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Beginning on January 1, 2026, California will limit an employer’s ability to impose repayment obligations on employees who are paid sign-on or retention bonuses. Traditionally, employers offer sign-on bonuses or retention-based bonuses to individuals to incentivize them to join a company or continue the employment relationship. Some employers would place conditions on these bonuses by requiring individuals to repay the bonus if one left the organization before an agreed upon retention date.
California law now limits repayment obligations as to sign-on bonuses and generally prohibits repayment obligations as to retention bonuses.
If employers still wish to impose repayment obligations for sign-on bonuses, employers must comply with the following:
- The terms of any repayment obligations must be set forth in a separate, standalone agreement;
- The individual must be informed of their right to consult with an attorney and must be given at least five business days to do so;
- Any repayment obligation may not be subject to interest and must be prorated based on the remaining term of any retention period;
- The retention date cannot exceed two years;
- The individual must be given the option to defer receipt of the payment to the end of the fully served retention period; and
- The separation from employment prior to any retention period must be at the sole election of the employee, or at the election of the employer for misconduct.
If an employer violates the foregoing, an employee has the right to bring a private right of action on an individual or class basis to recover the greater of either (a) the actual damages sustained by the employee, or (b) $5,000 per employee, in addition to reasonable attorneys’ fees and costs.
Prior to the new year, employers should begin to review their sign-on and retention bonus policies and practices to ensure compliance the law.
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