A new California law, AB 692, will prohibit employer agreements entered into with their employees beginning January 1, 2026, that requires employees to repay costs or pay penalties when their employment ends.  However, there are key exceptions to this new law’s prohibitions, including tuition reimbursement and retention bonus repayment so long as certain conditions are met. 

Tuition reimbursement:  California will allow tuition reimbursement agreements to be enforced only if the following conditions are met:

• The agreement is set forth in a document other than the offer letter or employment contract. 
• The amount to be owed must be specifically set forth before the employee agrees to repay it. 
• The cost of the tuition to be reimbursed cannot be more than the cost incurred by the employer.
• The agreement cannot be enforced if the employer terminates the employee, unless the termination is for misconduct. 
• The degree in question for which the tuition reimbursement applies, cannot be one that is required for the worker’s current job held, and must be transferable and useful beyond the employer’s workforce. 

Retention bonuses:  Retention bonuses are sometimes provided to employees such as new hires, which include that they must be repaid to the employer if the employee leaves their employment before a specific date.  These remain permissible under the new law but only under specific conditions:  

• The terms of the retention bonus must be in a stand-alone document. 
• Employees must be advised of their right to have 5 days to consult with an attorney before signing. 
• Repayment must be interest free and prorated based upon the remaining portion of the retention period, which cannot exceed two years from date of payment received.
• The employee must also have an option to defer receipt of the bonus until the end of the fully served retention period, in which case no repayment obligations would exist. 
• Repayment can only be triggered if the employee leaves voluntarily or if they are terminated for misconduct. 

Penalties:  Employees can bring suit on their own behalf or others.  Injunctive relief and damages measured as actual damages or $5k whichever is more are recoverable.

California employers should review their reimbursement agreements and ensure that any new such agreements entered into beginning January 1, 2026, meet the new requirements of AB 692.  Note that agreements that already exist between employees are not impacted by these new requirements.

If you have any questions related to the new “stay or pay” laws, contact our employment attorney Scott Liner at [email protected].

Need help reviewing your repayment or bonus agreements?
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_{Please note that this article is for informational purposes only and should not be considered legal advice and does constitute an attorney-client relationship. It is recommended to consult with an attorney directly for specific guidance pertaining to your business and its practices.}