Governor Newsom has signed Assembly Bill (AB) 692, which adds Section 16608 to the Business and Professions Code and Section 926 to the Labor Code, making it unlawful to include in any employment contract or require a worker to execute, as a condition of employment, a contract that includes terms that require a worker to  “pay an employer, training provider, or debt collector for a debt if the worker’s employment or work relationship with a specific employer terminates,” with limited exceptions.

The bill will apply to contracts entered into on or after January 1, 2026.

The law applies to all employers in California.

Under the law, it will be unlawful to include terms that impose penalties or fees, or require employees to pay debts, authorize debt collection, if the employment relationship ends.

There are some allowances for contracts for repayment under the law:

• A contract entered under a loan repayment assistance program or loan forgiveness program provided by a federal, state, or local government agency.
• A contract related to the repayment of the cost of tuition for a transferable credential, provided that the contract (a) is separate from the employment contract, (b) does not make obtaining the transferrable credential a condition of employment, (c) specifies a repayment amount not exceeding the cost of the credential to the employer, (d) provides for prorated repayment without acceleration; and (e) does not require repayment if terminated unless the worker is terminated for misconduct.
• A contract related to enrollment in an apprenticeship program approved by the Division of Apprenticeship Standards.
• A contract for the receipt of a discretionary or unearned monetary payment at the outset of employment, including a financial bonus, not tied to specific job performance, provided that (a) the terms of repayment are separate from the employment contract; (b) the employee is notified of their right to consult an attorney about the agreement and provided not less than five business days to do so; (c) repayment is prorated based on the remaining term of any retention period which must not be more than two years, without interest accrual; (d) the worker may defer receipt of the payment to the end of the retention period without repayment obligations; and (e) separation is either at the employee’s sole discretion or due to employee misconduct.
• A contract related to the lease, financing, or purchase of residential property.

The law allows for private rights of action, including minimum damages of $5,000 per worker, injunctive relief, and attorneys’ fees and costs.

If you have questions about compliance with AB 692 or related issues, contact a Jackson Lewis attorney.