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<ns0:AuthorText authorType="LEAD_AUTHOR">Introduced by Assembly Member Kalra</ns0:AuthorText>
<ns0:AuthorText authorType="COAUTHOR_ORIGINATING">(Coauthors: Assembly Members Lee, Rogers, and Sharp-Collins)</ns0:AuthorText>
<ns0:AuthorText authorType="COAUTHOR_OPPOSITE">(Coauthors: Senators Cortese and Pérez)</ns0:AuthorText>
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<ns0:Contribution>COAUTHOR</ns0:Contribution>
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<ns0:Name>Rogers</ns0:Name>
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<ns0:Contribution>COAUTHOR</ns0:Contribution>
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<ns0:Name>Sharp-Collins</ns0:Name>
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<ns0:Title>An act to add Section 16608 to the Business and Professions Code, and to add Section 926 to the Labor Code, relating to employment. </ns0:Title>
<ns0:RelatingClause>employment</ns0:RelatingClause>
<ns0:GeneralSubject>
<ns0:Subject>Employment: contracts in restraint of trade.</ns0:Subject>
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<html:p>Existing law declares every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind to be void, except as expressly provided. Existing law provides for a system of labor standards enforcement administered by the Labor Commissioner.</html:p>
<html:p>This bill would, for contracts entered into on or after January 1, 2026, make it unlawful to include in any employment contract, or to require a worker to execute as a condition of employment or a work relationship a contract that includes, specified contract terms, including a term that requires the worker to pay an employer, training provider, or debt collector for a debt if the worker’s employment or work relationship with a specific employer terminates. The bill would declare these contracts as contracts that restrain a person from engaging in a lawful
profession, trade, or business, and as void and contrary to public policy, except as provided.</html:p>
<html:p>This bill would authorize a worker who has been subjected to the above-described prohibited conduct regarding a contract or its terms or a work representative to bring an action on behalf of that worker, other persons similarly situated, or both, in any court of competent jurisdiction. The bill would make a person who violates these provisions liable for specified civil penalties and relief.</html:p>
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<ns0:Preamble>The people of the State of California do enact as follows:</ns0:Preamble>
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<ns0:Num>SECTION 1.</ns0:Num>
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Section 16608 is added to the
<ns0:DocName>Business and Professions Code</ns0:DocName>
,
<ns0:Positioning>immediately following Section 16607</ns0:Positioning>
, to read:
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<ns0:Num>16608.</ns0:Num>
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<html:p>
(a)
<html:span class="EnSpace"/>
For purposes of this section, the following definitions apply:
</html:p>
<html:p>
(1)
<html:span class="EnSpace"/>
“Contract” includes a promise, undertaking, contract, or agreement, whether written or oral, express or implied.
</html:p>
<html:p>
(2)
<html:span class="EnSpace"/>
“Debt” means money, personal property, or their equivalent that is due or owing or alleged to be due or owing from a natural person to another person, including, but not limited to, for employment-related costs, education-related costs, or a consumer financial product or service, regardless of whether the debt is certain, contingent, or incurred voluntarily.
</html:p>
<html:p>
(3)
<html:span class="EnSpace"/>
“Debt collector” has the same meaning as defined in subdivision (c) of Section 1788.2 of the Civil Code.
</html:p>
<html:p>
(4)
<html:span class="EnSpace"/>
“Employer” means any person or entity that employs workers. “Employer” includes any parent company, subsidiary, division, affiliate, contractor, hiring party, or third-party agent of an employer.
</html:p>
<html:p>
(5)
<html:span class="EnSpace"/>
“Freelance worker” has the same meaning as defined in subdivision (a) of Section 18101.
</html:p>
<html:p>
(6)
<html:span class="EnSpace"/>
“Misconduct” has the same meaning as in Section 1256 of the Unemployment Insurance Code.
</html:p>
<html:p>
(7)
<html:span class="EnSpace"/>
“Penalty, fee, or cost” includes, but is not limited to, a
replacement hire fee, retraining fee, replacement fee, quit fee, reimbursement for immigration or visa-related costs, liquidated damages, lost goodwill, and lost profit.
</html:p>
<html:p>
(8)
<html:span class="EnSpace"/>
“Person” means a natural person or an entity, including, but not limited to, a corporation, partnership, association, trust, limited liability company, cooperative, or other organization.
</html:p>
<html:p>
(9)
<html:span class="EnSpace"/>
“Training provider” means an entity, whether or not affiliated with an employer, that provides an education program, as defined in Section 94837 of the Education Code, a job training program, or a skills training program.
</html:p>
<html:p>
(10)
<html:span class="EnSpace"/>
“Transferable credential” means a degree that is offered by a third-party institution that is accredited and authorized to operate
in the state, is not required for a worker’s current employment, and is transferable and useful for employment beyond the worker’s current employer.
</html:p>
<html:p>
(11)
<html:span class="EnSpace"/>
“Worker” means a natural person who is permitted to work for or on behalf of an employer or business entity, or who is permitted to participate in any other work relationship, job training program, or skills training program. “Worker” includes, but is not limited to, an employee or prospective employee.
</html:p>
<html:p>
(b)
<html:span class="EnSpace"/>
(1)
<html:span class="EnSpace"/>
Except as provided in paragraph (2), for contracts entered into on or after January 1, 2026, it shall be unlawful to include in any employment contract, or to require a worker to execute as a condition of employment or a work relationship a contract that includes, a contract term that does any of the following:
</html:p>
<html:p>
(A)
<html:span class="EnSpace"/>
Requires the worker to pay an employer, training provider, or debt collector for a debt if the worker’s employment or work relationship with a specific employer terminates.
