The New Era of Signing Bonuses: Navigating the 2026 "Stay-or-Pay" Ban

Attracting the right talent to your team often requires a competitive edge. In the past, many business owners in California used signing bonuses with "repayment clauses" to ensure their investment in a new hire was protected. However, as of January 1, 2026, the legal landscape has shifted significantly.

With the implementation of Assembly Bill 692 (AB 692), many of these traditional "stay-or-pay" agreements are now restricted or entirely void. Understanding how to offer incentives while staying compliant is essential for any growing company.

Protecting your business starts with up-to-date legal guidance. If you are concerned about your current employment agreements, contact Gietzen today at (619) 374-8179 or fill out our online contact form for a personalized consultation.

Understanding the "Stay-or-Pay" Ban

For years, a "stay-or-pay" clause was a common feature in employment contracts. It essentially told an employee: "We will give you this bonus now, but if you leave before a certain date, you must pay it all back." Under AB 692, California now treats many of these arrangements as unlawful restraints on an employee's mobility, rendering them void and contrary to public policy.

The law applies broadly to all workers — including employees, prospective employees, and freelance workers. There is no blanket exemption for executives or high-earning employees. Any contract entered into on or after January 1, 2026, that requires a worker to repay a debt, pay a penalty, or incur any fee simply because their employment ends is presumptively unlawful — unless it falls within one of the law's specific exceptions.

AB 692 applies to virtually all workers, regardless of title or compensation level.
Repayment demands triggered solely by an employee's departure are generally prohibited.
Courts may treat non-compliant repayment clauses as void and contrary to public policy.

Why Traditional Repayment Clauses Are Risky

Continuing to use outdated contract templates can lead to more than just unenforceable clauses. If a business attempts to collect a debt that is prohibited under the new 2026 standards, it faces serious legal exposure. Under Section 926 of the Labor Code, a worker may bring a civil action and recover the greater of their actual damages or $5,000 per worker, plus injunctive relief and reasonable attorney's fees and costs. Class-style actions on behalf of similarly situated workers are also explicitly permitted.

When a dispute arises over a contract, the costs of litigation often far outweigh the value of the original bonus. By moving away from non-compliant "stay-or-pay" models, you reduce friction during employee departures and protect your professional reputation.

Violations carry a civil penalty of $5,000 per worker, or actual damages — whichever is greater.
Affected workers may bring claims on behalf of themselves and similarly situated coworkers.
Attempting to withhold a final paycheck to "recover" a bonus remains a serious wage violation under existing law.

Signing Bonuses Are Still Permitted — With the Right Structure

You can still offer signing bonuses in 2026, but the structure must meet specific legal requirements under AB 692's exception for discretionary monetary payments. A signing bonus repayment agreement remains enforceable only if all of the following conditions are satisfied:

Separate agreement: The repayment terms must be in a document separate from the primary employment contract.
Attorney consultation right: The employee must be notified of their right to consult an attorney and given at least five business days to do so before signing.
Prorated repayment: Any repayment obligation must be prorated based on the remaining term of the retention period — the employee does not owe the full amount back, regardless of when they leave.
No interest: The repayment obligation cannot accrue interest.
Two-year cap: The retention period tied to the repayment obligation cannot exceed two years from the date the employee receives the payment.
Deferral option: The employee must have the option to defer receiving the bonus until the end of the retention period, with no repayment obligation if they complete it.
Voluntary separation or misconduct only: Repayment can only be triggered if the employee resigns voluntarily or is terminated for misconduct. An employer-initiated termination without misconduct cannot trigger a repayment obligation.

If any of these conditions are missing, the repayment clause is void. Having a legal professional draft or review these agreements is strongly recommended.

Reimagining Recruitment Incentives

Even where a compliant repayment clause is possible, many businesses are moving toward "earned" incentive models to eliminate legal risk altogether. Instead of giving a lump sum upfront with repayment strings attached, bonuses are paid out in stages as the employee reaches certain milestones or tenure dates.

For example, if you want to offer a $10,000 signing incentive, you might pay $2,500 on the first day, $2,500 after six months, and the remaining $5,000 after one year of service. Because each installment is earned at the time it is paid, there is no "repayment" involved and no risk of running afoul of AB 692.

Installment Payments: Break the bonus into smaller chunks over the first year.
Performance Milestones: Tie bonuses to the completion of specific projects or goals.
Retention Bonuses: Frame the incentive as a reward for reaching a work anniversary rather than a penalty for leaving.

Navigating Training and Education Costs

One of the more complex areas of AB 692 involves training repayment. As a general rule, employers cannot charge workers for mandatory training required to perform their jobs. However, the law carves out a narrow exception for transferable credentials — meaning degrees offered by accredited third-party institutions that are not required for the worker's current role and are useful for employment beyond the current employer.

To be valid, a training repayment agreement for a transferable credential must meet all of the following conditions:

The repayment contract is offered separately from the employment contract.
Obtaining the credential is not required as a condition of employment.
The repayment amount is specified before the worker agrees and does not exceed the employer's actual cost of the credential.
Repayment is prorated proportionally over the required employment period and does not accelerate upon separation.
No repayment is owed if the employer terminates the worker — unless the termination was for misconduct.

Agreements that do not meet all of these criteria are void under the new law.

Identify whether training is mandatory for the role or genuinely optional and transferable.
Ensure the training cost is reasonable, documented, and tied to an accredited institution.
Establish a fair prorated forgiveness schedule and remove any accelerated repayment provisions.

How to Audit Your Current Agreements

If you haven't updated your hiring documents since 2025, now is the time. An audit of your current employment law policies can help you identify hidden risks. Look for any language that mentions "liquidated damages," "repayment of wages," or "training debt." Even if you have no intention of enforcing the clause, having it in your contracts can lead to complications during employment disputes.

Updating your contracts is not just about avoiding penalties — it is about providing clarity for your team. When employees understand exactly how and when they will be paid, they feel more secure in their roles.

Review all offer letters and onboarding documents for repayment language.
Ensure any surviving signing bonus repayment agreements meet all seven conditions required by AB 692.
Consult with a legal professional to transition to a compliant bonus structure.
Communicate changes clearly to your management and HR teams.

Secure Your Business for the Future

The shift in California law reflects a broader movement toward worker freedom and transparent pay practices. While it may feel like a challenge to change long-standing habits, these new rules offer an opportunity to modernize your talent acquisition approach. By focusing on earned incentives and clear communication, you can continue to attract top-tier professionals while keeping your business protected.

At Gietzen, we are here to help you navigate these changes with confidence. We provide the practical guidance you need to ensure your contracts are both effective and compliant with the 2026 standards. Don't wait for a dispute to realize your contracts are outdated.

Ensure your recruitment strategy is legally sound in the new era of California employment law. Contact Gietzen at (619) 374-8179 or visit our employment law page to learn more about how we can support your business goals.