Quick Hits
- New York’s Trapped at Work Act restricts the use of “stay or pay” agreements, which, as a condition of employment, require employees to reimburse an employer for certain expenses or costs if the employment relationship ends before a specified date.
- Repayment agreements that are not a condition of employment are permissible.
- The New York Department of Labor may issue fines ranging from $1,000 to $5,000 for violations of the Trapped at Work Act. There is no private right of action under this law.
- The law will take effect on December 19, 2026.
The NYSDOL’s recently released guidance clarifies the following key issues:
- Existing agreements are not covered: The law applies only “to new agreements, or new or amended terms in existing agreements, entered into on or after December 19, 2026.” Thus, if an agreement is entered into before December 19, 2026, even if the repayment obligation arises after December 19, the agreement is exempt from the law (assuming the agreement is not modified after December 19.)
- Only agreements that are a condition of employment are banned: The law applies only to agreements that require, as a condition of employment, that an employee or applicant pay the employer back if the employment relationship ends before a specific time period. Significantly, this means voluntary agreements and agreements that are not entered into as a condition of employment are not covered by the law.
- Bonus, relocation and other payments not tied to job performance are permissible: Agreements to repay a sign-on bonus, relocation assistance, or other noneducational incentives, payments, or benefits that are not tied to specific job performance are allowed, unless the employee was dismissed for “other than misconduct or the duties or requirements of the job were misrepresented to the employee.” As long as the job was accurately described to the employee, the employer may still require repayment where an employee voluntarily departs or when termination is for misconduct.
- Education and credentialing costs may be recoverable: Agreements to reimburse the employer for the cost of general education or transferable credentials are permissible as long as:
- the agreement is set forth in a written contract that is offered separately from any contract for employment;
- the agreement does not require the employee to obtain the transferable credential as a condition of employment;
- the agreement specifies the repayment amount before the employee agrees to the contract, and the repayment amount does not exceed the employer’s cost for tuition, fees, and educational materials;
- the agreement provides for a prorated repayment amount 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 employee separates from employment; and
- the agreement does not require repayment to the employer if the employee is fired, except when the employee is fired for misconduct.
The guidance defines “transferable credentials” as “any degree, diploma, license, certificate, or documented evidence of skill proficiency or course completion” that employers widely recognize in a relevant industry and that “provides skills or qualifications that demonstrably enhance the employee’s employability with other employers in the relevant industry.” Employer-specific training and mandated safety and compliance training do not qualify as transferable credentials.
- Collective bargaining agreements and sabbaticals:Agreements entered into as part of a program agreed to by an employer and a union in a collective bargaining agreement are permissible, as are agreements requiring educational personnel to comply with any terms or conditions of sabbatical leave granted by their employer.
Next Steps
Employers in New York may wish to review their policies and practices regarding “stay or pay” agreements and update them as needed to comply with the new law before December 19, 2026. Employers also may want to consider reviewing and updating job advertisements and job descriptions to help ensure that jobs are accurately described to applicants and employees.
Ogletree Deakins’ New York offices will continue to monitor developments and will post updates on the Employee Benefits and Executive Compensation and New York blogs as additional information becomes available.
Joseph B. Cartafalsa is a shareholder in Ogletree Deakins’ New York office.
Michael K. Mahoney is a shareholder in Ogletree Deakins’ Morristown office.
This article was co-authored by Leah J. Shepherd, who is a writer in Ogletree Deakins’ Washington, D.C., office.
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