“Stay or Pay” Ban Takes Effect on Employment Contracts Entered into on or After January 1, 2026

Though arguably already banned indirectly under other Labor Code provisions, California has enacted a general ban on agreements that require an employee to repay certain costs (including training costs, for example) if they leave the employer, or that would require the employee to repay the employer such costs if they leave their employment before a particular date.  The law applies to contracts entered into as of January 1, 2026.  There are a number of exceptions with conditions.  For example, tuition reimbursement agreements are still valid if (i) documented separately from the employment contract, (ii) the tuition is for a transferable credential and not required for the job, (iii) the repayment amount is specified in the agreement and does not exceed cost of tuition, and (iv) repayment is prorated based on amount of employment period completed and only applicable in case of resignation or termination for misconduct.  Another exception involves repayment of signing or retention bonuses which remain permissible if (i) specified in a separate agreement, (ii) the employee is notified of and given at least five business days to consult an attorney before signing, (iii) the employee has the choice to defer the  employer’s payment of the signing or retention bonus until completion of the specified service period, (iv) any repayment is interest free, prorated based on remaining term and cannot exceed two years, and (v) repayment of the prorated remainder only applies to voluntary resignations or termination for misconduct.  

Contracts that violate the stay-or-pay ban are unenforceable and the employee has a private right of action for damages of at least $5,000 and attorneys’ fees and costs.