On Sept. 30, 2026, Gov. Gavin Newsom signed Assembly Bill (AB) 1697, delaying California’s restrictions on employment agreements that require workers to repay certain bonuses, training costs, relocation expenses, or other payments at the end of employment. Originally scheduled to apply to agreements entered into beginning Jan. 1, 2026, the restrictions under AB 692 will now apply instead to agreements entered into only on or after Jan. 1, 2027.
AB 692 broadly restricted repayment obligations triggered by the end of employment (“Repayment Arrangements”), including those commonly used for bonus, training, and relocation payments. While AB 1697 preserves AB 692’s overall framework and policy objective of limiting arrangements that may discourage employee mobility, it provides employers with additional time to review existing practices and more options for structuring repayment obligations.
Background: What AB 692 Did
As we discussed in our November 2025 blog post, California Claws Back: New Limits on “Stay-or-Pay” Contracts Starting Jan. 1, 2026, AB 692 broadly restricted Repayment Arrangements, sometimes referred to as “stay-or-pay” provisions. These arrangements generally require a worker to repay an employer, training provider, or other party, or otherwise incur a financial obligation, when employment ends before a specified date.
The Legislature characterized Repayment Arrangements as restraints on worker mobility similar to other restrictions, such as noncompete agreements, that are generally prohibited under California law.
AB 692 originally applied to Repayment Arrangements entered into on or after Jan. 1, 2026, and created a private right of action allowing individual workers and worker representatives to challenge prohibited provisions and seek damages, injunctive relief, attorneys' fees, and statutory penalties.
Through Dec. 31, 2026: AB 692 Is Inoperative
Effective immediately, AB 1697 delays AB 692’s application until Jan. 1, 2027. As a result, employers will not incur liability under AB 692 for conduct occurring during 2026, and any pending claims based on alleged violations during that period are rendered moot. Other applicable restrictions on repayment agreements pre-dating AB 692, however, remain in effect.
Effective Jan. 1, 2027: Repayment Restrictions Return, but With New Exceptions
Beginning Jan. 1, 2027, AB 692 will apply to contracts entered into on or after that date. However, AB 1697 significantly expands the categories of arrangements that may continue to be used.
1. Expanded Exception for Discretionary Monetary Payments (e.g., Sign-On and Retention Bonuses)
Perhaps the most significant change concerns Repayment Arrangements involving discretionary payments, often referred to by employers as sign-on or retention bonuses. AB 1697 removes AB 692’s original requirement that the payment be made “at the outset of employment” to qualify for the exception. As a result, employers may now use qualifying Repayment Arrangements for discretionary payments made during employment, provided that it satisfies all other applicable statutory requirements, which remain unchanged and include:
- The Repayment Arrangement is documented separate from the primary employment agreement;
- The employer provides notice in writing of the employee’s right to consult counsel and at least five business days to do so;
- Repayment is triggered only by the employee’s voluntary resignation or termination for misconduct prior to the end of the retention period, which can be no longer than two years from the date of payment;
- The amount of repayment is prorated based on the remaining retention period following the triggering event;
- Interest cannot accrue on the Repayment Arrangement; and
- The employer gives the employee an option to defer receipt of the discretionary payment until the end of the retention period without a repayment obligation.
2. New Exceptions
AB 1697 also creates two new exceptions.
The first new exception applies to certain recruiting, transition, and retention payments made to specified licensed or registered financial-services representatives. Under this exception, qualifying payments may be conditioned on continued service and structured as Repayment Arrangements without violating AB 692, provided all other statutory requirements are met. This exception appears intended to preserve compensation practices commonly used in the financial-services industry, where recruiting and retention incentives are frequently tied to multi-year service commitments.
The second new exception expands AB 692’s existing carveout for government loan-repayment assistance and loan-forgiveness programs. It applies to recruitment and retention bonus programs funded by government grants, provided any repayment obligation complies with the grant program’s requirements, including applicable service commitments.
3. Clarification Regarding Advanced PTO
AB 1697 also clarifies that employers may require repayment of advanced but unaccrued PTO following termination, provided specified conditions are met.
Among other requirements, the arrangement must be disclosed in a written agreement separate from the primary employment contract, provided at the time the employee requests the PTO, and repayment may not exceed 40 hours of advanced leave.
For many employers, the practical significance of this change may be limited because California’s longstanding restrictions on wage deductions, particularly from final pay, continue to constrain collection options.
Key Takeaways for Employers
AB 1697 does not eliminate California’s restrictions on “stay-or-pay” Repayment Arrangements. Instead, it postpones those restrictions until Jan. 1, 2027, while adding meaningful exceptions that preserve certain bonus, retention, recruiting, and PTO-related repayment programs.
Employers should use the remainder of 2026 to inventory and evaluate existing Repayment Arrangements, including sign-on bonuses, retention bonuses, relocation assistance, training-cost agreements, and PTO advance programs. Although AB 1697 provides greater flexibility than AB 692, many commonly used repayment provisions will remain subject to scrutiny once the law takes effect.