Employment: contracts in restraint of trade.

In shaping a new approach to employment contracts, Assembly Member Kalra anchors the measure around a targeted prohibition on debt- and penalty-related terms in agreements entered into on or after January 1, 2026, while authorizing workers or their representatives to bring civil actions to enforce the rule. The core objective is to prevent terms that would compel a worker to pay a debt, trigger debt-collection actions, or impose penalties upon termination of employment, and to create a private remedy that sits alongside existing labor protections.

Key provisions adopt a broad, cross-cutting definition framework: a contract is any written, oral, or implied promise or agreement; a debt covers money or its equivalent owed to another, including employment-related or education-related costs; an employer encompasses an entity and its affiliates, contractors, or agents; a training provider and a transferable credential are defined for purposes of carve-outs; and a penalty, fee, or cost includes items such as replacement or retraining fees and liquidated damages. The bill prohibits three categories of post-termination terms: (1) requiring payment of a debt by the worker after termination, (2) allowing resumption or cessation of debt collection or forbearance tied to termination, and (3) imposing any penalty, fee, or cost upon termination. It preserves several enumerated carve-outs, including certain government-backed loan programs, tuition-repayment arrangements meeting specific conditions, apprenticeship contracts, discretionary upfront payments under protective safeguards, and housing-related contracts that fall within specified statutory parameters.

The bill creates a private enforcement pathway: a worker or their representative may sue in a court of competent jurisdiction to recover actual damages or a per-worker minimum, whichever is greater, along with injunctive relief and reasonable attorney’s fees and costs. Remedies are described as cumulative with other rights and remedies under state law. Prohibitions apply to post-2026 contracts, and the associated public policy voidness is similarly limited to that timeframe. The measure interacts with California’s restraint-of-trade framework by establishing post-2026 protections that do not supplant existing labor standards enforcement, and it envisions enforcement through civil litigation rather than exclusive administrative action, potentially affecting how employers review and revise contracts, templates, and relationships with training providers, debt-collection entities, and housing arrangements.