</html:p>
<html:p>
(B)
<html:span class="EnSpace"/>
Authorizes the employer, training provider, or debt collector to resume or initiate collection of or end forbearance on a debt if the worker’s employment or work relationship with a specific employer terminates.
</html:p>
<html:p>
(C)
<html:span class="EnSpace"/>
Imposes any penalty, fee, or cost on a worker if the worker’s employment or work relationship with a specific employer
terminates.
</html:p>
<html:p>
(2)
<html:span class="EnSpace"/>
This section does not apply to any of the following:
</html:p>
<html:p>
(A)
<html:span class="EnSpace"/>
A contract entered into under any loan repayment assistance program or loan forgiveness program provided by a federal, state, or local governmental agency.
</html:p>
<html:p>
(B)
<html:span class="EnSpace"/>
A contract related to the repayment of the cost of tuition for a transferable credential that meets all of the following
requirements:
</html:p>
<html:p>
(i)
<html:span class="EnSpace"/>
The contract is offered separately from any contract for employment.
</html:p>
<html:p>
(ii)
<html:span class="EnSpace"/>
The contract does not require obtaining the transferable credential as a condition of employment.
</html:p>
<html:p>
(iii)
<html:span class="EnSpace"/>
The contract specifies the repayment amount before the worker agrees to the contract, and the repayment amount does not exceed the cost to the employer of the transferable credential received by the worker.
</html:p>
<html:p>
(iv)
<html:span class="EnSpace"/>
The contract provides for a prorated repayment amount during any required employment period that is proportional to the total repayment amount and the length of the required employment
period and does not require an accelerated payment schedule if the worker separates from the employment.
</html:p>
<html:p>
(v)
<html:span class="EnSpace"/>
The contract does not require repayment to the employer by the worker if the worker is terminated, except if the worker is terminated for misconduct.
</html:p>
<html:p>
(C)
<html:span class="EnSpace"/>
A contract related to enrollment in an apprenticeship program approved by the Division of Apprenticeship Standards.
</html:p>
<html:p>
(D)
<html:span class="EnSpace"/>
A contract for the receipt of a discretionary or unearned monetary payment, including a financial bonus, at the outset of employment that is not tied to specific job performance, provided that all of the following conditions are met:
</html:p>
<html:p>
(i)
<html:span class="EnSpace"/>
The terms of any repayment
obligation are set forth in a separate agreement from the primary employment contract.
</html:p>
<html:p>
(ii)
<html:span class="EnSpace"/>
The employee is
notified that they have the right to consult an attorney regarding the agreement and provided with a reasonable time period of not less than five business days to obtain advice of counsel prior to executing the agreement.
</html:p>
<html:p>
(iii)
<html:span class="EnSpace"/>
Any repayment obligation for early separation from employment is not subject to interest accrual and is prorated based on the remaining term of any retention period, which shall not exceed two years from the receipt of payment.
</html:p>
<html:p>
(iv)
<html:span class="EnSpace"/>
The worker has an option to defer receipt of the payment to the end of a fully served retention period without any repayment obligation.
</html:p>
<html:p>
(v)
<html:span class="EnSpace"/>
Separation from employment prior to the retention period was at the sole election of the employee, or at the election
of the employer for misconduct.
</html:p>
<html:p>
(E)
<html:span class="EnSpace"/>
A contract related to the lease, financing, or purchase of residential property, including, but not limited to, a contract pursuant to the California Residential Mortgage Lending Act (Division 20 (commencing with Section 50000) of the Financial Code).
</html:p>
<html:p>
(c)
<html:span class="EnSpace"/>
A contract that is unlawful under subdivision (b) is a contract restraining a person from engaging in a lawful profession, trade, or business, and is void under Section 16600 only if the contract was entered into on or after January 1, 2026.
</html:p>
<html:p>
(d)
<html:span class="EnSpace"/>
The rights, remedies, and penalties established by this section are cumulative and shall not be construed to supersede or limit the rights, remedies, or penalties established under other laws,
or to limit the ability of any other person or entity to pursue enforcement of rights, remedies, or penalties established under other laws,
including, but not limited to:
</html:p>
<html:p>
(1)
<html:span class="EnSpace"/>
Obligations of employers under Section 2802 of the Labor Code.
</html:p>
<html:p>
(2)
<html:span class="EnSpace"/>
Article 1.5 (commencing with Section 2775) of Chapter 2 of Division 3 of the Labor Code.
</html:p>
<html:p>
(3)
<html:span class="EnSpace"/>
The Unfair Competition Law (Chapter 5 (commencing with Section 17200)).
</html:p>
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<ns0:Num>SEC. 2.</ns0:Num>
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Section 926 is added to the
<ns0:DocName>Labor Code</ns0:DocName>
, to read:
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<ns0:Num>926.</ns0:Num>
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<html:p>
(a)
<html:span class="EnSpace"/>
A contract or contract term that violates Section 16608 of the Business and Professions Code is void as contrary to public policy only if entered into on or after January 1, 2026.
</html:p>
<html:p>
(b)
<html:span class="EnSpace"/>
A worker who has been subjected to the conduct prohibited by subdivision (b) of Section 16608 of the Business and Professions Code or a worker representative may bring a civil action on behalf of that worker, other persons similarly situated, or both, in any court of competent jurisdiction.
</html:p>
<html:p>
(c)
<html:span class="EnSpace"/>
Any person found liable for a violation of this section shall be liable for actual damages sustained by the worker or workers on
whose behalf the case is brought, or five thousand dollars ($5,000) per worker, whichever is greater, in addition to injunctive relief, and reasonable attorney’s fees and costs.
</html:p>
<html:p>
(d)
<html:span class="EnSpace"/>
This section does not limit the remedies available to a worker or other natural person specified in Section 16608 of the Business and Professions Code.
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