Existing law prohibits employers from using “stay-or-pay” agreements that require workers to repay certain debts, training costs, penalties, fees, or other employment-related costs because the worker leaves employment. The restrictions were previously scheduled to apply to contracts entered into or after January 1, 2026, and violations can subject an employer to actual damages or statutory damages of $5,000 per worker, injunctive relief, and attorney’s fees and costs.
AB 1697 postpones application of those restrictions to employment contracts entered into on or after January 1, 2027, and creates additional exceptions. Among other things, the restrictions do not apply to qualifying government-funded recruitment or retention bonus programs, specified tuition repayment agreements, approved apprenticeship programs, certain properly structured discretionary bonuses, or repayment of up to 40 hours of advanced paid time off following an employee’s voluntary separation. AB 1697 also establishes detailed requirements for permissible repayment agreements, including separate agreements, notice of the right to consult counsel in certain circumstances, and limitations on repayment amounts and interest. AB 1697 took effect immediately as an urgency statute.
Employers should review employment agreements, recruitment and retention incentives, educational assistance programs, sign-on bonuses, and PTO-advance arrangements before January 1, 2027. Agreements that condition repayment on separation should either fall within a statutory exception or be revised to comply with the new requirements.
AB 1697 amends section 16608 of the Business and Professions Code and section 926 of the Labor Code.
