Wage & Hour
California Bans Employment Contracts That Charge Workers for Quitting
Updated
Assembly Bill 692, by Assembly Member Ash Kalra, adds Section 16608 to the Business and Professions Code and Section 926 to the Labor Code to bar certain “stay-or-pay” terms in employment contracts. For contracts entered into on or after January 1, 2026, it is unlawful to require a worker to pay an employer, training provider, or debt collector, or to face a penalty, fee, or cost, when the worker’s employment or work relationship ends. The statute takes effect January 1, 2026.
Background
California already declares void, under Business and Professions Code section 16600, most contracts that restrain a person from engaging in a lawful profession, trade, or business. A separate system of labor standards enforcement is administered by the Labor Commissioner. Neither framework spoke directly to contract terms that charge a worker for leaving a job.
AB 692 fills that gap by adding Business and Professions Code section 16608 and Labor Code section 926. It treats the covered terms as restraints on lawful work and, for the first time, ties them expressly to section 16600’s voidness rule while creating a private remedy.
What the Law Changes
Section 16608 makes it unlawful, for contracts entered into on or after January 1, 2026, to include in an employment contract, or to require a worker to sign as a condition of employment or a work relationship, a term that requires the worker to pay an employer, training provider, or debt collector for a debt if the worker’s relationship with a specific employer terminates.
The same rule reaches terms that let a creditor resume or start collection, or end forbearance, on such a debt at separation, and terms that impose any penalty, fee, or cost on the worker at separation. A “penalty, fee, or cost” includes replacement-hire fees, retraining fees, quit fees, visa-related reimbursement, liquidated damages, and lost profit. “Worker” reaches employees, prospective employees, and other work relationships.
For contracts entered into on or after January 1, 2026, employment terms that make a worker pay a debt, penalty, fee, or cost because their employment or work relationship ends are unlawful and void as restraints on lawful work under Business and Professions Code section 16600.
Exceptions and Remedies
Section 16608 carves out several contracts, including government loan repayment or forgiveness programs, apprenticeships approved by the Division of Apprenticeship Standards, and residential property lease, financing, or purchase agreements. It also excepts certain tuition-repayment contracts for a transferable credential and certain discretionary sign-on payments, each subject to detailed conditions such as separate agreements, a right to consult counsel, prorated repayment, and no interest.
Under Labor Code section 926, a worker subjected to the prohibited conduct, or a worker representative, may bring a civil action individually or on behalf of similarly situated persons. A violator is liable for actual damages or five thousand dollars ($5,000) per worker, whichever is greater, plus injunctive relief and reasonable attorney’s fees and costs.
What This Means for You
The law addresses employment contracts that charge workers a debt, penalty, fee, or cost when their job or work relationship ends, for agreements entered into on or after January 1, 2026. It lists specific exceptions, treats covered terms as void restraints on lawful work, and allows a civil action with damages, injunctive relief, and fees.
I write these summaries as general information about developments in California employment law. They are not legal advice and don’t create a mediator–client relationship. For guidance on a specific matter, consult a qualified attorney.