A newly licensed nurse takes her first hospital job and completes a residency program that her employer requires of every entry-level hire. A year later, she finds a better position elsewhere. When she resigns, she learns that she owes her former employer thousands of dollars for the training she was required to take, and the balance is sent to collections or taken out of her final paycheck.
That scenario was at the center of a July 2025 enforcement action by the California Attorney General. HCA Healthcare and its staffing subsidiary agreed to pay $1.53 million to California, part of a $2.9 million settlement with California, Colorado, Nevada, and the Consumer Financial Protection Bureau.
The states alleged that HCA required new nurses to complete its StaRN residency program and then billed them for a prorated share of its cost if they left before two years. Three months later, Governor Gavin Newsom signed Assembly Bill 692, which bans most arrangements of this kind for contracts entered on or after January 1, 2026.
California Already Banned Non-Competes. TRAPs Were the Workaround.
Business and Professions Code § 16600 has long voided contracts that restrain a person from engaging in a lawful profession, trade, or business. California courts have applied it to strike down non-compete agreements for decades, and the Legislature strengthened it in 2024 by making it unlawful for employers to enter or attempt to enforce void non-competes, regardless of where the contract was signed.
Training repayment agreement provisions, commonly called TRAPs, accomplish much of what a non-compete does without mentioning competition at all. An employer does not tell a worker she cannot leave. It tells her that leaving will cost her money she may not have. For workers early in their careers, that demand can make changing jobs impossible, the very effect § 16600 was written to prevent.
Before AB 692, these agreements were not automatically unlawful. In USS-POSCO Industries v. Edwards (2003), a California appellate court enforced a prorated training repayment agreement against a departing employee, finding that the training was voluntary and gave the employee a skill he could take elsewhere. Workers had to litigate each agreement individually. AB 692 replaces that case-by-case fight with a statutory rule.
Meanwhile, the federal effort to address the same problem stalled. The Federal Trade Commission’s 2024 rule banning most non-competes was set aside by a federal court in Texas, and in September 2025, the FTC dropped its appeal. With no national rule in place, California moved to close the gap on its own.
What AB 692 Prohibits
AB 692 added § 16608 to the Business and Professions Code and § 926 to the Labor Code. Employers may not include in an employment contract, or require a worker to sign as a condition of employment, a term that does any of the following:
- Requires the worker to pay an employer, training provider, or debt collector for a debt if the worker’s employment ends;
- Allows the employer or a collector to begin or resume collecting a debt, or end a period of forbearance, when the worker separates;
- Imposes a penalty, fee, or cost for leaving, such as a quit fee, a replacement-hire fee, reimbursement of visa or immigration costs, or liquidated damages.
“Debt” is defined broadly and includes money, personal property, and the costs of training, education, and employment. The statute declares that any contract violating § 16608 is a restraint on trade that is void under § 16600, which places TRAPs squarely within the same legal category as non-competes.
The law covers prospective employees and job training participants as well as current employees, and it applies to affiliates and third parties acting for an employer.
The Exceptions Are Narrow
AB 692 permits a small number of repayment arrangements, and each comes with strict conditions.
Sign-on bonuses are not banned outright, but an employer may only recover an upfront, discretionary bonus that is not tied to job performance if the repayment terms appear in a separate agreement, the worker is told of the right to consult an attorney and given at least five business days to do so, the retention period does not exceed two years, and repayment is prorated and interest-free. The worker must also be offered the option to defer the bonus until the retention period ends, and repayment can be triggered only by the worker’s own resignation or a termination for misconduct.
Tuition repayment is allowed only for a transferable credential, such as an accredited degree, that is not required for the worker’s current job. The agreement must be separate and apart from the employment contract, state the repayment amount up front, cap it at the employer’s actual cost, prorate it, and bar repayment if the employer terminates the worker for any reason other than misconduct.
Mandatory, job-specific training programs like the one in the HCA case do not fit either exception.
What Workers Can Do
Section 926 gives workers a private right of action. A worker, or a worker representative acting for similarly situated workers, can recover actual damages or $5,000 per worker, whichever is greater, along with injunctive relief and attorney’s fees and costs.
AB 692 applies only to agreements entered on or after January 1, 2026. Workers who signed a repayment agreement before that date are not left without options, however. Those agreements can still be challenged under § 16600 and Labor Code § 2802, particularly where the training was required for the job.
Speak With an Employment Attorney About a Repayment Demand
If your employer has demanded that you repay training costs, a signing bonus, relocation expenses, or a fee for leaving your job, or if you are being asked to sign an agreement that includes these terms, the demand may be unenforceable under California law. The employment attorneys at Keller Grover represent California workers in employment disputes and can review your agreement and explain your options. Contact our legal team today to schedule a consultation.