AB 692: CALIFORNIA VICIOUSLY PROTECTS EMPLOYEE MOBILITY
On October 13, 2025, Governor Gavin Newsom enacted Assembly Bill No. 692 (“AB 692”), effectively adding Section 16608 to the Business and Professions Code and Section 926 to the Labor Code.
AB 692 Restricts Employers’ Rights in Employment Contracts. AB 692 makes it illegal to include in an employment contract any terms which would require an employee to repay a debt if their employment ends, with few exceptions.
AB 692 was enacted in response to public policy concerns that these types of contracts place unnecessary restrictions on employees, preventing them from freely engaging in a lawful profession, trade, or business. As a result, these types of employment contracts are deemed void and contrary to public policy.
What Does AB 692 Prohibit?
AB 692 prohibits employers from including terms that require an employee to pay or reimburse an employer, training provider, or debt collector for any debt upon termination of the employment or work relationship. The law extends to provisions that impose penalties, fees, or any form of repayment obligation, or that authorize debt collection based on an employee’s separation from employment.
When Does AB 692 Take Effect?
AB 692 becomes effective January 1, 2026. At that time, it will become unlawful for employers to include, or require workers to enter into, employment contracts obligating the employee to repay debts, fees, costs, or penalties if their employment or work relationship ends.
Who Does It Apply To?
All employers in California.
Are There Exceptions?
Government Loan Assistance/Forgiveness Plans: Contracts entered into under a federal, state, or local loan repayment assistance or loan forgiveness program.
Transferable Credential Tuition Costs: Contracts to repay the cost of tuition for a transferable credential are permitted if:
They are separate from the employment contract;
The transferable credential is not a condition of employment;
The contract specifies a repayment amount not exceeding the actual cost of the credential to the employer;
Repayment is prorated without acceleration; and
Repayment is not required unless the worker is terminated for misconduct.
Approved Apprenticeship Programs: Contracts related to enrollment in a Division of Apprenticeship Standards–approved apprenticeship program.
Discretionary Monetary Payments/Bonuses: Contracts for discretionary or unearned payments at the start of employment—such as sign-on bonuses not tied to specific job performance—are permitted if all of the following conditions are met:
Repayment terms are in a separate agreement from the employment contract;
The employee is notified of their right to consult an attorney about the agreement and is given at least five business days to do so;
Repayment, if triggered, is prorated based on the remaining term of any retention period, not to exceed two years, and not subject to accruing interest;
The employee may defer receipt of payment to end of retention period without obligation; and
Repayment is only required if the separation is at the employee’s sole discretion or due to employee misconduct.
Property Transactions: Contracts relating to the leasing, financing, or purchasing of residential property, including those under the California Residential Mortgage Lending Act.
What Are the Consequences of Non-Compliance?
Employers who fail to comply with AB 692 may be subject to private rights of action, such as minimum damages of $5,000 per affected worker, injunctive relief, attorney’s fees and legal costs associated with litigation, and possible regulatory scrutiny.
Taking advantage of employees isn’t just unfair—it’s illegal. You have rights, and Stilz Law is here to help you assert them. Call (714) 462-3707 to schedule your free consultation. Let’s discuss your case and how we can help you protect your rights.