Gov. Newsom signs bill banning 'stay-or-pay' contracts for California workers

(FOX 5/KUSI) -- Gov. Gavin Newsom recently signed several bills into law that will impact California workers starting next year, including one that prevents trapping them in debt.

Assembly Bill 692, which was introduced by Assemblymember Ash Kalra, bans employers from threatening workers with having to pay to quit their job.

The bill would affect employment contracts entered into on or after Jan. 1, 2026 and prohibits employers from requiring workers 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."

For several years, a coalition led by the California Nurses Association/National Nurses United and other advocates pushed for stronger workplace protections against Training Repayment Agreement Provisions (TRAPs) and similar financial penalties.

After Newsom signed AB 692 into law on Monday, California became the first state to pass new workplace protections against TRAPs or "stay-or-pay" contracts.

TRAPs gained national attention after a class action lawsuit was filed in the Superior Court of the State of California against PetSmart for the company's use of the provisions in July of 2022.

The lawsuit claimed that PetSmart's groomer training academy, which was advertised as "free," forced workers into an agreement that required them to pay the company $5,000 if they didn't stay with the company for at least two years after training, and $2,500 if they left after one year.

A violation under the new law signed by Newsom on Monday could make employers liable for "actual damages sustained by the worker or workers" affected, or $5,000 per worker, whichever is greater.