Effective January 1, 2026, California Assembly Bill 692 (AB 692) will significantly change how employers can use relocation repayment and clawback agreements, often referred to as stay-or-pay provisions. For organizations supporting employee mobility into California, this legislation requires immediate attention.
While this is a California-specific law, many employers may want to consider adopting these changes company-wide to promote consistency, reduce risk, and simplify policy administration.
Below is a breakdown of what is changing, how it impacts relocation programs, and what employers should do now.
What Is California Assembly Bill 692 (AB 692)?
AB 692, codified in Business and Professions Code Section 16608 and Labor Code Section 926, generally prohibits stay-or-pay provisions that require employees to repay an employer if their employment ends.
The law includes a narrow exception for certain discretionary upfront payments, including relocation and retention bonuses, provided they meet specific statutory requirements.
When Are Relocation Repayment Agreements Still Allowed?
Employers may continue to use repayment agreements for relocation or retention bonuses only if all of the following conditions are met.
1. Agreement Must Be Made at the Onset of Employment
The repayment agreement must be executed when employment begins and not later in the employment relationship.
Why this matters:
Many companies require repayment agreements for existing employees who relocate, which may no longer comply with this requirement. This issue should be reviewed with legal counsel.
Many companies require repayment agreements for existing employees who relocate, which may no longer comply with this requirement. This issue should be reviewed with legal counsel.
2. Bonus Cannot Be Tied to Job Performance
The relocation or retention payment must not be contingent on job performance.
Most relocation programs already meet this requirement, but employers should confirm their documentation reflects this clearly.
3. Repayment Terms Must Be in a Separate Agreement
Repayment obligations cannot be embedded in offer letters or employment contracts.
If repayment language appears in offer letters or contracts, it should be removed and placed into a standalone repayment agreement.
4. Employee Must Be Notified of Their Right to Consult an Attorney
The agreement must clearly state that the employee has the right to consult an attorney and must provide at least five business days to do so before signing.
This language is missing from many existing repayment agreements. Many employers are choosing to allow five to ten business days to ensure compliance.
5. Repayment Must Be Prorated, Interest-Free, and Limited to Two Years
If repayment is triggered, it must be prorated, no interest may be charged, and the repayment period cannot exceed two years from the date of payment.
While one to two years is common, some executive agreements still exceed this limit and should be reviewed.
6. Employee Must Be Offered a Deferral Option
Employees must have the option to defer payment until the end of the full service period without any repayment obligation.
This represents a meaningful change from standard relocation practice, where benefits typically expire within six months to one year while repayment obligations often extend longer.
Allowing deferral may require employers to hold funds longer than current practice. Employers should also review this option carefully with legal and tax advisors, as it may conflict with IRS guidelines requiring expenses to be recognized when incurred or shortly thereafter.
7. Repayment Can Only Be Triggered in Limited Circumstances
Repayment obligations may apply only if the employee voluntarily resigns or if the employer terminates employment for misconduct, as defined by the Unemployment Insurance Code.
This generally aligns with standard industry practice, but employers should review internal processes to ensure compliance.
What Employers Should Do Now
Because repayment agreements are owned by the employer, organizations should take the following steps.
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Update repayment agreement templates
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Review and revise relocation policies to remove conflicting language
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Ensure offer letters and employment contracts no longer reference repayment terms
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Conduct an internal legal review, particularly for California-based moves and relocations involving current employees
Taking proactive action now can help avoid compliance issues in 2026 and may simplify administration across mobility programs.
Final Thoughts
AB 692 represents a significant shift in how relocation repayment agreements can be structured in California. Employers supporting talent mobility into the state should begin reviewing documentation now and consider whether a nationwide policy update would provide long-term consistency.
If you would like help reviewing your relocation repayment practices or updating your documentation, please let us know.
