On December 19, 2025, New York Governor Kathy Hochul signed into law the “Trapped at Work Act” (the “Act”) (N.Y. Lab. Law §§ 1050–55) to prohibit certain types of so-called “stay-or-pay” agreements that require an employee to repay an employer for certain expenses or compensation if the employee terminates employment within a certain period of time after their start date. These obligations often include repayment for expenses such as training, education, quit fees, damages clauses, sign-on-bonuses, and other types of cash payments tied to a mandatory stay period. The Act, which took effect on December 19, 2025, is similar to a new California law that took effect on January 1, 2026.
The New York Act and the new California statute follow on the heels of the National Labor Relations Board’s (“NLRB”) February 2025 recission of a 2024 NLRB General Counsel memorandum, which proposed that the NLRB adopt a framework to presume that any stay-or-pay provision is unlawful even if entered into voluntarily. The NLRB’s recission of this memo paved the way for New York and California (and potentially other states) to regulate stay-or-pay agreements at the state level.
“Employment Promissory Notes” Prohibited
The New York Act prohibits employers from requiring that any “worker” enter into an “employment promissory note” as a condition of employment. An “employment promissory note” is “any instrument, agreement, or contract provision that requires a worker to pay the employer, or the employer’s agent or assignee, a sum of money if the worker leaves such employment before the passage of a stated period of time.” Employment promissory notes also include any “instrument, agreement, or contract provision which states such payment of moneys constitutes reimbursement for training provided to the worker by the employer or by a third party.” Notably, the Act defines “worker” expansively to include employees, independent contractors, externs, interns, volunteers, apprentices, sole proprietors, and individuals who provide services through a business or nonprofit entity or association.
Any such contracts are unconscionable and against public policy, and are null and void, although impermissible employment promissory note terms included within a larger agreement would not invalidate other provisions of the agreement. An employer that enters into or tries to enter into an employment promissory note may be fined up to $5,000 per violation. And, if an employer sues an “employee” (as opposed to a “worker”) to enforce a null and void employment promissory note, the employee can recover attorneys’ fees if the employee prevails. The Act only prohibits the execution of employment promissory notes after the effective date of December 19, 2025, but it is not clear whether the potential penalties and awards of attorneys’ fees would apply to disputes involving agreements entered prior. We expect that any attempt to apply the Act retroactively would be challenged in court.
Certain Stay-or-Pay Terms Still Permitted
The Act carves out certain types of provisions from its prohibition on stay-or-pay terms. These carveouts include provisions that:
- require workers to repay to an employer any sums advanced to such worker by the employer, unless the sums were used to pay for training related to the worker’s employment with the employer;
- require workers to pay an employer for any property it has sold or leased to the worker;
- require educational personnel to comply with terms or conditions of sabbatical leaves granted by their employers; or
- are part of a program agreed to by the employer and its workers’ collective bargaining representative.
Note that while the statute is not entirely clear, it is likely that certain common reimbursement arrangements, such as for sign-on bonuses or relocation expense advances, would be covered by the first carveout above so long as the funds are not related to training.
Proposed Amendments
On January 6, 2026, New York Assemblymember Phil Steck introduced Bill A09452, which proposes several amendments to the Act. The amendment, if passed, would delay the effective date of the law until December 19, 2026, and restrict application of the Act to employees. The amendment would also clarify certain carveouts, including:
- Agreements/terms for reimbursement of tuition, fees, and required educational materials for a “transferable credential” would have to (i) be in writing and separate from any contract of employment, (ii) not require the employee to obtain the credential, (iii) specify the repayment amount, which does not exceed the cost to the employer, (iv) provide for prorated repayment proportional to the length of required employment and does not accelerate repayment on separation, and (v) not require repayment on a termination of employment by the employer, unless the termination is for misconduct.
- For provisions requiring repayment for property sold or leased to an employee, the sale or lease must have been voluntary.
The amendment also adds a carveout for 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. Finally, the amendment would give the New York State Commissioner of Labor discretion in awarding penalties for violations to consider the size of the employer’s business, the good faith basis for why the business thought it was in compliance with the Act, the gravity of the violation, and history of violations.
Looking Ahead in New York and California
New York employers should keep an eye on the proposed amendment. But in the meantime, because the Act is currently in effect, New York employers should take stock of their template offer letters and employment agreements and consult with counsel on how to revise these agreements to comply with these new updates.
Also, as further detailed in our California Update: New Employment Laws and Compliance Obligations for 2026, beginning January 1, 2026, employers in California are prohibited from either including in an employment contract or requiring a worker to execute as a condition of employment or work relationship, the following types of contract terms that: (1) require a worker to pay an employer, training provider, or debt collector for a debt if the employment or other work relationship terminates; (2) authorize the employer, training provider, or debt collector to resume or initiate collection or end forbearance on a debt if the relationship terminates; or (3) impose any penalty, fee, or cost on a worker if the relationship terminates.