New York now restricts training repayment and other stay-or-pay clauses. Who is covered, what is still allowed, penalties, and what to fix in your agreements.

The story that started this law is a small one. A worker at a lash salon was earning $14 an hour. As a condition of the job, she had to sign a contract promising to stay for a year or be sued for $5,000 in “training reimbursement.” “According to Assemblymember Phil Steck, who sponsored the bill, the training “simply consisted of another employee demonstrating how to apply lashes on a customer.” She left anyway and was sued. (Assemblymember Phil Steck, May 24, 2023.)

Assemblymember Steck said it was this constituent’s case that first brought the issue to his attention, and it became part of the push for New York’s Trapped at Work Act. The law restricts what are often called “stay-or-pay” agreements: contract terms that require an employee to pay the employer back if the employee leaves before a set period. Most employers who use these terms are not running anything like that salon. They are trying to protect a real investment in a sign-on bonus, a relocation package, or a training program. But the law applies to them all the same, and it was rewritten this year in ways every New York employer should understand.

Below we cover how the law came about, when it takes effect, what it prohibits, the exceptions that survived, how it is enforced, the questions it leaves open, and what we recommend doing before the end of the year.

1. How We Got Here

The original bill, Senate Bill S4070-B (Assembly companion A584-C), was sponsored by Senator Rachel May and Assemblymember Phil Steck. Earlier versions had been introduced in the 2023-2024 session. It added a new Article 37 to the Labor Law, Sections 1050 through 1055, and as passed it took effect immediately. Governor Hochul signed it on December 19, 2025.

The Legislature’s concern was the low-wage worker who signs a repayment agreement as part of a stack of hiring paperwork, without a lawyer, and later finds that leaving a bad job means being sued to ‘repay’ the cost of on-the-job training that, in many cases, barely existed (A584-C sponsor memo). New York was not the first to notice the problem. In 2023, the Consumer Financial Protection Bureau cautioned that training repayment provisions can operate much like non-compete agreements, keeping employees in place not with a restrictive covenant but with the threat of a bill (CFPB, July 20, 2023). For employers, the point is that legislators see these agreements as a restraint on mobility, not just a reimbursement mechanism, and that view shapes how the statute is written and how it is likely to be enforced.

When the Governor signed the original law, it was with the understanding that the Legislature would clean up several ambiguities in the next session. That chapter amendment, Assembly Bill A9452 (Senate version S8822), was signed on February 13, 2026. It rewrote the definitions, narrowed the exceptions and added a new one for bonuses and relocation, added penalty factors, and changed the effective date. The rest of this article describes the law as amended.

2. When Does the Law Take Effect?

The amendment says the law takes effect “one year after it shall have become a law,” and that phrase can be read two ways:

• December 19, 2026: one year from when the original law was signed (December 19, 2025).
• February 13, 2027: one year from when the amendment was signed (February 13, 2026).

My research on the issue is divided, and as of this writing the Department of Labor has not resolved the question or issued regulations, although the statute authorizes the Commissioner to do so (S4070-B, § 1054).

In our view, the better reading of the amendment points to December 19, 2026. Section 4 changes the effective-date clause of the original 2025 law, and Section 5 ties the amended provisions to that same date (A9452, §§ 4-5). Either way, we advise employers to have compliant agreements in place by December 19. An employer that plans for the earlier date loses nothing if the later date turns out to be correct, while an employer that plans for February and guesses wrong will have spent two months using agreements the law already prohibits.

3. Does this apply to my business?

Almost certainly, if you have employees in New York. As amended, the law defines “employer” broadly (A9452, § 1):

• Any business structure. Individuals, corporations, LLCs and associations are all included.
• Any industry. It covers employers “in any occupation, industry, trade, business or service.”
• Any size. There is no minimum number of employees, so a business with one employee is covered just like a large company.
• Public employers too. The definition expressly includes “the state and its political subdivisions.”

4. Who is Protected?

The amendment narrowed who the law protects (A9452, § 1).

