New York Bans 'Stay-or-Pay' Clauses
New York State has passed the "Trapped At Work Act," which bans certain stay-or-pay contract provisions that penalize employees for leaving a job before a specified term. The law impacts companies that use training repayment agreements and other creative retention mechanisms, raising the bar for legal defensibility in compensation packages.
- The effective date of the "Trapped at Work Act" has been postponed to December 19, 2026, giving employers more time to ensure their contracts are compliant. - An amendment signed by Governor Kathy Hochul on February 13, 2026, clarified that the ban does not apply to all repayment agreements. Specifically, companies can still require repayment for signing bonuses, relocation assistance, and other non-educational, non-performance-based incentives. - The law now narrowly applies to "employees" rather than the broader category of "workers," a change that excludes independent contractors, interns, and volunteers from this specific protection. - For tuition reimbursement to be reclaimable, it must be for a "transferable credential," detailed in a separate written agreement, not be a condition of employment, and have a prorated repayment schedule. Repayment is not required if the employee is terminated for reasons other than misconduct. - The original version of the act took effect immediately upon its signing on December 19, 2025, but was quickly amended to address ambiguities that raised concerns for Governor Hochul and the business community. - Employers who violate the act can face civil penalties of up to $5,000 per violation. - This legislative action in New York mirrors a growing trend of scrutiny on training repayment agreements at both the state and federal levels, with states like California and Colorado enacting similar restrictions.
