What California’s New AB 692 Means for Tuition Reimbursement and Clawback Policies

Disclaimer: We are skills experts at SkillsWave, but we’re not legal experts. We recommend consulting a labor lawyer when planning policy changes to adhere to AB 692. 

California has officially passed AB 692, a sweeping new law that restricts “stay-or-pay” arrangements that include many forms of tuition repayment agreements and training clawbacks. For California employers, this represents one of the biggest shifts in tuition reimbursement policy in years. 

If your organization offers education benefits or training programs that require repayment when someone leaves, now is the time to understand what’s changing and how to prepare. 

The State of Tuition Reimbursement Laws Today 

Before AB 692, tuition reimbursement programs in California often included clawback provisions. Under these “stay-or-pay” agreements, employees who received tuition support could be required to repay some or all of the cost if they left the company within a certain time period. 

As long as the worker opted in and the training wasn’t required for the employee’s current job, employers had wide latitude to structure repayment terms. These agreements were common in industries with high turnover or expensive credentials. 

That landscape is now shifting dramatically. 

What AB 692 Changes 

Starting January 1, 2026, AB 692 prohibits most repayment obligations that are triggered by an employee’s separation from employment. 

The core rule: 

Employers cannot require an employee to pay a fee, penalty, debt, or cost because they quit or were terminated. 

This includes repayment obligations paid directly to the employer or to a third party (such as a school or loan servicer). 

On the surface, this looks like the end of tuition repayment arrangements, but AB 692 does include narrow exceptions. 

Where Clawbacks Are Still Allowed (With Strict Conditions) 

The law preserves a few carve-outs for specific types of programs, but only if employers follow strict rules. 

1. Tuition reimbursement for transferable credentials 

Repayment can still be used only if: 

• The program leads to a transferable credential (usable beyond the employer).
• The education is not required for the employee’s current job. 
• The agreement is separate from the employment contract. 
• Repayment is prorated, interest-free, and limited to the employer’s actual cost. 
• Repayment is not triggered if the employer terminates the worker (unless it’s for misconduct). 

These are the most relevant exceptions for employers with education benefits, but the compliance requirements are tight. 

2. Apprenticeship programs 

• State-approved apprenticeships are exempt from AB 692’s restrictions. 

3. Government loan forgiveness or repayment programs 

• Local, state, and federal programs remain unaffected. 

There are also considerations around sign-on and retention bonuses; this article is solely focused on the changes regarding education. 

Additional details regarding the new law

Here are some more things you should know. 

• Stay-or-pay agreements are broadly banned for contracts signed on or after Jan. 1, 2026. 
• Penalties are steep: employers face actual damages or $5,000 per affected employee, plus attorneys’ fees. 
• Employees can sue, creating significant litigation risk. 
• The definition of “penalties” and “fees” is intentionally broad, capturing many traditional clawback structures.

What Employers Should Do Now

With the law going into effect in 2026, employers don’t have much time to prepare. Here are the most important steps. 

1. Audit current tuition, training, and bonus agreements/policies 

Create an inventory of: 

• Tuition reimbursement programs 
• Training repayment agreements 
• Sign-on and retention bonuses 
• Offer letter templates 
• Student loan or education support programs 

Determine which ones renew or require new signatures after Jan 1, 2026. Revise any paperwork that outlines agreements around the impacted areas. 

2. Assess current tuition commitments 

To understand how much of an impact a bill like this could have on your company, you’ll need to understand how employees are using tuition dollars. How many would be affected by the change? If employees are engaged in multi-year programs, do you need to update or amend their contracts? 

3. Offer more transferable credentials 

If your company decides that clawbacks are important to its upskilling program, to ensure you’re staying within the rule of law, your company can consider offering more transferable credentials from recognized learning institutions. 

Note that credential programs need to truly qualify as transferable. 

According to Vorys, Sater, Seymour and Pease LLP, a transferable credential is defined as “a degree conferred by an accredited third-party institution authorized to operate in the state, must not be required for the worker’s current job, and must be transferable and useful beyond the employer’s workforce.” 

4. Communicate clearly with employees 

When changes roll out: 

• Explain what’s new.
• Clarify how programs are evolving.
• Provide transparency on eligibility and expectations.

Clear communication helps maintain trust and avoids confusion as policies shift.  

What This Means for Education and Upskilling Programs 

AB 692 is likely to reshape how companies approach learning benefits in California — and potentially beyond, as other states take note. 

Employers may: 

• Move away from clawback-based reimbursement models 
• Invest more in front-loaded education benefits 
• Seek solutions that help them track actual costs, transferable credentials, and program compliance 
• Focus more on education that directly aligns with workforce skills needs 
• Prioritize programs that create value without requiring repayment at all 

In other words: smarter investment, more strategic spending, and much more attention to how education benefits are structured. 

The Bottom Line

AB 692 significantly limits employers’ ability to recover tuition or training costs when an employee leaves. While repayment is still possible in certain situations, the requirements are narrow and highly technical. 

For California employers, the safest path is proactive preparation: audit your programs, update agreements, retrain HR teams, and rethink how you invest in employee education. 

By getting ahead of the changes now, you can continue to offer meaningful learning opportunities  while staying compliant and protecting your organization.