ML BeneBits

California’s stay-or-pay law generally prohibits contracts that require workers to repay “debts” upon leaving their employer unless the contract satisfies certain statutory requirements. As originally enacted, the law applied to contracts entered into on or after January 1, 2026. Many employers with California employees have revised employment agreements, signing and retention bonuses, tuition reimbursement programs, promissory notes, and other contracts to comply with the stay-or-pay law.

The law as originally enacted was broad, and industry groups advocated for changes. On September 30, 2026, Governor Gavin Newsom signed AB 1697, an amendment to California’s stay-or-pay law that took effect immediately and makes the following important changes:

• Delays application of the law by one year. The stay-or-pay law now applies only to contracts entered into on or after January 1, 2027.
• Expands the exception for certain bonus repayment agreements. AB 1697 removes the requirement that an agreement for a qualifying discretionary or unearned monetary payment be entered into “at the outset of employment,” providing employers greater flexibility to structure qualifying arrangements for both new and existing workers. The other statutory requirements for the exception remain in place.
• Adds a new exception for certain financial services arrangements. The amendment creates an exception for certain compensatory arrangements established by securities broker-dealers, insurance producers, investment advisers, and their affiliates for qualifying agents or representatives who are registered with the US Securities and Exchange Commission or the Financial Industry Regulatory Authority or licensed under applicable California law. The exception is subject to specified statutory conditions.

For more information about these changes and considerations for employers, see our new LawFlash.

Employers with California workers should review the changes. Our team stands ready to help employers with any revisions to employment agreements, signing and retention bonuses, tuition reimbursement programs, promissory notes, and other contracts that require repayment after separation from employment. Please contact the authors of this blog post or your regular Morgan Lewis contacts with any questions.