California Bans Exploitative 'Stay-or-Pay' Contracts with AB 692 Law

California Enacts Law to End Exploitative Worker Debt Contracts

Governor Gavin Newsom of California has enacted Assembly Bill 692 (A.B. 692), a significant move aimed at eliminating exploitative debt arrangements known as "stay-or-pay" contracts. This legislation, signed into law on October 13, prohibits employers from imposing financial penalties on workers who choose to leave their jobs, marking a notable shift in worker protection laws.

The California Nurses Association (CNA), the state's largest union of registered nurses, has expressed strong approval of this development. According to CNA president Sandy Reding, RN, "While Trump is busy dismantling pending federal protections for workers caught in debt traps, California is taking a proactive step forward to support the thousands of nurses and nearly one in 12 workers who are in exploitative stay-or-pay contracts." Reding also acknowledged the efforts of Assemblymember Ash Kalra and Governor Newsom in advancing this legislation.

A.B. 692, authored by Assemblymember Kalra, was supported by a coalition that includes the CNA, California Federation of Labor Unions, California Employment Lawyers Association, Protect Borrowers, and the American Economic Liberties Project. Assemblymember Kalra highlighted the importance of this legislation, stating, "It has been an honor to work with CNA in abolishing exploitative stay-or-pay contracts and stopping employers from creating debt to trap and intimidate workers."

California Labor Federation President Lorena Gonzalez also commented on the law's impact, emphasizing its broad application across various industries. "Today, Governor Newsom signed an important bill to ban employer debt traps and protect nurses, actors, athletes and so many other workers," said Gonzalez. "Employers use training repayment schemes to trap workers in jobs with low wages, unsafe conditions, and abusive managers. It doesn’t matter if you work in a hospital or play professional sports, no worker should have to pay an employer back if they leave a job."

The legislation addresses the increasing use of debt by employers as a mechanism to retain workers under unfavorable conditions, often suppressing wages and discouraging union activities. "Stay-or-pay" contracts require employees to reimburse their employers for alleged debts if they exit their job prematurely, effectively binding them to their current employment. This coercive practice has been criticized for deterring workers from seeking better job opportunities.

California Nurses Association/National Nurses United is the largest and fastest-growing union and professional association of registered nurses in the nation with more than 100,000 members in more than 200 facilities throughout California and more than 225,000 RNs nationwide.