16608 uses the misconduct definition in Unemployment Insurance Code section 1256.
Final Paycheck Deductions Need a Separate Basis
California wage rules restrict deductions and offsets. Guidance from the Division of Labor Standards Enforcement (DLSE) explains that an employer generally cannot take an outstanding employee-loan balance as a lump-sum deduction from final wages, even with written authorization.
A disputed deduction may therefore raise an unpaid wages issue independently of whether a repayment debt exists. HR should obtain separate review before instructing payroll to withhold money.
5. Review the Documents before Paying or Demanding Repayment
Workers should request an itemized calculation. Employers should identify the legal basis before sending a demand or instructing payroll. Employment counseling can address disputed obligations and new agreements.
Build a Complete Repayment Record
Collect the signed agreement, amendments, payment records, review-period communications, repayment schedule, and departure documents. Ask which clause triggers repayment and how the employer calculated the remaining balance.
For tuition, retain institutional accreditation information and proof of the employer’s actual cost.
6. Frequently Asked Questions
Recruiting promises and collection notices can raise questions beyond the written repayment schedule. The statute addresses both how an obligation arises and who seeks payment.
The statutory definition of “worker” includes prospective employees and people permitted to participate in job or skills training. Review can therefore matter before the person begins work.
Yes. Section 16608 defines contracts to include oral, implied, and express agreements. Emails, messages, and recruiting communications may help establish the terms, although the exceptions can require separate documentation.
No. The restriction expressly addresses debt collectors as well as employers and training providers. Referring a disputed obligation to a collector does not cure an unlawful repayment term.
07 Oct, 2026
