California Revises Law on Employee 'Stay-or-Pay' Agreements
Forthcoming amendments to California's restrictions on 'stay-or-pay' employment provisions delay the effective date to 2027 and create new exceptions for bonuses, PTO advances, and financial-services recruiting.
A California bill awaiting the governor's expected signature significantly amends a new law restricting "stay-or-pay" provisions in employment agreements. The legislation, AB 1697, postpones the effective date of these restrictions to January 1, 2027, and renders the prior version of the law inoperative for calendar year 2026, creating a temporary compliance safe harbor.
These changes are important for employers because they expand the permissible scope of repayment obligations. The amendments remove the requirement that repayable bonuses be offered only "at the outset of employment," potentially validating retention and other mid-tenure bonus arrangements. The bill also introduces new statutory exceptions, including one permitting the recovery of advanced paid time off (up to 40 hours) under certain conditions. Another key exception shields specified recruiting and retention payments in the financial services industry, such as forgivable loans for broker-dealers and investment advisers, from the law's general prohibition.
Companies with California employees should use 2026 to audit and revise their bonus, training-repayment, and relocation agreements. Counsel should monitor how courts will resolve remaining ambiguities as the new effective date approaches.