California Revises Law on Employee Stay-or-Pay Agreements
A bill awaiting the governor's signature postpones a ban on most training-repayment agreements to 2027 and adds key exceptions for financial services and PTO advances.
California's legislature has passed AB 1697, amending a recent law that restricts "stay-or-pay" or training repayment agreement provisions (TRAPs). The bill, expected to be signed by the governor, postpones the law's effective date for new agreements to January 1, 2027.
The amendment creates an unusual one-year "safe harbor," rendering the prior law inoperative during 2026 and likely mooting claims arising under it for that period. This creates new strategic questions for employers, particularly those that already updated their agreements to comply with the original law. The bill also introduces important new exceptions, notably permitting certain repayment obligations tied to recruiting and retention payments in the financial services sector, such as forgivable loans. A separate carve-out allows employers to recover modest advances of paid time off under specific conditions.
Employers should use 2026 to audit existing repayment provisions and determine if they fall under the new exceptions. Counsel will need to advise clients on whether to revise agreements made in anticipation of the original law and prepare new templates before the January 1, 2027, effective date. The law's full impact will become clearer as courts interpret its terms.