California AB 692: Termination‑Tied Repayment Clauses Are Banned
(Effective Jan 1, 2026)
California’s AB 692 makes it unlawful (starting with contracts signed on or after January 1, 2026) to include any term that is triggered by the end of employment and
(A) requires a worker to pay the employer, a training provider, or a debt collector for a debt;
(B) authorizes resuming or initiating collection or ending forbearance on a debt; or
(C) imposes any penalty, fee, or cost on the worker.
Agreements containing these termination‑triggered repayment or “quit fee” provisions are declared void as unlawful restraints of trade for post‑2026 contracts, and the law gives workers (or their representatives) a right to sue for actual damages or $5,000 per worker (whichever is greater), plus injunctive relief and reasonable attorneys’ fees and costs.
Implications for relocation repayment agreements
Traditional relocation clawbacks, where an employee must repay relocation expenses if they leave within a set number of months, are likely prohibited by California AB 692 because they require payment of a debt upon termination or impose a fee or cost triggered by termination. The statute applies only to contracts entered into on or after January 1, 2026, so agreements signed before that date are not voided by AB 692, although other laws may still apply.
Are any repayment agreements still allowed?
Repayment arrangements are still permitted in California only within narrow categories under AB 692.
- Government loan repayment or forgiveness programs are carved out.
- Tuition for a transferable credential is allowed if the agreement is separate from employment, not required for the job, capped at the employer’s actual cost, prorated, does not use an accelerated payment schedule, and does not require repayment if the worker is terminated except for misconduct.
- Approved apprenticeship programs remain permissible.
Discretionary or Unearned Payments, Including Financial Bonuses
Employers may provide a contract for the receipt of a discretionary or unearned monetary payment, including a financial bonus, at the outset of employment that is not tied to specific job performance, provided that all of the following conditions are met:
- The agreement must be separate from the primary employment contract.
- The worker must be informed of the right to consult an attorney and given at least five business days to do so.
- Any repayment for early separation must be interest-free and prorated, with a retention period of no more than two years.
- The worker may defer receipt until the end of the full retention period to avoid any repayment obligation.
- Repayment may be required only if the employee resigns voluntarily or the employer terminates employment for misconduct.
In practical terms for relocation, offering a lump‑sum, discretionary sign‑on payment that meets these five conditions can preserve a compliant repayment mechanism, while reimbursing actual relocation expenses with repayment triggered by termination is likely prohibited after January 1, 2026.
Recommended next steps:
- Contracts signed before Jan 1, 2026: The AB 692 voiding provisions do not apply (the statute is forward‑looking), but you should still review with your company’s legal counsel for other risks.
- Stop using agreements that require paying the employer back for relocation expenses or impose any fees/costs tied to termination.
- Audit templates signed with California workers to confirm signature date (pre vs. post Jan 1, 2026) and structure.
**Disclaimer:** The information in this blog post is provided for general informational purposes only and does not constitute legal or financial advice. Laws and regulations may change and can apply differently to your specific circumstances. You should not act or rely on any content here without seeking advice from qualified legal counsel and a licensed financial advisor.
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