California Stay-or-Pay Contracts: The 2027 Date and the 2026 Transition

Before relying on California’s stay-or-pay law, check the contract date and the September 2026 amendment. The original law covered contracts entered on or after January 1, 2026. AB 1697 changed that date to January 1, 2027 and made the original provisions inoperative during 2026. A demand to repay training, a bonus or another employment-related amount still needs legal review, but the original 2026 date is no longer a sound stand-alone answer.

This historical January 16 article has been updated to explain the later September 30, 2026 change. The amendment and additional exceptions were not part of the law as it stood in January.

What changed after the original January rule

AB 692, enacted in October 2025, added Business and Professions Code section 16608 and Labor Code section 926. It targeted specified debt, collection and penalty terms triggered by termination of a work relationship, with exceptions and a civil remedy.

AB 1697, chaptered September 30, 2026, took effect immediately as an urgency statute. Section 1 states that the amendments prevent accrual of liability for acts between January 1, 2026 and the amendment’s effective date, and that pending claims based on violations during that period are moot. Amended section 16608(c)(2) and Labor Code section 926(e) make their original provisions inoperative January 1 through December 31, 2026.

Those transition provisions matter to a worker who already raised a claim, not just an employer preparing next year’s agreement. Obtain advice about the specific claim and any independent grounds; do not continue relying on an older summary that omits the amendment.

The contract date comes before the exception analysis

The amended section 16608(b)(1) applies its prohibition to contracts entered into on or after January 1, 2027. Preserve the complete agreement, signature or acceptance record, later amendments and repayment demand. The date employment began, money was paid or employment ended is not necessarily the date the relevant contract was entered.

A contract outside that date rule is not automatically enforceable. Section 16608(d) preserves other laws, expressly including Labor Code section 2802, worker-classification provisions and the Unfair Competition Law. The amendment does not answer every reimbursement, wage-deduction or contract-validity question.

For illustration, a worker may receive a repayment demand in 2027 under a document entered in 2026. The later demand alone does not establish that the new-contract date condition is satisfied. A later amendment or new promise needs analysis from its actual language and formation facts, rather than an automatic assumption in either direction.

Identify what termination triggers

For a covered contract, section 16608(b)(1) addresses three kinds of terms: Paying a debt to an employer, training provider or collector when the work relationship ends; initiating or resuming collection or ending forbearance upon that event; and imposing a termination-triggered penalty, fee or cost. The statutory definitions are broad and include oral or implied agreements and specified employment- or education-related debts.

The listed costs include quit and replacement fees, retraining charges, immigration or visa-related reimbursement, liquidated damages, lost goodwill and lost profit. A label such as “training loan” does not finish the analysis. Read the event that makes payment due and identify the exception claimed.

Tuition and bonus exceptions have different conditions

The transferable-credential exception in section 16608(b)(2)(B) concerns tuition for a degree from an accredited third-party institution authorized to operate in California. The degree must not be required for the current job and must be transferable and useful beyond the current employer. Ordinary internal instruction does not become that credential merely because the agreement calls it education.

The tuition agreement must also be separate from the employment contract, must not make obtaining the credential a condition of employment, must disclose the repayment amount in advance without exceeding the employer’s cost, and must prorate repayment without accelerating the schedule at separation. Employer termination cannot trigger repayment except for misconduct as defined by the statute. Review all conditions, not only the presence of proration.

The general exception in section 16608(b)(2)(D) for discretionary or unearned monetary payments not tied to specific job performance has its own requirements: A separate repayment agreement; notice of the right to consult counsel and at least five business days for advice before signing; no interest and proportional repayment over a retention period no longer than two years; an option to defer receipt until the period ends without repayment; and separation solely at the worker’s election or employer termination for misconduct. AB 1697 removed the original requirement that the payment be made at the outset of employment.

The amendment added exceptions that an older checklist will miss

The current statute also addresses government grant-funded recruitment or retention bonuses when repayment obligations comply with the grant’s requirements and do not exceed its required service obligations, in addition to government loan-repayment or forgiveness programs. It retains specified apprenticeship and residential-property exceptions.

Section 16608(b)(2)(F) separately addresses qualifying affiliation payments involving securities broker-dealers, insurance producers or investment advisers and specified registered or licensed agents or representatives. Its conditions include separate terms, compensation additional to otherwise-payable amounts, counsel-review notice and time, and a post-separation interest rate no greater than the IRS applicable federal rate for federal income tax purposes. Do not substitute the general bonus checklist for this different exception.

Section 16608(b)(2)(G) addresses repayment after voluntary separation for advanced paid time off exceeding accrued time. It requires separate disclosure at the worker’s request for the advance, a repayment obligation not exceeding 40 hours of accrued paid time off, and no interest. That limited exception is not blanket permission to recover every negative leave balance.

Review the demand and available remedy together

Labor Code section 926 retains a civil-action provision for workers subjected to the prohibited conduct or a worker representative. A person found liable owes actual damages or $5,000 per worker, whichever is greater, plus the specified injunctive relief and reasonable fees and costs. But the amended contract-date and 2026-inoperability provisions must be applied first. This is not an automatic $5,000 payment for receiving a disputed demand.

Bring the original agreement and amendments, bonus or tuition records, course details, repayment calculation, separation notice and collection correspondence. Identify any deadline in the demand. A useful review asks which version and date rule govern, whether an exception actually fits and what other legal grounds remain—not simply whether the document uses the words “stay or pay.”