California’s new AB 692 prohibits employers from requiring employees to repay training costs, fees, or other “debt” if their employment ends, or imposing penalties or collection rights tied to termination in new contracts entered on or after January 1, 2026. There are two important exceptions.
- First, tuition repayment for a “transferable credential” is allowed if the repayment agreement is separate from the employment contract, doesn’t require obtaining the credential as a condition of employment, sets a fixed repayment amount up front, prorates the obligation over time, and waives repayment if the employer terminates the worker (unless for “misconduct” – a term that is not defined in the statute).
- Second, clawback terms related to unearned monetary payments (such as personal loans to an employee) or retention / sign-on bonuses are allowed if the repayment terms are in a separate agreement, the employee gets at least five business days to consult counsel, repayment is interest-free and prorated over a retention period of no more than two years, the employee may defer bonus receipt until the end of a fully served retention period so no repayment is owed, and separation prior to the end of the retention period is the choice of the employee or the employer for “misconduct” (again, which is not defined).
It is likely that draws against commissions are still permissible under AB 692, but perhaps not if the draws need to be paid back by the employee at termination if there are not enough earned commissions to pay the draw in full.
--Adam K. Treiger, Esq., VP of the Board
