Employment: contracts in restraint of trade.

The bill text was reformatted from a printed chaptered layout (with page numbers, running headers like 'Ch. 703', and column formatting) to a web-based display format that includes site navigation links, version history, and publication metadata.

Bill header changed from enrolled format (Assembly/Senate passage dates, Governor receipt line) to chaptered format with 'STATE OF CALIFORNIA AUTHENTICATED ELECTRONIC LEGAL MATERIAL' and the filled-in chapter number 703.

Approval date specified: 'Approved by Governor October 13, 2025. Filed with Secretary of State October 13, 2025.'

Page numbering changed from page 91 to page 90 and header format changed from 'AB 692' to 'Ch. 703' throughout the document.

New exemption (D) added for contracts involving a discretionary or unearned monetary payment at the outset of employment not tied to specific job performance. Conditions include: repayment terms in a separately negotiated agreement, individual legal representation by counsel not paid for or selected by the employer, no interest accrual with proration based on remaining term capped at two years, an option to defer receipt of payment until end of retention period without repayment obligation, and termination must be at the employee's sole election or for material noncompliance/misconduct.

The transferable credential exemption (B)(i) was narrowed from requiring that the contract 'is not a condition of employment and is offered separately from any contract for employment' to simply requiring it 'is offered separately from any contract for employment,' removing the explicit 'not a condition of employment' language.

New requirement added to transferable credential exemption (B)(iv): the contract must not require an accelerated payment schedule if the worker separates from employment. This prevents employers from triggering full debt acceleration upon separation.

Section 16608(c) now states a contract is void under Section 16600 'only if the contract was entered into on or after January 1, 2026,' explicitly limiting the voidness declaration to post-effective-date contracts rather than applying it broadly.

Section 926(a) was narrowed from declaring void any contract violating all of Chapter 1 (commencing with Section 16600) of Part 2 of Division 7 of the Business and Professions Code, to specifically referencing only violations of Section 16608, and adding the limitation 'only if entered into on or after January 1, 2026.'

The civil penalty in Section 926 was changed from a flat $5,000 to '$5,000 per worker,' making the penalty scale with the number of affected workers rather than being a single amount regardless of how many workers were harmed.

The cumulative remedies provision (renumbered from (e) to (d)) was expanded to explicitly state it shall not limit 'the ability of any other person or entity to pursue enforcement of rights, remedies, or penalties established under other laws,' and now specifically enumerates the Unfair Competition Law as a preserved remedy.

The Labor Commissioner's authority to enforce the section was removed entirely. This included the power to receive and investigate complaints, order temporary relief, issue citations, and file civil actions. The requirement for the Labor Commissioner to coordinate with the Attorney General on enforcement was also removed.

The provision declaring a violation of Section 16608 an act of unfair competition under the Unfair Competition Law (Section 17200) was removed, eliminating that additional legal theory for challenging prohibited contracts.

The exemption for discretionary or unearned monetary payments (such as sign-on bonuses) was significantly relaxed. Previously, the employee had to be individually represented by legal counsel in negotiating repayment terms. Now the requirement is only that the employee be notified of the right to consult an attorney and given at least five business days to obtain advice of counsel before executing the agreement.

A new exemption (E) was added for contracts related to the lease, financing, or purchase of residential property, including contracts pursuant to the California Residential Mortgage Lending Act (Division 20 of the Financial Code). This carves out housing-related financial arrangements from the bill's prohibitions.

In the sign-on bonus exemption, 'termination of employment' was changed to 'separation from employment' in the condition about who elected to end the relationship, broadening the language to cover more types of separation.

The voidness provision in Section 16608(c) was modified to explicitly state that a contract is void under Section 16600 only if it was entered into on or after January 1, 2026, adding a clear temporal limitation.

Several definitions were removed: 'business entity,' 'consumer financial product or service,' 'education-related cost,' 'employment-related cost,' and 'hiring party.' The 'debt' definition was slightly modified to specify 'personal property' rather than just 'property.'

