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New York State lawmakers recently passed a bill to prohibit employers from requiring workers to repay certain costs if they leave their jobs. The bill has not been signed or vetoed by Governor Kathy Hochul yet.
Quick Hits
- On June 12, 2025, the New York Legislature passed the "Trapped at Work Act" to nullify promissory notes that require employees to repay employers for certain costs if they leave their jobs within a set time period.
- The bill has not been sent to Governor Kathy Hochul yet.
If enacted, Assembly Bill A584C, known as the "Trapped at Work Act," would generally prohibit promissory notes, which, as a condition of employment, require the repayment of the cost of training related to jobs.
"The execution of an employment promissory note as a condition of employment is unconscionable, against public policy, and unenforceable, and any such note shall be null and void," the bill states. While explicitly directed towards repayment of training costs, the prohibition could encompass many other types of employee repayment obligations.The bill permits promissory notes for sums advanced to workers for reasons other than training expenses, repayment for any property an employer has sold or leased to a worker, requirements for education professionals to comply with terms or conditions for sabbatical leaves, or terms agreed to by an employer and a union.
As the bill allows promissory notes for sums advanced to workers that are not used for training, promissory notes or other agreements to repay sign-on or similar bonuses would be permissible. Employers might consider updating agreements with repayment obligations to clarify that retention bonuses or other amounts are advances. A significant potential issue not addressed in the legislation is how to distinguish between training and education expenses, where the education is so closely aligned with the employment duties that it arguably could be considered training.
Employers should revisit their tuition assistance programs and related agreements, including those under Internal Revenue Code sections 127 and 132, to ensure compliance with the bill, if enacted.
The bill applies to employees, independent contractors, interns, volunteers, and apprentices. If a "stay or pay" clause is rendered void, the remaining portions of the broader contract would not be affected.
The bill does not grant a private right of action, but employees could recover attorney's fees in cases in which they were sued by an employer to enforce an unlawful agreement. The New York State Department of Labor would be permitted to level civil penalties ranging from $1,000 to $5,000 per violation.
Broader Trends
The New York bill is part of a larger trend by states, including California, Colorado, and Nevada, to limit the use of so-called "stay-or-pay" contracts, which some critics have argued limit employees' mobility.
To avoid violating these types of laws, employers might consider shifting from "stay-or-pay" compensation structures to compensation subject to deferred vesting or earned over time.In doing so, it is important to ensure the arrangements comply with the nonqualified deferred compensation requirements of Internal Revenue Code section 409A, 457(f) (applicable to tax-exempt employers), and 457A (applicable to certain foreign corporations and partnerships), as applicable, which impose additional income taxes and penalties on noncompliant deferred compensation.
Next Steps
In the event the bill is enacted, employers may wish to review and update any offer letters, sign-on bonuses, training agreements, and onboarding documents that include repayment agreements. Employers will likely want to carefully evaluate reimbursement requirements for educational programs to distinguish general education from job-specific training. Employers may also need to rely on other strategies, such as offering other employee benefits and career advancement opportunities, to recruit and retain workers.
This article was co-authored by Leah J. Shepherd, who is a writer in Ogletree Deakins' Washington, D.C., office.
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