United States · employment

Can My Employer Force Me to Pay Back Training Costs in California Under AB 1697?

Under California's updated 'stay-or-pay' laws, employers face severe restrictions when trying to force workers to pay back training costs. Assembly Bill 1697 (amending AB 692) delays the formal ban on new training repayment agreements until January 1, 2027, but existing California laws still offer powerful protections to defeat these unfair financial traps today.

Understanding California's Anti-TRAP Laws and AB 1697

If you signed an agreement promising to pay your employer back for training costs if you leave, you might feel trapped in an unfair or toxic workplace. These stay-or-pay clauses—formally known as Training Repayment Agreement Provisions (TRAPs)—have been used by employers as financial handcuffs. However, California is leading the nationwide fight to ban these predatory agreements.

In 2025, California passed Assembly Bill 692, which added Section 16608 to the Business and Professions Code and Section 926 to the Labor Code. This landmark legislation declared most employment-related repayment clauses void as unlawful restraints on trade. On September 30, 2026, Governor Gavin Newsom signed Assembly Bill 1697 (AB 1697) to amend this framework. While AB 1697 delayed the official start date of the strict statutory ban to contracts entered on or after January 1, 2027, and added narrow exceptions for retention bonuses and certain licensed financial industries, it solidified the state's aggressive stance against worker debt traps.

If your contract is signed on or after January 1, 2027, any clause requiring you to pay back training or education costs, relocation expenses, or other employment-related expenditures upon leaving is flatly void and illegal. If an employer attempts to enforce an illegal TRAP contract, they can face massive penalties—including actual damages or a statutory fine of $5,000 per worker, plus your attorney's fees.

What if Your Agreement Was Signed Before 2027?

Because AB 1697 delayed the official statutory ban to January 1, 2027, you might worry that an older contract leaves you vulnerable. Fortunately, California's existing, long-standing labor protections already make most training repayment agreements highly unenforceable, regardless of when they were signed.

Under California Labor Code Section 2802, employers are strictly required to indemnify employees for all necessary business expenditures and losses incurred in direct consequence of their duties. If the training was mandatory for your job, or was primarily for the employer's benefit rather than a transferable, voluntary credential, the employer must cover 100% of the cost. They cannot pass this cost onto you under the guise of a 'debt' if you quit.

Furthermore, California Business and Professions Code Section 16600 broadly prohibits contracts that restrain anyone from engaging in a lawful profession, trade, or business. Courts have routinely held that threatening an employee with thousands of dollars in debt for quitting operates as an illegal restraint of trade (as seen in high-profile cases like the 2022 PetSmart training lawsuit, Scally v. PetSmart). Do not assume you have to pay just because you signed a piece of paper.

Exemptions and Limits Under the New Amendments

It is crucial to know what AB 1697 does not cover, as employers will try to exploit these loopholes. Under the new rules, employers are still permitted to claw back certain discretionary payments if strict conditions are met. This includes retention bonuses (separate from your primary employment contract) and advanced Paid Time Off (PTO) up to 40 hours, provided there is no interest charged.

Additionally, AB 1697 created a specific exemption for certain regulated financial fields. If you are an agent or representative registered with the SEC or FINRA, or licensed under specific sections of the California Insurance or Corporations Codes, your employer may still enforce certain sign-on or retention bonus clawbacks under defined conditions.

Navigating these complex rules and defending yourself against aggressive corporate demands can feel overwhelming. You do not have to fight HR alone. You can use Caunsel to research your specific industry, securely save your employment contract in a private case file, or connect with an independent California employment lawyer to assess your options.

Steps

• Locate and download your original employment agreement and any separate training or bonus addendums you signed.
• Determine if the training was mandatory for your day-to-day duties or if it yielded a highly transferable, voluntary industry credential.
• Document all communications with HR, saving emails or texts where the employer threatens collection or withholding of your final paycheck.
• Draft a formal response or consult a professional using Caunsel to assert your rights under California Labor Code Section 2802 and BPC Section 16600.

Common mistakes

• Voluntarily paying the training debt out of pocket or allowing your employer to deduct it from your final paycheck without challenging it.
• Relying on verbal agreements or HR promises that 'we won't actually enforce this' when you decide to resign.
• Assuming that a contract signed prior to January 1, 2027, is automatically fully enforceable against you.

Questions people ask

Can my employer deduct the training costs directly from my final paycheck?

No. Under California law, employers are strictly prohibited from making unauthorized deductions from an employee's final wages, even if they claim you owe them a debt. Doing so violates California Labor Code Section 221, and you could be entitled to waiting time penalties.

What are the penalties if an employer violates AB 1697's ban on stay-or-pay agreements?

For violations of contracts entered into on or after January 1, 2027, an employer can be sued for actual damages or a statutory penalty of $5,000 per affected worker (whichever is greater), plus attorney's fees, injunctive relief, and potential class-action representation.

Does the law apply to independent contractors or prospective employees in California?

Yes. The statutory definitions under the stay-or-pay laws are broad, covering any 'worker'—which includes employees, prospective employees, and individuals participating in job training or skills training programs, preventing employers from using 'contractor' labels to bypass protections.

General information only, last updated 2026-10-03. Caunsel is not a law firm and does not practise law. AI answers and this guide are not legal advice. Verify filings, deadlines, and statutes with a licensed lawyer in United States.