If your offer letter says “repay the sign-on bonus if you leave early,” that sentence will look very different next year. Starting January 1, 2026, California Assembly Bill 692 sharply limits employers’ ability to claw back sign-on bonuses, training costs and other benefits when workers leave — a change that will ripple through recruiting, retention and training programs.
What the new law does
AB 692 broadly bars employers from including contract terms that:
- Require repayment of a debt to the employer (or a training provider or debt collector) if the worker’s employment ends; or
- Let the employer or debt collector restart collection or end a forbearance when employment terminates; or
- Impose a penalty, fee or cost tied to the end of employment.
- Repayment terms must live in a separate, stand‑alone agreement — not buried inside an offer letter or a general employment contract.
- Employees must be given at least five business days to review the repayment agreement and be told they may consult counsel.
- Any repayment period must be prorated over a retention period no longer than two years and may not accrue interest.
- Repayment can only be triggered if the employee leaves voluntarily (early separation at the employee’s election) or is fired for misconduct. Ordinary layoffs or terminations without misconduct generally won’t trigger repayment.
- Employers must offer the employee the option to defer payment until the retention period ends; if the employee defers, no repayment obligation applies.
- Move any repayment obligations into a separate stand‑alone agreement that satisfies AB 692’s timing and disclosure rules.
- Build standard five-business‑day review and counsel-notice processes into offer workflows.
- Rework retention pay so it’s prorated over no more than two years and offers a no‑clawback deferral option.
- Revisit tuition‑reimbursement and apprenticeship contracts to ensure the agreements and disclosures are precise and compliant.
- Train recruiting, HR and finance staff to recognize prohibited language and route any proposed repayment terms to employment counsel.
That sounds sweeping on purpose. Lawmakers wrote the bill to protect worker mobility and curb tactics that can chill departures or lock employees into poorly negotiated arrangements.
Narrow, tightly governed exceptions
The statute isn’t an absolute ban. It allows limited repayment obligations only where a set of strict procedural and substantive safeguards are followed. Key features of those exceptions:
AB 692 also permits narrowly defined tuition- or credential‑repayment agreements (limited to actual employer costs for a transferable credential, disclosed in advance, prorated, and subject to misconduct carve-outs), contracts tied to approved apprenticeship programs, certain government loan‑repayment programs, and standard residential property transactions.
Enforcement and what’s at stake
The law creates a private right of action. Workers can sue on behalf of themselves and similarly situated colleagues. Remedies include injunctive relief, recovery of attorneys’ fees and costs, and statutory damages equal to the greater of actual damages or $5,000 per affected worker. That per-person damages structure means even a handful of missteps across a large workforce could become costly fast.
AB 692 does not apply retroactively, but it governs new agreements and incentive arrangements executed on or after January 1, 2026.
Practical implications for employers and HR teams
Companies that rely on sign-on bonuses, training reimbursement, or retention pay should audit agreements now. Steps to consider:
Many employers will also want to rethink the underlying incentive design: are clawbacks the only way to secure retention, or could alternative structures — such as milestone payments, deferred compensation, or non‑monetary retention incentives — achieve the same goals without legal exposure?
Why employers should pay attention beyond the legal text
This law lands against a broader backdrop of labor disruption and litigation. High‑profile workplace disputes have shown how quickly employment frictions can escalate into costly lawsuits; see the recent turmoil at Rockstar for one example of how employer‑employee clashes can explode into public and legal battles. At the same time, companies are restructuring roles and incentives as automation and new technologies reshape work — consider how firms such as Square Enix are shifting staffing models in the face of automation — which makes clear, lawful compensation and incentive policies even more important.
If you’re on the employee side, AB 692 strengthens your bargaining position: many common clawback hooks will be off the table, and employers that want repayment obligations must jump through clear procedural hoops.
For employers, the message is simple but urgent: don’t wait. Policies and template language that were standard last year may violate AB 692. Given the per-employee damages and the new private right of action, the cost of staying put is potentially high. Work with experienced employment counsel to redesign agreements and rollout processes that protect retention goals while staying inside the new legal guardrails.
If you want to dig into the bill text or plan next steps, now is the time to map which templates, offer letters and training agreements need revision before 2026 begins.