Stay or Pay Agreements Will Become Officially Illegal January 2026

Because noncompete agreements tended to be disfavored nationally, and in California, have long been banned, employers started to seek out other ways of punishing employees who leave their employment. One way to do that was with what was known as a Stay or Pay provision or agreement.

What is Stay or Pay?

A stay or pay provision generally requires that if an employee is no longer employed with a company, that upon leaving employment, the employee will pay the employer back, for the costs of training, onboarding and other expenses related to the training and start of employment. If the employee remains with the company long enough, he or she does not have to repay the expenses upon leaving.

What these contracts really are, are simply just ways of incentivizing  employees to stay in their job, or putting them in debt to their prior employer. In fact, some of these contracts took on the name TRAP, which stood for Training Repayment Assistance Programs.

No Longer Legal

But as of January 2026, these kinds of contracts will no longer be legal or enforceable. In fact, not only will the new law bar the use of these contracts going forward, but it is retroactive, meaning they will also make any previously existing contracts with pay or stay provisions, null, void and unenforceable.

The new law outlaws the use of any agreement that requires an employee to pay back any debt to the employer upon employment separation.

Certain Exceptions

The only two categories which employers will be allowed to require repayment at the end of employment, are contracts that require repayment for any tuition payment or reimbursement made by the employer, or any payment made at the start of employment that isn’t related to job performance–in other words, most commonly, sign on bonuses that the employee receives, relocation money, or payments of shares or stock to the employee.

Additionally, the employer can require the employee to repay any money that is due to a government agency that may have been paid through the employer like residential assistance or government job training expenses, to name a few.

Even if one of the exceptions apply, and repayment can be demanded by a former employer, there are still strict requirements. For example, when it comes to tuition repayment to the employer by the departing employee, the employer must tell the employee in advance about the repayment requirement, in a separate contract or writing than the employment agreement.

When it comes to repayment of paid, pre-employment signing bonuses, the employer must provide the employee a contract and five days to read it over and consider it.

In some cases, the repayment cannot even be asked for at all, if the employer is the one who terminates the employee (unless there is employee misconduct).

Serious Penalties

There are damages for breaking these laws. Employees have a private right of action which means that they can sue employers who force these contracts on them, and even collect attorneys fees.

Is your employer requiring that you sign an illegal contract? Ask us about your rights. Contact the San Jose workplace discrimination and employment contract attorneys at the Costanzo Law Firm today for help.

Source:

calpeculiarities.com/2025/10/31/trapped-no-more-navigating-californias-stay-or-pay-reform/