Authored by Nick Greif, Head of Public Policy at InStride
The federal One Big Beautiful Bill Act isn't the only new legislative measure HR leaders need to have on their radar this year. Assembly Bill 692—a California state law taking effect January 1, 2026—bans most "stay-or-pay" arrangements, fundamentally reshaping how employers can structure tuition reimbursement and training repayment programs.
We’ve compiled answers to the top questions you might be asking now.
What is AB 692, and why does it matter?
AB 692 bans employment agreements that require workers to pay their employer money when they leave their job. This includes training repayment agreements, "quit fees," replacement hire costs, and similar pay-to-leave provisions.
The law applies to all California employers and all industries. If you have employees in California, AB 692 affects you.
Here’s an important timing note. The law only applies to new agreements signed on or after January 1, 2026. Your existing agreements are grandfathered in. But starting next year, you'll need compliant templates for any new hires or program updates.
Does this mean we can't offer tuition reimbursement with repayment terms anymore (a.k.a clawbacks)?
Not exactly. AB 692 preserves a pathway for tuition reimbursement tied to what it calls a "transferable credential." But the exception is narrow and the requirements are precise.
If you want to include repayment provisions in your tuition benefit program, you must meet all of these criteria:
✓ Separate agreement (not tied to employment)
✓ Credential not required for current job
✓ Repayment capped at actual cost, specified upfront
✓ Prorated repayment only, no acceleration
✓ No repayment if terminated (except misconduct)
✓ Transferable credential from accredited institution
How should we prepare for AB 692?
Start now. Smart preparation makes compliance easier.
- Step 1: Audit your current agreements
Review all tuition reimbursement agreements, training contracts, and related documents. Flag anything that would violate AB 692 after January 1, 2026. Remember that existing agreements are fine, but you can't use those templates for new hires. - Step 2: Decide your strategy
Do you want to keep repayment provisions under the new rules, or drop clawbacks entirely? This is a business decision, not just a compliance one. - Step 3: If keeping repayment provisions, redesign your program
Choose accredited credentials to include in your program with clear labor market value. Build transparent proration formulas, create standalone agreements that make participation optional, and specify actual costs upfront. - Step 4: Get legal review
Work with employment counsel to ensure compliance. AB 692's requirements are specific, and violations can cost $5,000+ per employee.
Are tuition clawbacks even worth keeping?
Even though AB 692 allows tuition clawbacks under strict conditions, the answer for many employers is no.
The administrative work is significant. You'll need to calculate prorated schedules, maintain separate documents, track actual costs, and manage termination exceptions. For many employers, the cost of administering compliant clawbacks exceeds what you'd ever recover.
There's also a participation problem. Clawbacks discourage employees from using tuition benefits, especially those who need them most but can't afford the financial risk.
Dropping clawbacks entirely often leads to better results: more people participate and administration gets simpler.
Should employers with employees entirely outside California be paying attention?
Yes. California is often a bellwether for employment law nationwide. If AB 692 becomes a model for other states, we could see "stay-or-pay" provisions and tuition clawbacks face scrutiny across the country. National employers seeking unified policies may find it simpler to adopt California's standard across all locations, rather than maintaining state-by-state variations.
Is AB 692 good or bad for employers?
For forward-thinking employers, it’s an opportunity.
AB 692 forces organizations to compete on being genuinely attractive places to work, rather than using financial penalties to keep people. At InStride, we see this shift every day: organizations that prioritize continuous employee growth over quick retention tactics are the ones earning long-term loyalty.
Our client data backs this up, showing that employees who participate in employer-funded education programs have retention rates above 90%, are promoted at twice the rate of their peers, and 73% say the tuition benefit has improved how they view their employer.
In the long run, companies that invest in growth over control will inspire employees to stay, without relying on arrangements that make them afraid to leave.
Looking for more employee benefit resources? Check out our 2025 Talent Priorities Report for original findings that reveal what employees really want from education benefits and how HR leaders can meet the moment.
