The Signing Bonus Clawback: Requirements for Repayment Terms in a California Employment Agreement
Stay or Pay: Repayment Terms in a California Employment Agreement
Beginning January 1, 2027, a California employer that pays a new hire a signing bonus, covers a course, or advances moving costs can no longer make the money repayable if the employee leaves, unless the repayment term meets the statutory exception provided for in § 16608(b)(2)(D). The exception that keeps a signing bonus recoverable has five requirements, and an agreement that meets all five can still require repayment when the employee resigns early. An agreement that misses one is void, and the term itself is the violation, not the demand for payment. An employee who signed it can sue for the greater of actual damages or $5,000, plus attorney’s fees, on behalf of everyone who signed the same form.
The Five Requirements to Claw Back a Signing Bonus
California Business and Professions Code § 16608(b)(2)(D) permits a repayment obligation on “a discretionary or unearned monetary payment, including a financial bonus, that is not tied to specific job performance,” provided that all five of the following conditions are met:
the repayment terms “are set forth in a separate agreement from the primary employment contract”;
the employee is notified of the right to consult an attorney about the agreement and given “a reasonable time period of not less than five business days to obtain advice of counsel prior to executing the agreement”;
the repayment obligation carries no interest and is prorated, meaning reduced in proportion to the time served, over a retention period “which shall not exceed two years from the receipt of payment”;
the worker has the option to defer receipt of the payment to the end of a fully served retention period, with no repayment obligation; and
the separation “was at the sole election of the employee, or at the election of the employer for misconduct.”
A signing bonus that failed to meet any one of these requirements is not recoverable by the employer. Misconduct in the fifth condition carries the meaning it has under California Unemployment Insurance Code § 1256, the provision that disqualifies a discharged employee from unemployment benefits. The regulation applying that section, California Code of Regulations, title 22, § 1256-30, requires a “willful or wanton disregard” of a material duty owed to the employer. Inability, isolated ordinary negligence, and good faith errors in judgment are not misconduct under that regulation; ordinary negligence repeated after a warning may be.
The Prohibition in Business and Professions Code § 16608
Assembly Bill 692, enacted in 2025, added Business and Professions Code § 16608 and California Labor Code § 926. For contracts entered into on or after January 1, 2027, § 16608(b)(1) makes it unlawful to include three types of terms in an employment contract, or to require a worker to sign a contract that includes one of those three terms as a condition of employment.
A contract may not require the worker to pay the employer, a training provider, or a debt collector for a debt if the employment ends.
A contract may not authorize an employer, training provider, or debt collector to start or resume collection on a debt if the employment ends. This prohibits a bonus structured as a loan forgiven over time.
A contract may not “impose any penalty, fee, or cost on a worker” if the employment ends.
Frequently Asked Questions
Can we still pay a signing bonus that is repaid if the employee leaves early?
Yes, if the agreement meets all five conditions above and the payment is discretionary or unearned and not tied to specific job performance. Omitting one condition places the term outside the exception.
Does a retention bonus for an existing employee qualify for the exception?
Potentially. The exception no longer limits qualifying payments to the outset of employment. A retention bonus for an existing employee may fit § 16608(b)(2)(D) if the payment is discretionary or unearned, is not tied to specific job performance, and the agreement satisfies all five conditions above. A bonus paid only after the retention period has been served involves no repayment, and the deferral condition in the exception is built on that structure.
How much is owed if the employee leaves after three months?
Under an agreement that meets the five conditions, the obligation is prorated based on the remaining term of the retention period, which cannot extend more than two years from receipt of the payment, and it carries no interest. With a t
wo-year retention period and a monthly proration, an employee who resigns three months after receiving the payment owes 87.5% of it.
This article is provided for general informational purposes only and does not constitute legal advice. Laws, regulations, and judicial decisions may change, and this article may not reflect the current law in your jurisdiction. Reading this article does not create an attorney-client relationship with NewPoint Law Group. Consult a qualified attorney regarding your particular circumstances.
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