California AB-692: New Employment Contract Restrictions Effective January 2026
Governor Newsom recently signed into law California Assembly Bill (AB-692), which bans “stay or pay” terms and other repayment clauses in employment contracts entered into by California employers on or after January 1, 2026.
Historically, some employers have offered to pay for employee training, school tuition, or other benefits, on the condition that the employee remain employed for a specified period of time. Under such arrangements, employees who leave the company before the promised period of employment may be contractually obligated to repay the employer’s costs. The new AB-692 law will significantly restrict repayment provisions and other terms that condition payment obligations on termination of a worker’s relationship.
What Does AB-692 Prohibit?
Under AB-692, employment agreements entered into by California employers on or after January 1, 2026, shall not include contract terms that:
- Require a worker to pay an employer, training provider, or debt collector for a debt if the worker’s employment terminates;
- Authorize the employer, training provider, or debt collector to resume or initiate collection of, or end forbearance on, a debt if the worker’s employment terminates; or
- Impose any penalty, fee, or cost on a worker if the worker’s employment terminates.
How Does AB-692 Impact Immigration Matters?
The U.S. Department of Labor (DOL) prohibits employers sponsoring foreign national employees from recouping costs involving the H-1B, E-3 or H-1B1 process or PERM labor certification application for permanent residency as it is considered an employer’s business expense. However, federal regulations do not prohibit employers from recouping costs for other nonimmigrant processes (including TN, L-1, and O-1), as well as dependent immigration matters, the I-140 Immigrant Visa Petition, or the I-485 Adjustment of Status processes.
As such, some employers have chosen to implement policies or repayment or “clawback” employment agreements to recover a portion of certain allowable immigration sponsorship fees in the event of a resignation by the employee before a certain date. Whether such agreements are enforceable or legal will depend on how it is drafted and state labor laws. Under AB-692, California employers will be restricted from implementing employment agreements that require employees to reimburse certain costs if they leave the job. This specifically includes reimbursement for immigration visa or visa-related costs.
When Does It Take Effect?
AB-692 will affect employment contracts entered into by California employers on or after January 1, 2026. While the law is not retroactive, it’s essential to understand its implications for future hires.
What are the Consequences of Noncompliance?
AB-692 introduces Labor Code §926, which grants employees the right to bring civil actions against employers who include prohibited clauses in agreements signed on or after January 1, 2026. Employers that violate it could be subject to monetary damages in the amount of the worker’s actual damages or $5,000, whichever is greater, plus injunctive relief and attorney fees and costs.
What This Means for Employers
In anticipation of AB-692, California employers should promptly review employment contracts to identify and phase out any provisions that may violate AB-692.
In addition to working with immigration counsel, California employers should work closely with labor and employment counsel to ensure all employment contracts—especially those involving visa sponsorship or reimbursement provisions—comply with AB-692’s ban on “stay-or-pay” clauses.
If you have any questions regarding how this new law may impact your organization’s immigration policies, please contact your LAC attorney.
This update was prepared by Brianda Renteria-Huber, Associate Attorney – Larrabee Albi Coker LLP