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“Stay or pay” ban pushed to 2027 — with more exceptions
AB 1697 delays California’s ban on clawbacks that make departing employees repay their employer, and carves out new exceptions for bonuses, PTO advances, and more.
At a glance
- AB 1697 was signed September 30, 2026 as an urgency bill, so it took effect immediately.
- The AB 692 “stay-or-pay” ban is inoperative for all of 2026 and now applies to agreements entered on or after January 1, 2027.
- New exceptions include certain retention and discretionary bonuses, PTO advances of up to 40 hours, apprenticeship agreements, and government-funded recruitment programs.
- The core rule is the same: most terms that make an employee pay the employer for leaving are void.
AB 692 took aim at “stay-or-pay” terms — training-repayment agreements, sign-on bonus clawbacks, and similar clauses that make an employee owe money for leaving. It was scheduled to apply to agreements entered on or after January 1, 2026.
On September 30, 2026, the Governor signed AB 1697, an urgency bill that resets the clock and rewrites the exceptions. The ban is now inoperative for calendar year 2026 and applies to agreements entered on or after January 1, 2027.
What changed
Timing: the prohibition no longer applies to agreements entered during 2026; it applies to covered agreements entered on or after January 1, 2027. Exceptions: AB 1697 adds or expands carve-outs for discretionary and retention bonuses (not just bonuses at the start of employment), with conditions such as a separate written agreement, time to consult a lawyer, and a limited retention period; repayment of advanced paid time off of up to 40 hours, without interest; apprenticeship agreements; government-funded recruitment, retention, and loan-assistance programs; residential leases and financing; and certain inducement payments in the securities and insurance industries. Tuition repayment for genuinely transferable credentials remains allowed if it is prorated and not accelerated on departure.
Who’s affected
Any California employer using sign-on or retention bonuses with clawbacks, training-cost repayment agreements, relocation paybacks, PTO advances, or similar terms — especially common in healthcare, tech, financial services, and skilled trades.
What to do now
If you already rewrote your templates for 2026, you don’t need to undo that work — the stricter approach is still where the law lands on January 1, 2027. Use the rest of 2026 to inventory every repayment or clawback clause, check which ones fit a new exception, and finalize compliant templates for agreements you’ll sign from January 1, 2027 onward. Other California wage laws still apply in the meantime, so have counsel review anything aggressive.
How The HR Meeting helps
We audit your offer letters and agreements for stay-or-pay language, sort out what fits the new exceptions, and help you redesign incentives — like retention bonuses that reward staying instead of punishing leaving.
Sources & official text
This article is general information for California employers, not legal advice. Rules change and application depends on your facts — confirm against the official text or ask us before acting.