California AB 692 and Relocation Repayment Agreements: What HR Needs to Know for 2027

Updated: November 2, 2026 · Reviewed by: Todd W. Messerle, Executive Director Sales & Marketing

The short answer: California's AB 692 makes most "stay-or-pay" terms void, including relocation repayment clawbacks triggered when an employee leaves. AB 1697, signed September 30, 2026, delayed the rule so that it applies only to contracts entered into on or after January 1, 2027. A narrow exception still allows prorated repayment of discretionary payments.

If your company relocates employees into or within California, 2027 offer letters and relocation agreements need a fresh look. Here is what changed, what is still allowed, and how to prepare.

What does AB 692 prohibit?

AB 692 added Section 16608 to the Business and Professions Code and Section 926 to the Labor Code. For covered contracts, it is unlawful to include a term that:

requires a worker to pay an employer, training provider, or debt collector for a debt if employment ends;
allows collection of a debt to begin or resume, or ends forbearance on it, because employment ends; or
imposes any "penalty, fee, or cost" on a worker because employment ends.

The law defines "debt" broadly, covering employment-related costs among other things. "Penalty, fee, or cost" expressly includes quit fees, replacement-hire fees, liquidated damages and reimbursement for immigration or visa costs. Law firm analyses agree that traditional relocation repayment agreements fall within its reach (Foley & Lardner; Greenberg Traurig).

A contract that violates the law is void. A worker, or a worker representative, can sue for actual damages or $5,000 per worker, whichever is greater, plus injunctive relief and attorney's fees.

What did AB 1697 change, and when does the law apply?

Governor Newsom signed AB 1697 on September 30, 2026. It took effect immediately as an urgency statute and made three main changes:

New start date. The restrictions now apply only to contracts entered into on or after January 1, 2027. The original provisions are inoperative from January 1 to December 31, 2026, and pending claims for that period are moot.
Broader bonus exception. AB 1697 removed AB 692's requirement that a qualifying discretionary payment be made "at the outset of employment". Payments to existing employees can now qualify too (Foley & Lardner; Greenberg Traurig).
New narrow exceptions. These cover government grant-funded recruitment and retention bonuses, certain financial-services and insurance affiliation payments, and advanced PTO of up to 40 hours.

Per Foley & Lardner, agreements signed during 2026 fall outside AB 692 even if the employee leaves after January 1, 2027. Other California rules still apply to them.

Can California employers still use relocation repayment agreements in 2027?

There is no relocation-specific exception. A repayment term is allowed only if it fits one of the statutory exceptions. The one most relevant to relocation is the exception for a discretionary or unearned monetary payment that is not tied to specific job performance, such as a relocation bonus. It requires all of the following:

The repayment terms are in an agreement separate from the primary employment contract.
The employee is told of the right to consult an attorney and given at least five business days to do so before signing.
Repayment carries no interest and is prorated over a retention period of no more than two years from the payment.
The employee can choose to defer the payment to the end of the retention period with no repayment obligation.
Repayment is triggered only by voluntary resignation or termination for misconduct, as defined in Unemployment Insurance Code §1256.

Paying a moving company directly, or reimbursing an expense, does not automatically qualify just because a policy calls it a relocation bonus. Have counsel review how each benefit is structured.

What is allowed and what isn't? A comparison

Arrangement	Signed in 2026	Signed on/after Jan. 1, 2027
Traditional clawback: repay all moving costs if you leave within 12 months	Outside AB 692 (other CA law still applies)	Generally void
Relocation cash bonus with prorated, interest-free repayment, separate agreement, 5-day counsel notice, deferral option, max 2-year retention	Outside AB 692	Allowed if all conditions are met
Repayment triggered by layoff or termination without misconduct	Outside AB 692	Not allowed under the bonus exception
Interest on repayment	Outside AB 692	Not allowed under the bonus exception
Retention period longer than 2 years	Outside AB 692	Not allowed under the bonus exception
Reimbursement for immigration or visa costs on departure	Outside AB 692	Listed as a prohibited "penalty, fee, or cost"
Repayment terms written into the offer letter itself	Outside AB 692	Not allowed under the bonus exception (must be separate)

How should HR prepare? An employer compliance checklist

Inventory every agreement with a repayment term: relocation, sign-on, retention, training and PTO advances.
Separate 2026 agreements from templates for 2027. Agreements signed before January 1, 2027 don't need retroactive changes under AB 692 (Foley & Lardner).
Classify each relocation benefit. Is it a discretionary cash payment, a direct-billed service, or a reimbursement? Only the first can fit the bonus exception.
Rebuild templates for any cash relocation bonus. Put the terms in a separate agreement and give written notice of the right to counsel with a five-business-day window. Make repayment prorated and interest-free, keep retention to two years or less, offer a deferral option, and limit triggers to resignation or misconduct.
Review collection practices. California limits deductions from final pay, so don't assume a valid obligation can be taken from a last paycheck (CapRelo).
Reconsider program design. Lump-sum and managed programs each carry different repayment exposure, and some employers use completion bonuses or installments instead.
Coordinate across states. New York's Trapped at Work Act also restricts stay-or-pay terms, with its own rules for relocation assistance.
Get legal review before using 2027 templates.

Frequently asked questions

When does AB 692 take effect?

For contracts entered into on or after January 1, 2027. AB 1697 made the original 2026 provisions inoperative for all of 2026.

Are relocation agreements signed in 2026 still enforceable?

They fall outside AB 692. Their enforceability still depends on their own terms and on other California law, such as wage-deduction rules.

Can we still require repayment of a relocation bonus?

Yes, but only if it is a discretionary or unearned payment that meets every condition of the statutory exception. Those conditions are: a separate agreement, five business days to consult counsel, prorated repayment with no interest, a maximum two-year retention period, a deferral option, and triggers limited to resignation or misconduct.

Does the law apply to direct-billed moving services?

The statute has no relocation-specific exception. Whether a direct-billed service or reimbursement can carry a repayment term depends on how it is structured, so ask counsel.

What happens if we violate it?

The term is void. The worker can recover actual damages or $5,000 per worker, whichever is greater, plus injunctive relief and attorney's fees.

Does AB 692 apply to employees who already relocated?

It applies by contract date, not move date. Agreements entered into before January 1, 2027 are not subject to AB 692's prohibition.

How Chipman helps

Chipman has relocated employees for West Coast companies for decades. MoveIQ, our employee relocation program, gives HR teams managed and lump-sum options with clear, auditable costs. That makes it easier to design a benefit that works under California's new rules. Request an employee relocation quote or learn about MoveIQ.