The Death of the 'Stay-or-Pay' Clause
The Death of the 'Stay-or-Pay' Clause
A Landmark Shift for California's Tech Employers and Immigrant Workforce
CLO
Chopra Law Office, P.C.
Immigration & Employment Law · Alviso, CA
April 2026
As of January 1, 2026, the enactment of Assembly Bill 692 has fundamentally altered the legal landscape for visa-sponsored employment in California — rendering the once-pervasive "Stay-or-Pay" repayment agreement an unlawful restraint on worker mobility.
In the high-stakes world of Silicon Valley recruiting, "Stay-or-Pay" contracts have long been a controversial staple. For years, employers sponsoring H-1B, O-1, or L-1 visas routinely included clauses requiring employees to repay thousands of dollars in legal and filing fees upon departure — a financial deterrent that often functioned as an invisible set of chains.
Whether you are a San Jose-based tech employer or a specialized professional on a sponsored visa, understanding this new "no-repayment" era is critical for compliance and career planning in 2026.
01 The Legal Catalyst:Why the Change?
California has historically been a pro-worker jurisdiction, famously banning non-compete agreements decades ago. The 2026 ban on immigration cost repayment is the natural evolution of this philosophy.
Legislative Finding
By amending the California Labor Code via AB 692, the legislature identified that "Stay-or-Pay" provisions often acted as a form of debt bondage, preventing skilled workers from seeking better opportunities due to the looming threat of a $10,000–$20,000 exit fee. California aims to foster a more dynamic and competitive labor market, particularly in the tech and medical sectors.
02 Breaking Down the 2026 Rule: Enforceable vs. Unenforceable
The following table outlines the enforceability of common immigration-related costs after the January 1, 2026 threshold:
Expense Type Enforceable? Legal Basis
H-1B ACWIA (Training) Fee ✕ No Federal Law (Longstanding)
PERM (Green Card) Costs ✕ No Federal Law · DOL Regulations
H-1B / O-1 Attorney Fees ✕ No CA AB 692 — New 2026
Premium Processing Fees ✕ No CA AB 692 — New 2026
Liquidated "Exit" Damages ✕ No Unlawful Restraint on Trade
Under the new framework, three categories of previously common provisions are now unenforceable:
Attorney fee recovery — Employers may no longer require reimbursement of legal fees associated with the visa petition.
2Wage deductions — Deducting "outstanding immigration costs" from a final paycheck is now strictly prohibited.
3Penalty clauses — Liquidated damages disproportionate to actual costs, designed to punish early departure, are highly susceptible to being struck down in court
03 The Impact on Silicon Valley Employers
For HR departments and business owners in Alviso, Santa Clara, and the greater Bay Area, this is a call to action. Operating under legacy contract templates now creates significant litigation exposure.
AContract Audits — Review all current employment offer letters and supplemental immigration agreements. Any clause requiring repayment upon resignation must be flagged for removal immediately.
BThe PERM Distinction — Federal DOL regulations already prohibited passing PERM Labor Certification costs to employees. AB 692 acts as the final piece, covering nearly all remaining sponsorship categories.
CPerformance-Based Retention — Shift focus to retention bonuses or equity vesting schedules. These incentivize longevity without creating a prohibited debt structure.
04 What Immigrant Professionals Need to Know
For H-1B & O-1 Holders
Portability without penalty. You can now port your H-1B to a new employer without the fear of a substantial bill from your current sponsor's legal department.
Void clauses. Even if you signed a repayment agreement in 2024 or 2025, many legal experts argue that attempting to enforce those payments after January 1, 2026 violates current public policy in California under AB 692.
The Ohio factor. Ohio is currently mirroring this legislation, signaling a broader shift across Midwest tech hubs — a trend worth monitoring for professionals considering interstate moves.
05Federal vs. State: A Note on Compliance
It is vital to remember that while California law has fundamentally shifted, Department of Labor (DOL) and USCIS federal regulations remain fully in effect. Federal law still strictly prohibits H-1B workers from paying the ACWIA Training Fee, and any repayment arrangement that would push a worker's remaining salary below the required prevailing wage has always been illegal.
California's new law simply closes the remaining gaps — making almost all repayment schemes a matter of legal history.
"The 2026 'Stay-or-Pay' ban challenges employers to create workplaces that people want to stay at — rather than workplaces they are forced to stay at."
Need a Legal or Compliance Audit?
Do not wait for a Labor Commissioner complaint to update your policies. Contact Chopra Law Office for a comprehensive review of your immigration and employment agreements.
Chopra Law Office, P.C.
Immigration & Employment Law · Silicon Valley
Address2077 Gold Street #183, Alviso, CA 95002
Phone408-409-5002
