What's Happening?
Governor Gavin Newsom has signed Assembly Bill No. 692 (AB 692) into law, introducing significant changes to employment contracts in California. Effective January 1, 2026, the law prohibits employers from including terms in employment contracts that require
employees to repay debts if their employment ends. This legislation aims to address public policy concerns about contracts that restrict employees' ability to engage freely in their professions. The law voids such contracts, deeming them contrary to public policy. AB 692 applies to all employers in California, with exceptions for government loan assistance programs, transferable credential tuition costs, approved apprenticeship programs, and discretionary monetary payments or bonuses. Non-compliance could result in legal action, including damages, injunctive relief, and attorney fees.
Why It's Important?
The enactment of AB 692 represents a significant shift in employment law, potentially impacting numerous employers and employees across California. By restricting certain contract terms, the law aims to protect workers from financial obligations that could hinder their career mobility. Employers must now carefully review and revise their contracts to ensure compliance, which could involve significant administrative and legal adjustments. The law's exceptions provide some flexibility, but the overall impact may lead to changes in how employers structure employment agreements, particularly concerning training and incentive programs. This development underscores a broader trend towards increased regulation of employment practices, reflecting growing concerns about worker rights and protections.
What's Next?
Employers in California are advised to take immediate action to comply with AB 692 before it takes effect. This includes auditing existing contracts to remove any non-compliant provisions and ensuring that any agreements falling under the law's exceptions are clearly separated from general employment contracts. Employers should also update their training and credentialing strategies to align with the new requirements. Legal and HR teams will need to be trained on compliant contract structures to avoid potential liabilities. As the implementation date approaches, further guidance from legal experts and industry groups may emerge to assist employers in navigating these changes.
