The Advisors' Blog

Heads up! For sign-on and retention bonuses that are memorialized on or after this upcoming January 1st, you may need to consider a new California law – California Assembly Bill 692. Here’s an excerpt from a recent Cooley alert:

For employment contracts entered into on or after January 1, 2026, the new law generally prohibits inclusion of (or requiring a worker to execute as a condition of employment or work relationship a contract that includes) any provision:

– Requiring the worker to pay an employer, training provider or debt collector for a debt if the worker’s employment or work relationship with a specific employer terminates.

– Authorizing the employer, training provider or debt collector to resume or initiate collection of or end forbearance on a debt if the worker’s employment or work relationship with a specific employer terminates.

– Imposing any penalty, fee or cost on a worker if the worker’s employment or work relationship with a specific employer terminates.

There are exceptions to these general prohibitions, but the new law may dramatically restrict many currently common employment practices. For example, it appears that it will be impermissible to require repayment of a sign-on bonus without compliance with one of the specific exceptions.

This Greenberg Traurig blog explains that a sign-on bonus must meet all of the following conditions for its repayment obligation to comply with AB 692:

– Separate Agreement: The repayment obligation terms are set forth in a separate agreement from the primary employment contract (e.g., offer letter or employment agreement);

– Five Day Review Period with Attorney: The employee is notified that they have the right to consult an attorney regarding the agreement and provided at least five business days to do so before signing;

– Two Year Maximum: The retention date may be no longer than two years from the date the sign-on bonus is paid;

– No Interest: The repayment obligation is not subject to interest accrual;

– Prorated Repayment: The repayment obligation must be prorated based on the date of employment separation in relation to the original payment date and the retention date (for example, if the retention date is two years from the date of payment, and the employee voluntarily resigns after exactly one year, the repayment obligation cannot exceed 50% of the sign-on bonus);

– Option to Defer Payment: The employee has an option to defer receipt of the sign-on bonus until the retention date without any repayment obligation; and

– Only Repayable for Certain Separations: The separation from employment triggering the repayment obligation must be due solely to the election of the employee (i.e., voluntary resignation) or at the election of the employer based on the employee’s misconduct. In other words, a layoff or other non-misconduct related involuntary resignation may not trigger a repayment obligation.

The GT blog goes on to say that the law is even tougher on retention bonuses – employment agreements may not include a repayment obligation, regardless of the specific terms. So, if you envision retention bonuses in the near future, and want them to be repayable if the person later leaves, it looks like you should call your employment lawyer and try to get those contracts executed before year-end! If you can’t get that done, though, all is not lost. The blog offers ideas on alternative structures once the law goes into effect.

The law appears to be broadly drafted to apply to any company employing workers in California – and some commentary out there says that an agreement signed in California will continue to be subject to the restriction even if the employee later moves out of state. But as this Akin Gump memo points out, AB 692 leaves a lot of questions unanswered – so again, it’ll be important to work with counsel on your specific circumstances.

– Liz Dunshee