Late last year, New York enacted the Trapped at Work Act (“Act”), which broadly prohibited the use of so-called “stay or pay” agreements, with limited exceptions. Following California’s lead, the Act generally voided employment agreements that require workers to reimburse employers for training if they leave employment before a stated period of time.
Governor Hochul signed the Act into law on December 19, 2025, but negotiated a chapter amendment with the legislature to make certain changes to the law in the upcoming legislative session. The legislature then passed those amendments, and Governor Hochul signed the Chapter Amendment (“Amended Act”) on February 13, 2026. The Amended Act is the operative law.
Below, we discuss what the Amended Act prohibits, what it permits, how it will be enforced, when it goes into effect, and what employers can do to prepare.
What Does the Amended Act Prohibit?
The Amended Act prohibits employers from requiring employees or prospective employees to execute an “employment promissory note,” which is an agreement that requires the employee to pay the employer a sum of money if the employee’s employment relationship terminates before a stated period of time. The Amended Act explains that “…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.” However, if such note is part of a larger agreement, the invalidity does not affect the other provisions of the agreement.
Unlike the Act, which applied broadly to “workers,” such as independent contractors, interns and volunteers, the Amended Act applies more narrowly to “employees,” as that term is defined in the New York Labor Law.
What Agreements are Permitted?
The Amended Act explicitly permits five types of common employment agreements, described below.
Agreements to Repay Educational Expenses
The Amended Act permits agreements allowing employers to recover money toward tuition, fees, and required educational materials for a “transferable credential” (e.g., degree, license, certificate), provided the agreement satisfies five conditions:
(i) The agreement is set forth in a written contract that is offered separately from any contract for employment.
(ii) The agreement does not require the employee to obtain the transferable credential as a condition of employment.
(iii) The agreement specifies the repayment amount before the employee agrees to the contract, and the repayment amount does not exceed the cost to the employer of the tuition, fees, and required educational materials for the transferable credential received by the employee.
(iv) The agreement provides for a prorated repayment amount during any required employment period 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 the employment.
(v) The agreement does not require repayment to the employer by the employee if the employee is terminated, except if the employee is terminated for misconduct.
Agreements Regarding a Financial Bonus, Relocation Assistance, Or Other Payment Not Tied to Performance
The Amended Act permits agreements that require the employee to “repay a financial bonus, relocation assistance, or other non-educational incentive or other payment or benefit that is not tied to specific job performance, unless the employee was terminated for any reason other than misconduct or the duties or requirements of the job were misrepresented to the employee.”
Importantly, the terms “misconduct” and “misrepresented” are not defined, and likely will require judicial interpretation or regulatory guidance for additional clarity.
Property Voluntary Sold or Leased
Agreements requiring the employee to pay the employer for any property the employer has sold or leased to the employee are permissible provided such sale or lease was voluntary.
Sabbatical Leaves
Any agreement that requires educational personnel to comply with the terms or conditions of sabbatical leaves granted by their employer is permissible.
Collective Bargaining Agreements (“CBAs”)
Agreements entered into by a collective bargaining representative are expressly excluded. Therefore, both existing and prospective CBAs that address employee repayment obligations are not void under the Amended Act.
How Will the Amended Act Be Enforced?
Employees and prospective employees may file a complaint with the New York State Department of Labor (“NYSDOL”), which can issue civil penalties ranging from $1,000 to $5,000 per violation. In assessing penalties, the NYSDOL must consider the (1) size of the employer’s business, (2) good faith basis of the employer to believe that its conduct complied with the law, (3) gravity of the violation, and (4) history of previous violations.
There is no private right of action under the statute, meaning that employees may not sue in court for an alleged violation.
When Does the Amended Act Take Effect?
The Amended Act takes effect February 13, 2027. The operative provisions of the Act — which were previously in effect as of December 19, 2025 — are no longer effective.
The Amended Act states that it “takes effect one year after it shall have become a law.” There was some ambiguity about whether the law takes effect on December 19, 2026, one year after the Act was signed, or February 13, 2027, one year after the Amended Act was signed. However, the bill sponsor confirmed that the Amended Act takes effect on February 13, 2027 (the “Effective Date”).
What Employers Can Do to Prepare
The good news is that employers have time — the statute does not go into effect for nearly a year.
Nonetheless, employers should proactively address issues now to avoid potentially significant fines after the Effective Date. First, employers should identify the universe of existing agreements/offer letters/policies that may be covered by the Amended Act if they will still be in effect on or after the Effective Date. The Amended Act does not explicitly address whether agreements/offer letters/policies signed before the Effective Date which have repayment obligations after the Effective Date are covered. Therefore, for the time being, employers should assume that these documents must be compliant with the Amended Act and consider either amending or sunsetting non-compliant provisions that extend on or after the Effective Date.
In addition, employers should review existing template agreements/offer letters/policies and revise as necessary for repayment obligations to comply with the Amended Act. Any agreement signed on or after the Effective Date, certainly will have to comply with the Amended Act.
Finally, employers should monitor whether the NYSDOL issues rules and regulations under the Amended Act. Any rules or regulations may clarify ambiguities about undefined terms and enforcement, including the application of the Amended Act to repayment obligations agreed to prior to the Effective Date. Unfortunately, any rules or regulations are not likely to be issued until the Effective Date nears.
