Drafting Repayment Agreements Under California's AB 692

Employers should carefully review any arrangements that require workers to repay employer-provided benefits or amounts if employment ends before a specified date given AB 692, which significantly restricts so-called "stay-or-pay" provisions. Because the new law was effective January 1, 2026, employers with California workers should promptly review not only tuition-reimbursement programs, but also signing bonuses, relocation advances, and other front-loaded payments that include repayment obligations.

AB 692 is not retroactive. However, any new agreement, amendment, or renewal entered into on or after January 1, 2026, must comply with the statute.

What AB 692 Allows—and What It Does Not

AB 692 does not eliminate all repayment obligations. It permits repayment of tuition reimbursement only in narrow circumstances involving education for a transferable credential. To fit within that exception, the education must be provided by an accredited third-party institution, must not be required for the employee's current role, and must be usable with other employers.

The repayment obligation also must be set out in a standalone agreement separate from the employment agreement or offer letter. The amount must be disclosed in advance, cannot exceed the actual tuition paid by the employer, and must be prorated over the service period. Repayment may be triggered only if the employee voluntarily resigns or is terminated for misconduct. Interest, penalties, and accelerated repayment schedules are not permitted.

By contrast, AB 692 generally does not permit repayment requirements for education or training that primarily benefits the employer, including mandatory job-related training, compliance or licensing coursework required for the role, employer-created training, or education required to perform current job duties.

Why Drafting Structure Matters

For employers that want to continue offering upfront payments while reducing AB 692 risk, documentation structure matters. One practical approach is to keep the offer letter focused on the core business terms of employment and place any operative repayment terms in a separate promissory note or standalone agreement that the offer letter simply references.

That separate instrument should state the amount advanced, the applicable service or forgiveness period, the prorated formula for any unforgiven amount, the limited repayment triggers, and a repayment schedule that does not impose interest, penalties, or repayment exceeding the dollars actually advanced. Employers also should ensure the offer letter and the separate agreement work together and do not create conflicting repayment terms. We will continue to monitor developments, and counsel should be consulted before any attempts at post-employment repayment are attempted as well—as with anything in California, the law is one thing, but how it is interpreted can be something slightly different.

Steps Employers Should Take Now

Employers should review offer letters, tuition-reimbursement agreements, bonus templates, promissory notes, and related onboarding materials now. In many cases, legacy clawback language embedded in employment documents will need to be revised for California workers beginning in 2026.

When evaluating any repayment arrangement, employers should analyze the type of payment at issue, determine whether it can fit within AB 692's narrow tuition-reimbursement exception, and decide whether separate documentation is the better path to align with the statute while still addressing legitimate business needs.

Bottom Line

AB 692 currently leaves room for carefully structured repayment arrangements, but only in limited circumstances and only if the documents are drafted with care. Employers that continue using legacy clawback language in offer letters or employment agreements risk creating provisions that may not hold up under the new law. Now is the time to review templates, separate repayment mechanics from core employment terms where appropriate, and ensure the full document package works together as intended.

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Ben Gipson is a partner in DWT's Los Angeles office, Lisette Sell is of counsel in the firm's San Francisco office, and Allyson Bach is an associate in our Los Angeles office. For any questions or more insights, please contact the authors or another member of our employment services team and sign up for our alerts.