Governor Gavin Newsom has signed Assembly Bill 692, authored by Assemblymember Ash Kalra, making California the first state in the nation to outlaw the use of Training Repayment Agreement Provisions (TRAPs); contracts that saddle workers with debt if they leave their job. Effective January 1, 2026, the new law prohibits employers from requiring workers to repay the cost of training or other expenses as a condition of employment, or from threatening debt collection as a means of coercion. Employers who violate the law now face significant penalties, either the actual damages sustained by affected workers or $5,000 per worker, whichever is greater.
The passage of AB 692 marks the culmination of a three-year effort led by the California Nurses Association/National Nurses United, alongside a coalition that included the California Federation of Labor. With support from Attorney General Rob Bonta, they successfully argued that TRAPs are a form of economic coercion locking workers into poor working conditions under the threat of crushing debt. Their effort gained attention after the 2022 case Scally v. PetSmart, where a California worker alleged she was forced to repay up to $5,000 for “free” on-the-job training if she quit within two years. Research shows that nearly one in twelve workers nationwide are bound by these restrictive agreements that are most prevalent in the long-haul-trucking, aviation, healthcare and retail industries.
AB 692 also represents California’s response to a broader federal rollback of worker protections. Earlier this year, the Trump Administration rescinded a Biden-era executive order that promoted fair competition and worker mobility, effectively abandoning efforts to limit non-compete clauses and TRAPs. In the absence of federal action, California and several other states, including Colorado, Indiana, and Wyoming, have stepped up to enact state-level protections, reaffirming their commitment to protecting workers’ rights in an increasingly hostile labor environment.
This new law is an important step toward ensuring that workers are free from exploitative contracts that interfere with their ability to change jobs or leave abusive workplaces. Attorneys will play a key role in identifying and challenging violations of AB 692, helping workers recover damages and reinforcing California’s strong public policy against employment practices that use debt as a tool of control. By eliminating stay-or-pay (TRAPs) contracts, California continues to lead the nation in defending the dignity and mobility of working people.
