Not So Fast: California Rewrites the Rules on “Stay or Pay” Provisions
In an earlier post, we discussed AB 692, California’s landmark “Stay or Pay” ban (the “Ban”), which prohibits most employment contracts requiring worker repayment upon termination. On September 30, 2026, Governor Newsom signed AB 1697. This bill pushes the operative date of AB 692, expands the sign-on bonus exemption, and creates two entirely new exemptions but otherwise retains the core tenets of AB 692.
What Stays the Same?
Importantly, the broad prohibition at the heart of the Ban stands firm. It will remain unlawful to include in any employment contract—or require a worker to execute as a condition of employment—any term that:
- Requires a worker to pay an employer, training provider, or debt collector if the worker’s employment terminates;
- Authorizes the employer, training provider, or debt collector to resume or initiate collection of, or end forbearance on, a debt upon termination; or
- Imposes any penalty, fee, or cost on a worker upon termination.
The Ban’s broad definitions of “contract,” “debt,” and “penalty, fee, or cost” also remain intact, as does its expansive definition of “worker.” AB 1697 also does not alter the scope of covered workers, which includes any person who works for or on behalf of an employer or business entity, or who is permitted to participate in any other work relationship, job training program, or skills training program.
What’s Changed?
Below is a quick snapshot outlining AB 1697’s major changes and updates to AB 692.
| Term | AB 692 (Original) | AB 1697 (New) | Notes |
|---|---|---|---|
| Enforcement Date | January 1, 2026 | January 1, 2027 | Under AB 1697, the Ban is applicable only to contracts entered into on or after January 1, 2027, and the original AB 692 provisions are inoperative for all of 2026.
AB 1697 also bars liability under the Ban for stay or pay contracts entered into between January 1, 2026, and September 30, 2026. |
| Existing Exemptions | The following categories of contracts are exempt:
| The categories of contracts that were exempt under AB 692 remain exempt with just the one change below:
| Under AB 692, the exemption for repayable sign-on bonuses applied only to payments made “at the outset of employment.” That restriction left retention bonuses for current employees stranded in a gray zone.
AB 1697 eliminates this limitation. Employers may now structure exempt repayable bonus arrangements for both new hires and existing workers, provided the arrangement still satisfies all other statutory conditions. |
| Exemption for Financial Services Recruiting and Retention Payments | No such exemption. | AB 1697 exempts a contract for the receipt of a discretionary or unearned monetary payment from the employer that serves as an inducement for affiliation or continued relationship, provided the following conditions are met:
| AB 1697 carves out an entirely new exemption for certain compensatory arrangements in the financial services industry. The exemption covers contracts with “agents or representatives” of securities broker-dealers, investment advisers, and qualifying insurance providers.
Notably, unlike the general bonus exemption, this financial services exemption permits interest on post-employment repayment obligations. This distinction preserves common forgivable loan and transition compensation practices in the industry. |
| Exemption for PTO Advances | No such exemption. | AB 1697 exempts the repayment obligation of an advanced PTO payment in excess of a worker’s accrued paid time off where the employee voluntarily separates from employment. To qualify:
| A second new exemption permits employers to recover advanced paid time off when an employee voluntarily separates before accruing the advanced leave.
This exemption provides welcome certainty for employers that allow workers to borrow against future PTO accruals. |
| Enforcement Actions |
| No change. |
Next Steps
Though AB 1697 suspends the Ban’s enforcement until January 1, 2027, employers should use the remaining months of 2026 to revisit template agreements for use beginning January 1, 2027. While the expanded exemptions open new doors for structuring compliant arrangements, strict adherence to each exemption’s procedural requirements remains essential. Missteps can quickly turn modest compliance costs into significant per-worker penalties. Mintz’s Employment Practice is ready to assist with any questions about how these amendments affect employers’ existing or planned compensation arrangements.
Authors
Brody Zaugg
Associate
