The End of Employment Clawbacks? California's AB 692 Restricts Debt Repayment Upon Separation

On Oct. 13, 2025, Gov. Gavin Newsom signed Assembly Bill 692 (AB 692), which adds Section 16608 to the Business and Professions Code and Section 926 to the California Labor Code. AB 692 will directly restrict employers’ contractual rights by generally making it unlawful to include terms in employment contracts that require a worker to repay a debt if their employment ends. This bill thus prohibits a wide array of “stay-or-pay” contracts. Likewise, AB 692 also prohibits employers from requiring a worker to execute, as a condition of employment, a contract that obligates them to repay a debt upon separation from employment, subject to limited exceptions. 

The new law applies to agreements entered into on or after Jan. 1, 2026, and all employers in California will be subject to this law regardless of their size. Learn more on our Labor & Employment blog.