Question: We offer employees tuition reimbursement under our section 127 educational assistance plan. As part of our policy, we have employees sign agreements stating that if they voluntarily resign or separate employment within one year of completing their educational course, they will be required to return the tuition reimbursement to us by having the amount withheld from their final paycheck. Is this allowable?
Answer:
There are a few different angles used to analyze whether an employer can automatically deduct the tuition reimbursement from an employee’s final paycheck.
First, whether or not an employer can require employees to repay previously-paid educational reimbursements depends on whether the educational expenses were for an employer-mandated course or training. If the educational reimbursement is for an employer-mandated training or course, the employer cannot seek repayment if the employee voluntarily separates or otherwise leaves employment. If the education benefit is for discretionary training or a course not required by the employer, the employer can seek repayment. (In re Acknowledgment Cases, 239 Cal.App.4th 1498 (2015).)
Second, there are also minimum wage considerations. The employer cannot withhold the repayment amount from the employee’s final paycheck to satisfy the employee’s debt if the withholding would reduce the employee’s wage below statutory minimum wage. (City of Oakland v. Hassey, 163 Cal.App.4th 1477 (2008).) The prohibition applies even if the employee agrees to the withholding in writing. If the employee’s wage falls below minimum wage, there is a risk of a wage and hour claim.
Third, the area of the law regarding the repayments changed in 2026. For contracts entered into on or after January 1, 2026, Assembly Bill 692 (AB 692) prohibits contracts or work-related agreements from doing the following:
(1) requiring a worker to repay an employer, training provider, or debt collector if the worker’s employment or work relationship ends; or
(2) imposing any penalty, fee, or cost as a result of termination.
AB 692 also provides a number of specific, narrow exemptions that could apply in some situations. If the tuition reimbursement agreement was entered into before January 1, 2026, then AB 692 does not apply to that agreement. AB 692 applies to private employers but may not apply to public agency employers given that the law does not state specifically that it does so. Nevertheless, all employers should be aware of the provisions of AB 692 so they can evaluate their “stay-or-pay” arrangements. Our full LCW blog post applicable to public employers on AB 692 is located here: https://www.calpublicagencylaboremploymentblog.com/employment/ab-692-and-its-possible-impact-on-california-public-employers/.