New Law Bans ‘Stay-or-Pay’ Contracts That Trapped Nurses in Debt in California
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California bans “stay-or-pay” contracts under AB 692, protecting nurses from being forced to repay training or orientation costs when leaving a job early.
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Governor Gavin Newsom signed the bill on October 13, 2025, marking a major win for nurse mobility, workplace rights, and patient safety advocacy.
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The law takes effect January 1, 2026, applying to new employment contracts and prohibiting most debt-linked employment agreements, including “exit fees.”
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Employers who violate AB 692 face serious consequences, including damages, attorney’s fees, and fines of up to $5,000 per affected worker.
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Nursing leaders and advocates hail the law as a victory for fairness and safety, freeing nurses—especially new and immigrant RNs—from exploitative debt traps that discouraged them from leaving unsafe or unhealthy workplaces.
California nurses and workers have won a major victory with the signing of Assembly Bill 692 (AB 692), a new law banning “stay-or-pay” contracts that often trap nurses in exploitative debt schemes with hospital employers.
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Nurses Freed from Debt Trap Contracts
Governor Gavin Newsom signed AB 692 on October 13, 2025, marking a landmark step for nurse mobility and workplace rights in California. The law prohibits employers from requiring nurses and other workers to pay back debts or penalties simply for leaving their jobs before a specified date—a common practice known as “Training Repayment Agreement Provisions (TRAPs)”. These contracts have forced new RNs, especially recent graduates and immigrant nurses, to pay thousands of dollars for orientation or basic on-the-job training if they leave before the end of their two- or three-year employment term.
What AB 692 Means for Nurses
Nurses can now seek new opportunities, challenge unsafe working conditions, or relocate without facing crushing financial penalties from their previous employers.
The law covers most forms of debt-linked employment agreements, effectively barring hospitals from using “exit fees” or punishing nurses for workplace advocacy and whistleblowing.
Penalties for violating the law are significant: employers could face damages, attorney’s fees, and fines up to $5,000 per affected worker.
Exceptions do exist for certain tuition reimbursement programs tied to truly transferable credentials not needed for a nurse’s current job.
Voices from the Nursing Community
- Michelle Gutierrez Vo, RN, president of the California Nurses Association, called the new law “a win for all nurses, especially those just starting out,” emphasizing its role in stopping employers from using debt to keep staff in substandard or unsafe working environments.
- Assemblymember Ash Kalra, who authored AB 692, said, “Placing a de-facto ‘exit fee’ on a nurse who leaves a job is unethical. With AB 692, nurses and other healthcare workers will be free to leave jobs that put them at risk—whether due to safety hazards, harassment, or toxic conditions—without the threat of financial ruin”.
Looking Ahead
The law takes effect on January 1, 2026, applying to new employment contracts after that date. Hospitals and healthcare employers are rushing to review and revise existing agreements to ensure compliance. Meanwhile, nurses and advocacy organizations are celebrating a hard-fought win, setting a new national standard for worker protections in healthcare.
AB 692 delivers long-overdue relief for California nurses, empowering them to seek better working conditions and prioritize safe patient care—without fear of being trapped in debt by their employers.
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