Industry Update: Repayment Agreements Deemed Illegal in California

Status update: February 2026

The information below was originally published on November 20, 2025.

Since taking effect as of January 1 this year, however, it has since been determined that it is illegal to ask an employee moving into the state of California to sign a repayment agreement. This means the five criteria below that could have potentially created an exception to this rule are no longer valid or relevant.

The applicable language for reference is:

• In accordance with California Assembly Bill 692 (AB‑692), no repayment, penalty, cost, fee, or reimbursement of relocation expenses will be required based on voluntary termination or other separation‑from‑employment conditions. No portion of relocation benefits shall be conditioned on continued employment for a specified duration for employees covered by California law.

Now is the time to review your relevant documents to ensure no repayment agreement language is included for any employee relocating into the state.

Sterling Lexicon continues to monitor this development to determine if additional states will introduce similar legislation or any related changes that could impact relocation benefits.

As always, we recommend you consult with your legal team for further information and internal reviews, and contact us if you have any additional questions or need more information.

Industry Update November 20th, 2025: New California law requires review of repayment agreements

Changes are relevant for employees moving to and from the state.

A recently enacted law in California makes some changes that could impact employers using relocation repayment agreements.

Here are essential things to know:

• AB 692 was signed into law on October 13, 2025 and goes into effect as of January 1, 2026.
• It makes it illegal for an employer to include any contractual terms or specified provisions requiring workers to reimburse training expenses, relocation costs or other hiring-related fees if an employee quits or is terminated.
• There are exceptions for relocation payments provided they meet the following five criteria:

1. Separate documents: The repayment terms must be in a separate agreement from the primary employment contract.
2. Signing terms: Employees must be advised of their right to consult an attorney and be given at least 5 business days to review before signing.
3. Proration and interest: Any repayment obligation involving early separation must be prorated, based on whatever retention period remains at the time of departure (up to 2 years) and cannot accrue interest.
4. Employee choice: Employees must be given the option to defer receipt of the payment until the end of the retention period without any repayment obligation.
5. Repayment triggers: Repayment may only apply if the employee leaves voluntarily or is terminated for misconduct.

Violations of AB 692 can carry significant penalties, including the amount of the employee’s actual damages or up to $5,000 per employee, whichever is greater, and related attorney fees, costs and injunction relief.

What you should do next:

• Discuss the new law with your corporate counsel and review all relevant repayment agreements ahead of 2026 to ensure they meet the new criteria.
• Be prepared for the possibility of some additional processing time with the 5- business day rule.
• Ensure your policy language clearly provides the option for an employee to defer payment until the end of the specified retention period, and notes that the obligation is applicable to employees who leave voluntarily or are terminated for cause.

Questions? Contact us.