A bill recently signed into law by New York Governor Hochul and now in effect prohibits certain "stay or pay" agreements that require employees to repay their employer for training costs if the employee resigns before a specified period. The new law states that 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."
Significantly, the law (as written) does not provide employees with an express private right to file lawsuits, but employees may recover attorneys' fees if they are sued by their employer to enforce an unlawful repayment agreement. Moreover, the New York State Department of Labor can impose civil penalties ranging from $1,000 to $5,000 per violation.
The law provides for certain exceptions, so employers can still require repayment of sign-on bonuses, retention bonuses, or similar non-training payments. However, there are some ambiguities, for example, where training costs might also be characterized as tuition assistance programs. The Governor has reportedly reached an agreement with the Legislature to resolve some of these ambiguities in the next legislative session. In the interim, requiring departing employees to pay for their training costs is potentially illegal.
The Bottom Line
Accordingly, New York employers should review and, where necessary, revise offer letters, employment agreements, or any other agreements between the employer and employees that may include repayment terms. We note that the statute's language does not expressly grandfather existing agreements so employers would be prudent to assume that the new law might apply retroactively until the courts make a determination.
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