How California’s New Stay-Or-Pay Law Affects Tuition Reimbursement and Retention Bonus Programs

California’s AB 692 becomes effective on January 1, 2026, and will significantly change how employers structure tuition assistance programs and bonus arrangements. The new statute protects employees from repayment obligations for certain employer funded benefits with the goal of promoting employee mobility. For any agreement signed on or after January 1, 2026, unless one of the exceptions applies, most non-governmental employers are prohibited from requiring employees to repay tuition, training costs, sign on bonuses, retention bonuses, or other employer funded expenses simply because they leave the company. Existing repayment arrangements signed before January 1, 2026 remain valid because the statute is not retroactive. However, if an arrangement is renewed or updated after that date, the updated agreement would be treated as a new contract and must comply with AB 692’s requirements.

Who The Law Applies To

AB 692 applies to employees working in California, regardless of where the employer is headquartered.

These tuition and bonus repayment programs are generally not governed by ERISA, meaning they are fully subject to California law. Employers cannot rely on ERISA preemption to avoid compliance with state requirements and must ensure that their repayment agreements meet the statute’s standards for employees performing work in California.

Tuition Repayment Programs

Under AB 692, an employer may only require an employee to repay tuition reimbursement provided by the employer if the following requirements are satisfied:

1. The tuition cost is for a transferable credential. This means the credential must be provided by an accredited third party, not required for the employee’s current job, and usable with another employer.¹

2. The repayment terms appear in a separate written agreement,

3. The repayment amount is stated in advance,

4.  The amount does not exceed what the employer actually paid, and

5. The repayment period is prorated over the service period without interest.

Repayment can be enforced only when an employee voluntarily resigns or is terminated for misconduct as defined under California law. For example, tuition for an accredited MBA program may be subject to prorated repayment if every condition described above is satisfied.

1 Tuition for mandatory job related training or an employer created course would never qualify for repayment. These types of programs are considered primarily for the employer’s benefit, since they are required for the employee to perform their current job duties or are designed to improve performance within the same role. For example, if an employer requires completion of a compliance certification, industry specific course, or internal leadership training program, those expenses cannot be subject to repayment if the employee later resigns.

Bonus Repayment Programs

The law also places strict limits on repayment of “sign on” and other retention bonuses. Repayment provisions that require employees to return a sign on or retention payment if they leave employment during a specified period will need to comply with the following requirements:

1. Any bonus repayment obligation appears in a separate written agreement, and employees are given time to consult counsel before signing;

2. The repayment amount does not include interest and is prorated over the retention period; and

3. Repayment is permitted only if the employee voluntarily resigns or is terminated for misconduct.

   
   

Looking Ahead to 2026

In advance of AB 692’s effective date, it may be helpful to review existing templates and forms for tuition reimbursement policies, education benefits, sign on bonuses, offer letters, employee handbooks, and retention bonus agreements to make sure these types of benefits are either exempt from or in compliance with the new requirements going forward.

If you have any questions about how the new law may affect your company, please contact your Boutwell Fay attorney.