AMENDED IN SENATE AUGUST 21, 2026

AMENDED IN ASSEMBLY APRIL 13, 2026

AMENDED IN ASSEMBLY MARCH 16, 2026

CALIFORNIA LEGISLATURE— 2025–2026 REGULAR SESSION

96

URGENCY STATUTE

Introduced by Assembly Member Kalra

February 3, 2026

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An act to amend Section 16608 of the Business and Professions Code, and to amend Section 926 of the Labor Code, relating to employment, and declaring the urgency thereof, to take effect immediately.

Vote: 2/3   Appropriation: no   Fiscal committee: yes   Local program: no

LEGISLATIVE COUNSEL’S DIGEST

Existing law generally prohibits an employment contract from requiring a worker to pay certain penalties, fees, costs, or debts related to employment or education if the worker’s employment or work relationship terminates, as provided. Existing law provides that a contract that is unlawful under that prohibition is void and contrary to public policy as a restraint of engaging in a lawful profession, trade, or business. Existing law authorizes a worker, among other persons, to bring a civil action for specified civil penalties and relief for a violation of these provisions. Existing law applies these prohibitions provisions to contracts entered into on or after January 1, 2026.

This bill would instead apply those provisions to contracts entered into on or after January 1, 2027. The bill would establish exceptions to the above-described prohibition for contracts. Among these exceptions, the bill would except contracts for bonuses relating to specified recruitment and retention programs, and repayment obligations arising from advanced paid time off upon voluntary separation, as prescribed. The bill would further except certain affiliation contracts between a securities broker-dealer, insurance producer, or investment adviser and its agents or representatives that are registered and licensed, as specified, and their affiliates if the contract satisfies certain conditions. The bill would make related findings and declarations.

This bill would declare that it is to take effect immediately as an urgency statute.

The people of the State of California do enact as follows:

SECTION 1.

The Legislature finds and declares all of the following:

(a) In enacting this act, it is the intent of the Legislature to do both of the following:

(1) Provide all employers with an additional year to structure their employment contracts free of debt traps or quit fees that penalize workers who choose to exercise their freedom of employment.

(2) Provide a sufficient transition period to accommodate employers operating under a collective bargaining agreement to successfully come into compliance with the law.

(b) To effectuate the intent described in subdivision (a), the amendments made by this act to Section 16608 of the Business and Professions Code and Section 926 of the Labor Code prevent the accrual of liability for acts occurring between January 1, 2026, and the effective date of this act. Any pending claim based on a violation alleged to have occurred during that period shall be moot.

SECTION 1.SEC. 2.

Section 16608 of the Business and Professions Code is amended to read:

16608.

