California Employers: Training Repayment Contracts Could Cost $5,000 Per Worker From Jan. 1

If your California business asks new hires to repay training costs, sign-on bonuses, or equipment if they quit early, the clock is running. Under AB 1697, restrictions on so-called "stay-or-pay" terms apply to contracts entered into on or after January 1, 2027. A violating contract term is void, and an affected employee can recover the greater of actual damages or $5,000 per employee, plus attorneys' fees and injunctive relief.

Law firm Nixon Peabody included AB 1697 in its October 28, 2026 rundown of new California employment laws for 2027. Here is what the law does, what it exempts, and how a small employer can clean up its paperwork before the new year.

What AB 1697 Actually Changes

AB 1697 delays the operative date of Business and Professions Code section 16608 and Labor Code section 926, so the restrictions apply to contracts entered on or after January 1, 2027. According to Nixon Peabody's summary, the law prohibits contract terms that:

• require a worker to repay certain debts if employment ends,
• authorize collection on those debts, or
• impose penalties or fees because the employment relationship ends.

Terms that do this are void. In other words, even if a worker signed it, you could not enforce it, and including it could expose you to a claim.

The Price of Getting It Wrong

The remedies are what make this a small-business issue rather than a big-company one. A worker can recover actual damages or $5,000 per employee, whichever is greater, along with injunctive relief and attorneys' fees. The per-employee structure means exposure scales with how many people signed the same template.

Consider a simple hypothetical. A landscaping company with 12 field employees uses one onboarding form that includes a clause requiring repayment of a $1,500 certification fee if someone leaves within a year. If all 12 signed after January 1, 2027, the statutory floor alone would be $60,000 (12 × $5,000) before attorneys' fees. That figure is an illustration, not a prediction, but it shows why one copy-and-paste clause deserves a second look.

What the Law Still Allows

AB 1697 is not a blanket ban on every repayment arrangement. Nixon Peabody lists several exceptions:

• government loan programs,
• approved apprenticeships,
• qualifying tuition repayment arrangements, and
• certain securities and insurance affiliation payments.

The details of each exception matter, so if you rely on one, have an attorney confirm that your arrangement fits the statutory language rather than assuming it does.

Why the Contract Date Matters

The law applies to contracts entered into on or after January 1, 2027. That makes timing a practical planning tool. Agreements signed before that date are not covered by this operative-date change, though other California rules and general contract principles may still apply, and this article cannot tell you how a specific older agreement would hold up. What you can control is what you hand to new hires, rehires, and anyone who signs a renewed or new agreement after the date.

Watch out for documents that quietly create new contracts: an updated offer letter template, a new training agreement for an existing employee, or a promotion letter that adds a retention bonus clawback.

A Contract Checklist for Small Employers

1. Pull every template. Offer letters, onboarding packets, training agreements, equipment policies, sign-on bonus agreements, and relocation agreements.
2. Search for repayment language. Look for words like "reimburse," "repay," "clawback," "liquidated damages," "forfeit," or "fee" tied to leaving the job.
3. Sort each clause. Does it fit an exception, or does it penalize someone for quitting? If you cannot say with confidence, flag it for counsel.
4. Rewrite going forward. Consider replacing clawbacks with other retention tools, such as bonuses paid after a service period, which are structured as earned rewards rather than debts. Have your attorney check the wording.
5. Date your new templates. Keep a version log so you can show which form was used for each hire.
6. Tell hiring managers. A verbal "if you leave we'll bill you" can cause trouble even if the paperwork is clean.

If you are still setting up your company's formal structure and paperwork, the guides on LLC formation and business licenses are a useful starting point, but employee agreements should always be reviewed by an employment lawyer in your state.

Other California Changes Landing on January 1

AB 1697 is one of many. Nixon Peabody's list also flags several items that touch small and mid-sized employers:

• Minimum wage. The statewide minimum wage rises to $17.40 an hour, and the white-collar overtime exempt salary rises to $72,384.
• Workplace surveillance (AB 1331). Bars monitoring of employees in workplace bathrooms, with narrow exceptions. Civil penalties are up to $500 per violation.
• Emotion-recognition and neural-data tools (AB 1883). Prohibits workplace surveillance tools that collect neural data or use AI to recognize or predict emotional state, with penalties up to $500 per violation.
• Misclassification (SB 1444). Willful misclassification penalties run from $5,000 to $15,000 per violation, and $10,000 to $25,000 for a pattern or practice. See the independent contractor vs. employee guide for the basics.
• Pay data reports (SB 1237). Employers with 100 or more employees must file annual pay data reports with the Civil Rights Department. A first failure to file can cost up to $100 per employee, and later failures up to $1,000 per employee.
• Records requests (SB 1316). If you fail to produce requested payroll, time, or employment records on time, you may be barred from using those records as evidence in certain proceedings. Most requests allow at least 15 days, and a timely good-faith request for more time triggers an automatic 15-day extension.

Several other laws, including the automated decision systems rules in SB 947, begin later in 2027, so build a calendar rather than treating January 1 as the only date.

What to Do This Month

You have roughly two months. Spend the first on an audit of your agreements and the second on replacing templates and training managers. If a clause might survive under an exception, get written advice from an employment attorney rather than relying on a general summary like this one. Budget for it, too: a one-hour contract review is far cheaper than a claim with per-employee damages. Also check whether your business insurance includes employment practices liability coverage, which can matter if a former employee brings a claim.

The Bottom Line

For contracts signed on or after January 1, 2027, California employers should assume that terms making workers pay when they leave are void and risky, with statutory damages of $5,000 per employee. Pull your templates, strip out or restructure repayment clauses, and confirm any exception with counsel. This article is general information, not legal advice.

Source: Nixon Peabody LLP, "Get ready for 2027: New California employment laws," October 28, 2026.

Photo by Romain Dancre on Unsplash