It’s common for employers to enter into agreements with employees whereby the employee receives training, a signing bonus, relocation assistance, or other upfront benefits in exchange for a commitment to remain employed for a set period of time. If the employee leaves early, these agreements often require repayment of some or all of those costs.
Recent legislative activity suggests that these arrangements may become far less common. Both California and New York have enacted new laws sharply limiting — and in some cases outright prohibiting — “stay‑or‑pay” agreements, also known as TRAPs (training repayment agreement provisions).
New York’s “Trapped at Work” Law (Effective December 19, 2025)
New York’s new law, informally known as the “Trapped at Work” law, makes it unlawful for an employer to require an employee to enter into an “employment promissory note” as a condition of employment. In essence, employers cannot require employees to sign agreements that impose financial penalties if they resign before a specified date.
The law is broad: it applies to any agreement that requires repayment of training costs, bonuses, or other expenses tied to continued employment, unless the repayment obligation is tied to a true loan that the employee voluntarily sought out and that is not conditioned on continued employment.
Penalties for Violations
Employers who violate the law may face:
– Civil penalties
– Potential private lawsuits
– Void and unenforceable agreements, meaning employers cannot collect repayment even if the employee leaves early
– Injunctive relief
– Potential attorneys’ fees awards
Because the statute frames these agreements as an unlawful employment practice, employers should expect aggressive enforcement and a plaintiff‑friendly posture.
California’s AB 692 (Effective January 1, 2026)
Like the New York law, California’s AB 692 similarly restricts employers from requiring employees to repay training expenses, signing bonuses, or other upfront costs as a condition of continued employment. The law declares these repayment provisions void as against public policy, with only narrow exceptions, for example, where the training is required for a professional license that is portable and not specific to the employer.
The law also applies to agreements entered into on or after January 1, 2026, even if the employment relationship began earlier.
Penalties for Violations
California’s enforcement mechanisms include:
– Civil penalties un
– Private lawsuits for restitution and damages
– Potential PAGA claims, which can significantly increase exposure
– Injunctive relief
– Unenforceability of any agreement that violates the statute
Given California’s strong public‑policy stance against restraints on employee mobility, employers should expect courts to interpret AB 692 broadly.
Are Other States Doing the Same?
Yes, and employers with multi‑state workforces should be paying close attention. While New York and California have the most comprehensive bans, several other states have enacted or proposed laws restricting TRAPs:
– Colorado: Since 2024 has restricted training‑repayment agreements unless the training is voluntary and not specific to the employer.
– Illinois: Has taken enforcement actions under consumer‑protection theories against employers using aggressive repayment provisions.
– Washington State: Has proposed legislation similar to California’s approach.
– Federal Activity: The Consumer Financial Protection Bureau (CFPB) and the FTC have both signaled that TRAPs may constitute unfair or deceptive practices, and federal rulemaking is possible.
The trend is clear: states and federal agencies are increasingly skeptical of any agreement that penalizes employees for leaving a job, especially when the “training” primarily benefits the employer.
What Should Employers Do Now?
With states moving quickly to curb stay‑or‑pay agreements, and federal agencies signaling similar scrutiny, employers should take this moment to audit any existing repayment provisions, including agreements, repayment clauses, and promissory‑note‑style documents. Multi‑state employers, in particular, should avoid one‑size‑fits‑all templates and instead ensure their agreements comply with the most restrictive jurisdictions in which they operate. It’s also wise to shift the focus toward retention strategies that don’t rely on financial penalties, such as career‑pathing, competitive compensation, and meaningful development opportunities. The legal trend is clear: agreements that function as a barrier to employee mobility are becoming riskier, costlier, and increasingly unenforceable. Thoughtful compliance now can prevent expensive disputes later.
