Legislative Update: Stay-or-Pay delayed
Continuing with our California legislative update series, we now turn to Assembly Bill (AB) 1697, a measure delaying to January 1, 2027, the effect of last year’s AB 692 which prohibits an employment contract from including any provisions that require a worker to assume a debt if their employment concludes before the end of the contract’s term, the so-called Stay-or-Pay type agreements. Additionally, AB 1697 establishes some exemptions to the prohibitions adopted with AB 692 for certain bonuses, advanced paid time off payments, and certain contracts in the financial securities and insurance industries that meet specified criteria.
“Stay or Pay” Provisions & Training Repayment Agreement Provisions (TRAPs):
“Stay or pay” provisions refer to debt obligations incurred by individuals through employment arrangements that include employer provided training, equipment, or supplies, in exchange for worker commitments to work with the employer for a specified amount of time. Contract provisions specific to training are also known as Training Repayment Agreement Provisions or “TRAPs.” These arrangements require the worker to reimburse the employer for such expenses if the worker leaves the job before the specified date, even if the worker is fired or laid off.
Stay-or-Pay banned with last year’s AB 692:
For contracts entered into on or after January 1, 2026, AB 692 makes it unlawful to include in any employment contract, or to require a worker to execute as a condition of employment or a work relationship, a contract term that either:
· Requires the 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.
· Authorizes the employer, training provider, or debt collector to resume or initiate collection of or end forbearance on a debt if the worker’s employment or work relationship with a specific employer terminates.
· Imposes any penalty, fee, or cost on a worker if the worker’s employment or work relationship with a specific employer terminates.
Contracts exempted from the above include:
· A contract entered into under any loan repayment assistance program or loan forgiveness program provided by a federal, state, or local governmental agency.
· A contract related to the repayment of the cost of tuition for a transferable credential, provided that specified conditions are met.
· 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, including a financial bonus, at the outset of employment that is not tied to specific job performance.
· A contract related to the lease, financing, or purchase of residential property, as specified.
Why was AB 692 postponed?
The Legislature decided to postpone the effects of AB 692 to provide all employers with an additional year to structure their employment contracts free of debt traps or quit fees that penalize workers who choose to exercise their freedom of employment. Thus, any pending claim based on a violation alleged to have occurred between January 1, 2026 and the effective date of this bill is moot.
Trust Rosasco Law Group to take a look at your workplace agreements to make sure they are air-tight. Give our office a call and we can help with any and all of your employment law needs.
