California AB 692 and the New Reality for Relocation Benefits

Hiring and onboarding employees is costly for employers, and many offer incentives, such as sign-on bonuses and relocation assistance, to attract top talent. These costs add up, especially when funds are spent to relocate an employee who later resigns or is terminated due to misconduct. To protect their investment, many employers develop hiring contracts that require employees to repay certain employment funds. But a new California bill restricts the use of post-employment repayment requirements, limiting “stay-or-pay” conditions for relocation expenses, sign-on bonuses, and training costs.

What is AB 692?

Assembly Bill 692 (AB 692), signed into law on October 13, 2025, prevents employers from requiring former employees to repay job-related costs associated with employment contracts entered into after January 1, 2026. The ban applies to the common use of training-repayment assistance programs (TRAPs), in which an employer pays for work-related training or education on the condition that the employee remains at the job for a set period of time. If the employee leaves early, they must pay back the costs of these programs.

Additionally, the law prevents employers from doing the following:

• Requiring a worker to repay an employer, training provider, or debt collector if employment ends
• Authorizing the initiation or resumption of debt collection if employment ends
• Imposing any penalty or fee on a worker if employment ends.

Violation of AB 692 carries steep civil penalties for employers. Workers who are subjected to these prohibited agreements can sue their former employers, who face penalties of at least $5,000 per employee or actual damages, plus attorneys’ fees and costs.

The Contracts Excluded from AB 692

Some programs narrowly exempt employers from the law, such as government loan-repayment programs, discretionary payments, and specific residential property fees, but they do not broadly exempt relocation or mobility program benefits. Additional contracts excluded from AB 692 include the following:

• Stay-or-Pay Contracts: Contracts that require workers to repay sign-on, retention, or training bonuses upon termination are not covered by the law.
• Loan Repayment Assistance Programs: Contracts related to repayment under these programs are excluded, provided they are offered separately and meet specific criteria.
• Apprenticeship Programs: Contracts related to enrollment in approved apprenticeship programs are excluded, with certain conditions for repayment.
• Tuition Reimbursement: Contracts for tuition reimbursement for transferable credentials are excluded, provided they meet specific criteria.

Strict Criteria for Repayment

In order for employers to seek repayment for the aforementioned funds, the following requirements must be met:

1. The terms must be set forth in a separate agreement.
2. The employee must be informed of the right to consult an attorney and given at least five business days to obtain advice from their attorney before signing.
3. If the agreement seeks repayment for a worker’s early separation, the repayment obligation may not accrue interest and must be prorated based on the remaining term, which may not exceed two years from receipt of payment.
4. The worker must have the option to defer receipt of the payment until the end of the fully served retention date with no repayment obligation.
5. Separation before the retention period must be either at the employee’s sole election or by the employer based on the employee’s misconduct.

Similar Restrictions in the Works

Stay-or-pay restrictions may continue to be reevaluated nationwide. On December 19, 2025, New York Governor Kathy Hochul signed a similar bill, the “Trapped at Work Act,” into law, which imposes restrictions similar to those in California’s AB 692.

What This Means for Mobility

AB 692 is the new normal for employers; a law that directly impacts how employers design relocation and mobility programs, specifically for contracts executed within California. With clawbacks largely limited, employers now bear greater financial risk when funding relocation benefits for California-based employees. Understanding how to navigate the law while protecting programs is a key role for mobility professionals. Shifting programs to smaller packages or alternative retention strategies that do not include repayment clauses is important to consider. Developing separate agreements for any tuition reimbursements and signing bonuses is key for 2026. Understanding how to avoid costly penalties will ensure program integrity, and strategically onboarding talent in a cost-effective way will ensure cost savings down the road. CapRelo can support employers navigating these changes by developing separate employment contracts to protect their funds and ensure risks are mitigated in the event of an employee’s early departure.

As employers rethink relocation and retention strategies in light of AB 692, mobility leaders must balance compliance with cost control. With traditional clawback provisions now significantly limited in California, organizations should evaluate alternative program designs, clearly structured agreements, and compliant retention incentives to reduce financial risk. Partnering with an experienced mobility provider can make all the difference. Learn how CapRelo helps employers adapt relocation programs, strengthen policy design, and protect their investment in talent while staying ahead of evolving legislation.