(a) For purposes of this section, the following definitions apply: (1) “Contract” includes a promise, undertaking, contract, or agreement, whether written or oral, express or implied. (2) “Debt” means money, personal property, or their equivalent that is due or owing or alleged to be due or owing from a natural person to another person, including, but not limited to, for employment-related costs, education-related costs, or a consumer financial product or service, regardless of whether the debt is certain, contingent, or incurred voluntarily. (3) “Debt collector” has the same meaning as defined in subdivision (c) of Section 1788.2 of the Civil Code. (4) “Employer” means any person or entity that employs workers. “Employer” includes any parent company, subsidiary, division, affiliate, contractor, hiring party, or third-party agent of an employer. (5) “Freelance worker” has the same meaning as defined in subdivision (a) of Section 18101. (6) “Misconduct” has the same meaning as in Section 1256 of the Unemployment Insurance Code. (7) “Penalty, fee, or cost” includes, but is not limited to, a replacement hire fee, retraining fee, replacement fee, quit fee, reimbursement for immigration or visa-related costs, liquidated damages, lost goodwill, and lost profit. (8) “Person” means a natural person or an entity, including, but not limited to, a corporation, partnership, association, trust, limited liability company, cooperative, or other organization. (9) “Training provider” means an entity, whether or not affiliated with an employer, that provides an education educational program, as defined in Section 94837 of the Education Code, a job training program, or a skills training program. (10) “Transferable credential” means a degree that is offered by a third-party institution that is accredited and authorized to operate in the state, is not required for a worker’s current employment, and is transferable and useful for employment beyond the worker’s current employer. (11) “Worker” means a natural person who is permitted to work for or on behalf of an employer or business entity, or who is permitted to participate in any other work relationship, job training program, or skills training program. “Worker” includes, but is not limited to, an employee or prospective employee. (b) (1) Except as provided in paragraph (2), for contracts entered into on or after January 1, 2027, it shall be unlawful to include in any employment contract, or to require a worker to execute as a condition of employment or a work relationship a contract that includes, a contract term that does any of the following: (A) Requires the worker 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. (B) Authorizes the employer, training provider, or debt collector to resume or initiate collection of or end forbearance on a debt if the worker’s employment or work relationship with a specific employer terminates. (C) Imposes any penalty, fee, or cost on a worker if the worker’s employment or work relationship with a specific employer terminates. (2) This section does not apply to any of the following: (A) (i) A contract entered into under any loan repayment assistance program or loan forgiveness program provided by a federal, state, or local governmental agency. (ii) A contract entered into pursuant to a recruitment and retention program funded by a federal, state, or local government agency grant that offers recruitment or retention bonuses, if the employee repayment obligations comply with the requirements of the grant and do not exceed the service obligations required by the grant. (B) A contract related to the repayment of the cost of tuition for a transferable credential that meets all of the following requirements: (i) The contract is offered separately from any contract for employment. (ii) The contract does not require obtaining the transferable credential as a condition of employment. (iii) The contract specifies the repayment amount before the worker agrees to the contract, and the repayment amount does not exceed the cost to the employer of the transferable credential received by the worker. (iv) The contract provides for a prorated repayment amount during any required employment period that is proportional to the total repayment amount and the length of the required employment period and does not require an accelerated payment schedule if the worker separates from the employment. (v) The contract does not require repayment to the employer by the worker if the worker is terminated, except if the worker is terminated for misconduct. (C) A contract related to enrollment in an apprenticeship program approved by the Division of Apprenticeship Standards. (D) A contract for the receipt of a discretionary or unearned monetary payment, including a financial bonus, at the outset of employment that is not tied to specific job performance, provided that all of the following conditions are met: (i) The terms of any repayment obligation are set forth in a separate agreement from the primary employment contract. (ii) The employee is notified that they have the right to consult an attorney regarding the agreement and provided with a reasonable time period of not less than five business days to obtain advice of counsel prior to executing the agreement. (iii) Any repayment obligation for early separation from employment is not subject to interest accrual and is prorated based on the remaining term of any retention period, which shall not exceed two years from the receipt of payment. (iv) The worker has an option to defer receipt of the payment to the end of a fully served retention period without any repayment obligation. (v) Separation from employment prior to the retention period was at the sole election of the employee, or at the election of the employer for misconduct. (E) A contract related to the lease, financing, or purchase of residential property, including, but not limited to, a contract pursuant to the California Residential Mortgage Lending Act (Division 20 (commencing with Section 50000) of the Financial Code). (F) A contract for the receipt of a discretionary or unearned monetary payment from the employer that is an inducement for the worker to be affiliated with the employer or agreeing to maintain a relationship with the employer, provided that all of the following conditions are met: (i) The terms of any repayment obligation are set forth in a separate agreement from the primary employment contract. (ii) The payment from the employer to the worker is in addition to compensation that would otherwise be payable to the worker in connection with their employment. (iii) The worker is notified that they have the right to consult an attorney regarding the agreement and be provided with a reasonable time period of not less than five business days to obtain advice of counsel prior to executing the agreement. (iv) If an outstanding repayment obligation continues following separation from employment and interest accrues on the obligation after separation, the applicable interest rate shall not exceed the applicable federal rate published by the Internal Revenue Service for federal income tax purposes. (v) The contract is between a securities broker-dealer, insurance producer, or investment adviser, including their affiliates, and its agents or representatives that are any of the following: (I) Registered with the United States Securities and Exchange Commission or the Financial Industry Regulatory Authority. (II) Licensed by the State of California under Chapter 2 (commencing with Section 25210) or Chapter 3 (commencing with Section 25230) of Part 3 of Division 1 of Title 4 of the Corporations Code. (III) Licensed by the State of California under Section 1626 of the Insurance Code. (G) A repayment obligation arising from voluntary separation of employment related to an advanced payment made by the employer for paid time off in excess of a worker’s accrued paid time off, provided that all of the following conditions are met: (i) The terms of any repayment obligation are clearly disclosed to the worker separate from the primary employment contract upon the worker’s request to receive advanced payment for paid time off in excess of a worker’s accrued paid time off. (ii) The repayment obligation does not exceed 40 hours accrued paid time off. (iii) The repayment obligation is not subject to interest accrual. (c) (1) A contract that is unlawful under subdivision (b) is a contract restraining a person from engaging in a lawful profession, trade, or business, and is void under Section 16600 only if the contract was entered into on or after January 1, 2027. (2) The provisions of this section, as they existed on January 1, 2026, shall be inoperative from January 1, 2026, to December 31, 2026, inclusive. (d) The rights, remedies, and penalties established by this section are cumulative and shall not be construed to supersede or limit the rights, remedies, or penalties established under other laws, or to limit the ability of any other person or entity to pursue enforcement of rights, remedies, or penalties established under other laws, including, but not limited to: (1) Obligations of employers under Section 2802 of the Labor Code. (2) Article 1.5 (commencing with Section 2775) of Chapter 2 of Division 3 of the Labor Code. (3) The Unfair Competition Law (Chapter 5 (commencing with Section 17200)).

SEC. 2.SEC. 3.

Section 926 of the Labor Code is amended to read:

926.

(a) A contract or contract term that violates Section 16608 of the Business and Professions Code is void as contrary to public policy only if entered into on or after January 1, 2027.

(b) A worker who has been subjected to the conduct prohibited by subdivision (b) of Section 16608 of the Business and Professions Code or a worker representative may bring a civil action on behalf of that worker, other persons similarly situated, or both, in any court of competent jurisdiction.

(c) Any person found liable for a violation of this section shall be liable for actual damages sustained by the worker or workers on whose behalf the case is brought, or five thousand dollars ($5,000) per worker, whichever is greater, in addition to injunctive relief, and reasonable attorney’s fees and costs.

(d) This section does not limit the remedies available to a worker or other natural person specified in Section 16608 of the Business and Professions Code.

(e) The provisions of this section, as they existed on January 1, 2026, shall be inoperative from January 1, 2026, to December 31, 2026, inclusive.

SEC. 3.SEC. 4.

This act is an urgency statute necessary for the immediate preservation of the public peace, health, or safety within the meaning of Article IV of the California Constitution and shall go into immediate effect. The facts constituting the necessity are:

In order to protect California’s public peace, health, and safety, it is necessary that this act take effect immediately.