The definition of 'worker' in Section 16608(a)(11) was narrowed. The prior version included 'an employee, prospective employee, independent contractor, freelance worker, extern, intern, apprentice, or sole proprietor.' The enrolled version limits this to 'an employee or prospective employee,' removing explicit coverage for independent contractors, freelance workers, externs, interns, apprentices, and sole proprietors.

Adds Section 16608 to the Business and Professions Code, which for contracts entered into on or after January 1, 2026, makes it unlawful to include in any employment contract a term that requires a worker to pay a debt, authorizes resumption of debt collection, or imposes any penalty, fee, or cost upon termination of the worker's employment relationship with a specific employer.

Establishes 14 definitions including 'debt' (covering employment-related costs, education-related costs, and consumer financial products), 'employer' (including parent companies, subsidiaries, affiliates, contractors, and third-party agents), 'worker' (including employees, independent contractors, freelance workers, interns, apprentices, and sole proprietors), and 'penalty, fee, or cost' (including replacement hire fees, retraining fees, quit fees, immigration/visa reimbursement, liquidated damages, lost goodwill, and lost profit).

Creates an exception for contracts entered into under loan repayment assistance programs or loan forgiveness programs provided by a federal, state, or local governmental agency.

Adds Section 926 to the Labor Code authorizing the Labor Commissioner to enforce the new provisions through complaints, temporary relief orders, citations, and civil actions, with coordination required between the Labor Commissioner and the Attorney General.

Creates a private right of action allowing any person (including local governments or worker representatives) to bring a civil action on behalf of themselves or similarly situated persons, with liability for actual damages or $5,000 (whichever is greater), plus injunctive relief and attorney's fees.

Declares contracts containing the prohibited terms as void under Section 16600 (contracts in restraint of trade) and as contrary to public policy, and makes violations an act of unfair competition under the Unfair Competition Law (Section 17200 et seq.).

Fiscal committee designation changed from 'no' to 'yes,' indicating the amendment introduced fiscal impact requiring review.

Coauthors added: Assembly Members Lee, Rogers, and Sharp-Collins; Senators Cortese and Perez.

A new exception (paragraph C) was added to subdivision (b)(2), exempting contracts related to enrollment in an apprenticeship program approved by the Division of Apprenticeship Standards from the prohibition on repayment clauses triggered by termination of employment.

A new requirement was inserted as sub-paragraph (ii) of the transferable credential exception: the contract must not require obtaining the transferable credential as a condition of employment. This means employers cannot make earning the credential itself mandatory for the job while also requiring repayment if the worker leaves.

The protection against requiring repayment when a worker is terminated now includes an exception: employers may still require repayment if the worker is terminated for gross misconduct. Previously, no repayment could be required upon any termination.

Removed Section 1 of the bill, which amended Labor Code Section 6 to clarify that division, part, chapter, article, and section headings do not limit or modify the scope of code provisions. This was a nonsubstantive technical change.

Changed who may bring a civil action under new Labor Code Section 926(c) from 'a person, including a local government or a worker representative' to 'a person, including a local government worker, a prospective worker, or a worker representative.' This removes the ability of a local government entity itself to sue and instead allows individual local government workers and prospective workers to bring claims.

Fiscal committee jurisdiction changed from 'no' to 'yes,' indicating the bill now has fiscal implications requiring review by the Assembly Fiscal Committee.

A new exemption is added for contracts related to repayment of tuition for a transferable credential. To qualify, the contract must be offered separately from employment (not a condition of employment), specify the repayment amount in advance without exceeding the employer's cost, provide prorated repayment proportional to time worked, and not require repayment if the worker is terminated.

The civil enforcement provision is narrowed from 'a person, including a local government worker, a prospective worker, or a worker representative' to 'a worker, a prospective worker, or a worker representative,' removing the broader 'person' category and the explicit mention of local government workers.

A new definition for 'transferable credential' is added, meaning a degree offered by an accredited third-party institution authorized to operate in California that is not required for the worker's current employment and is transferable and useful for employment beyond the current employer.