On October 13th, 2025, the California legislature passed into law AB692, a bill which would void any contract that requires employees to repay their employer, training provider, or debt collector upon termination of their employment. These training repayment agreement provisions, colloquially known as TRAPs, allow employers to recoup investment and training costs, but are outlawed effective from January 1st, 2026.
The bill does carve out exceptions, but they are exceedingly narrow. With just a few weeks until the bill takes effect, law firms are recommending to employers that they review and update existing contracts to ensure compliance and assess how existing repayment agreements may fit within the bill’s exceptions.
Proponents argue that the bill provides workers much-needed protection from employers who exploit repayment agreements to pass costs onto employees and disincentivize their employees from quitting. A Consumer Financial Protection Bureau analysis from 2023 found that under such agreements, workers were indebted to their employers anywhere between $4000 and $30,000. The bill also establishes a private right of action for monetary damages amounting to at least $5000, on top of the relevant legal fees.
A coalition of businesses, however, argue that AB692 goes above and beyond what is necessary. They point out that employees are already protected by Section 2802 of the Labor Code, which requires employers to ‘indemnify his or her employee for all necessary expenditures or losses incurred by the employee in direct consequence of the discharge of his or her duties.’ Under this section, which they claim courts have read ‘broadly in favor of the employee, employers may not, for example, demand reimbursement from an employee who inadvertently damages valuable equipment on the job. On the flip side, an employer may be required to reimburse data plans for employees who are tasked with conducting work using their cell phone.
Ashley Hoffman, who testified on behalf of the California Chamber of Commerce in opposition to the bill, acknowledges that required training and employment expenses are built into the cost of doing business, but argues that AB692 obliterates a significant distinction between required training and employment expenses, and voluntary financial incentives offered by employers. She points out that employers often send workers to leadership conferences, programs, and trainings, assist with re-location costs, and offer up-front hiring bonuses, perks which they rely upon to attract prospective employees.
Under these arrangements, costs are front-loaded, and employers are re-paid under a prorated scheduled in the event of an early, voluntary departure. AB692, however, prohibits such arrangements, and will prompt employers to eliminate these hiring incentives rather than risk the financial loss that accompanies the premature departure of an employee from whom employers cannot demand repayment. The net result is a loss of economic opportunity, both for businesses seeking employees, and workers who would benefit from professional development programs and greater geographic mobility.
AB692 may benefit low-wage workers who take a job and subsequently feel trapped in an organization with poor working conditions, but Hoffman laments the broad scope of the bill, which applies to workers of all wage levels and businesses of all sizes. Hoffman noted that the creation of a new private right of action for employees will burden small businesses which don’t have dedicated, in-house counsels or sophisticated HR teams, and rely upon hiring incentives and training programs to lure candidates away from more establishes brands.
Under the bill’s expansive definition of “worker,” lawsuits may be brought not only by current or former employees, but by prospective workers and their representatives as well. Compounding these concerns is California’s Unfair Competition Law (UCL), a sweeping statute originally designed to protect consumers and employees from unlawful or deceptive practices. Over time, however, courts have interpreted the UCL to allow “unlawful” claims without requiring proof of deception, reliance, or intent. Subsequently, employers may face liability even when acting in good faith.
By explicitly deeming violations of AB 692 to be UCL violations, the bill elevates technical repayment-agreement errors into unfair-competition claims, opening the door to injunctions and restitution over purely contractual missteps. As the Civil Justice Association of California has warned, AB 692 further amplifies litigation incentives by layering these UCL claims atop a separate Labor Code cause of action that includes a $5,000 minimum statutory penalty and attorneys’ fees, increasing the risk that businesses will face costly lawsuits over technical compliance failures.
California has developed a reputation as a business-unfriendly State, and laws such as AB692 do little to dispel that notion. AB692 is an over-broad piece of legislation that will make it harder for California’s small business to attract top-tier talent, and stunt the professional development and employment prospects of countless Californians across a variety of industries, including hospitality, F&B, and healthcare. Section 2802 already offered sufficient protection to workers, and AB692 is a great example of fixing something that wasn’t broken.
Nikhil Agarwal is a Pacific Research Institute policy associate.
