New California And New York Laws Target "Stay-or-Pay" Arrangements

California and New York recently enacted statutory restrictions aimed at "stay-or-pay" arrangements: California AB 692 (Cal. Bus. & Prof. Code § 16608 & Cal. Lab. Code § 926) and the New York Trapped at Work Act (N.Y. Lab. Law art. 37, §§ 1050-1055), respectively. Such arrangements are contractual provisions that, while falling short of a non-competition agreement, make it costly for a worker to leave the company, often by requiring repayment of training costs, financial incentives, or other sums upon separation.

Together, these laws signal a shift in worker-mobility policy, with state legislatures now focusing on limitations that go beyond restrictive covenants.

Scope

California's statute applies to contracts entered into on or after January 1, 2026. It broadly reaches terms in an "employment contract" or any agreement required as a condition of employment or other work relationship and that require a worker to pay a "debt" upon termination of employment, allow collection to begin or resume upon termination of employment (or end a forbearance), or impose any "penalty, fee, or cost" if the relationship ends. The definition of "penalty, fee, or cost" is expansive, and includes, among other things, various "quit fees," replacement-hiring or retraining costs, immigration-related reimbursement, and other amounts representing company losses.

New York's statute is more narrow. It prohibits employers from requiring, as a condition of employment, that a worker or prospective worker sign an instrument requiring payment if the worker leaves before a specified time, including where payment is characterized as reimbursement for employer- or third-party-provided training.

Who Is Covered?

Both statutes are broad in their coverage. California's statute applies to "workers," expressly including employees and prospective employees, and defines "employer" to include a range of affiliated or related entities and agents.

New York's statute broadly covers "workers," which it defines to include employees, independent contractors, interns, apprentices, volunteers, sole proprietors providing services, and individuals providing services through an entity (with a carve-out for vendors of goods). It also covers affiliated entities that provide training.

Key Exceptions

California's statute includes several detailed carve-outs, including:

• Certain government loan repayment/forgiveness programs;
• Specified tuition repayment arrangements for a "transferable credential" that meet multiple conditions (including advance disclosure, proration, and limits on triggering events);
• Approved apprenticeship program agreements; and
• Certain repayment arrangements tied to discretionary up-front payments that satisfy structured requirements (including a separate agreement, a five-business-day review period, proration without interest, and a retention period cap).

New York's statute expressly excludes agreements requiring repayment of sums advanced to the worker, unless used to pay for employment-related training, agreements requiring payment for property sold or leased to the worker, certain sabbatical arrangements for educational personnel, and programs agreed to with a union representative.

Enforcement and Remedies

California provides an express private right of action, including actual damages or $5,000 per worker (whichever is greater), injunctive relief, and attorneys' fees and costs.

New York primarily relies upon administrative enforcement, authorizing the Commissioner of Labor to assess civil penalties of $1,000 to $5,000 per violation (per affected worker), and it also allows for attorney fee recovery for a "worker or prospective worker" who successfully defends an employer's lawsuit seeking to enforce a void promissory note.

A Trend Towards Mobility-First Policies

These "stay-or-pay" laws fit within a broader trend of restraints on worker mobility drawing scrutiny. Legislatures and courts in states around the country have continued to impose limits, and while the Federal Trade Commission ("FTC") has abandoned its prior rule banning non-compete agreements, it has signaled that it may take action through case-by-case enforcement (as we discussed here). It's worth noting, though, that many so-called "stay-or-pay" arrangements are grounded in business concerns, such as when an employer invests in training a worker, and then that worker leaves when the training concludes to perform the same work at a competitor.

Next Steps

With an eye towards conforming to and complying with California and New York's new limitations on stay-or-pay arrangements, affected employers should consider closely reviewing: arrangements with candidates and new hires that impose separation-triggered repayment or financial consequences, including training repayment agreements, tuition-assistance clawbacks, sign-on/retention bonus repayment provisions, relocation repayment, liquidated damages clauses attendant to employee mobility, and collection/forbearance terms tied to termination.

New California and New York Laws Target "Stay-or-Pay" Arrangements

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