Understanding the "Stay-or-Pay" Ban
California's Assembly Bill 692 (AB 692), effective January 1, 2026, fundamentally restricts "stay-or-pay" clauses in employment contracts. These agreements traditionally required employees to repay bonuses if they departed before a specified date. The law now treats such arrangements as unlawful constraints on worker mobility.
The statute applies comprehensively across all worker categories — employees, prospective hires, and freelancers — without executive exemptions. Repayment demands triggered solely by an employee's departure are generally prohibited.
Legal Risks of Non-Compliance
Enforcing outdated repayment clauses exposes businesses to significant liability. Under Labor Code Section 926, violations carry civil penalties of $5,000 per worker or actual damages — whichever exceeds the other — plus attorney fees and injunctive relief. Affected workers may bring claims on behalf of themselves and similarly situated coworkers, enabling class-action-style litigation.
Compliant Signing Bonus Structures
Organizations can still offer signing bonuses if they satisfy seven specific conditions:
- Separate written agreement from the employment contract
- Employee notification of attorney consultation rights with minimum five-business-day consideration period
- Prorated repayment obligations based on remaining retention period
- No accruing interest
- Maximum two-year retention period
- Deferral option allowing employees to receive bonuses after completion without repayment obligations
- Repayment triggered only by voluntary resignation or misconduct-based termination
Alternative Incentive Models
- Installment payments distributed across the first employment year
- Performance milestones tied to project completion
- Retention bonuses framed as work anniversary rewards rather than departure penalties
Recommended Actions
- Audit existing employment agreements for problematic repayment language
- Ensure any surviving bonus clauses meet all seven statutory conditions
- Consult legal professionals for compliant restructuring
- Communicate contract changes to management and HR teams
Disclaimer
This article is for general informational purposes only and does not constitute legal advice.