• Employees are covered. The law now applies to “employees,” meaning “any person employed for hire by an employer in any employment.”
• Job applicants are covered. You can’t require a prospective employee to sign a repayment agreement as a condition of being hired.
• Independent contractors, interns, externs and volunteers no longer appear to be covered. The original law protected a broader group of “workers” that expressly included them (S4070-B, § 1050). The amendment deleted that definition.

5. What the Law Prohibits

The basic rule:

You can’t make someone sign a repayment agreement as a condition of getting or keeping a job with you (A9452, § 2).

The law calls these agreements “employment promissory notes.” In plain terms, that means any agreement that makes an employee pay you money if they leave before a set amount of time (A9452, § 1).

What employers often miss:

• It’s not just about training. The original law focused on training costs. The amended law covers any “pay us back if you leave early” arrangement, whatever the money was for, unless one of the exceptions below applies.
• It doesn’t matter how the job ends. The rule applies whether the employee quits, is laid off or is fired.
• One sentence is enough. It doesn’t have to be a separate contract. A single clause in an offer letter, bonus letter or handbook acknowledgment can qualify.

What happens if you use one anyway:

The repayment clause is void, meaning you can’t enforce it. The law calls these clauses “unconscionable, against public policy, and unenforceable.” The rest of the document still stands, so your offer letter or employment agreement doesn’t fall apart, but the repayment term is gone (A9452, § 2). As explained below, you can also face fines.

6. What Is Still Allowed

The law carves out five types of agreements you can still use (A9452, § 2). Each comes with conditions. An agreement that misses any of them falls back under the general rule.

Tuition and education costs for a “transferable credential”

You can require an employee to repay the cost of tuition, fees and required educational materials, and nothing else, for a “transferable credential.” That means a degree, diploma, license, certificate, or other documented proof of a skill or completed course that is widely recognized by employers in your industry. It also covers anything that clearly makes the employee more employable with other employers in your industry (A9452, § 1).

Two kinds of training never qualify, even if you paid for them. The first is training specific to your company: your own processes, systems, internal policies, software or equipment. It also includes training that only teaches your version of methods already common in the trade, without qualifying the employee for a new job title, classification or recognized credential. The second is training the law requires, such as OSHA certifications, sexual harassment prevention or diversity training.

Even when the credential qualifies, the repayment agreement must meet all five of these conditions:

1. It is a separate written contract, not a clause in the offer letter or employment agreement.
2. Getting the credential is optional, not a condition of the job.
3. The repayment amount is stated before the employee signs, and it can’t exceed what you actually paid.
4. Repayment is prorated over the required period of employment, and the full balance can’t come due all at once when the employee leaves.
5. The employee owes nothing if you terminate them, unless the termination was for misconduct.

Sign-on bonuses, relocation assistance and other incentives

This exception is new, and it’s the one most employers will rely on. You can require an employee to repay a financial bonus, relocation assistance, or any other non-educational incentive, payment or benefit, as long as it isn’t tied to specific job performance (A9452, § 2). A bonus paid simply for joining and staying is what this exception is designed for. A bonus earned by hitting sales, production or other performance targets likely is not.

The exception has two important limits. First, if you terminate the employee for any reason other than misconduct, you can’t require repayment. That includes layoffs, restructuring, a poor fit, and performance-based terminations. Second, if the duties or requirements of the job were misrepresented to the employee, you can’t enforce repayment, even if the employee quit.

Here’s how that plays out:

One drafting point deserves attention. Many existing clawback provisions are triggered by a termination “for cause.” The law uses a different word, “misconduct,” and doesn’t define it. Because “cause” is often broader than misconduct, a clause built around “cause” may not line up with the statute. If your agreements say “cause,” have them reviewed.

Property sold or leased to the employee

You can still require an employee to pay for property you sold or leased to them, such as a vehicle or equipment, as long as the employee chose to buy or lease it voluntarily.

Sabbatical agreements in education

Agreements requiring educational personnel to follow the terms of a sabbatical leave their employer granted are not affected.

Union agreements

Repayment terms that are part of a program agreed to with your employees’ union through collective bargaining are not affected.

7.  Enforcement and Penalties

Who enforces the law? The New York State Department of Labor. The statute gives employees and job applicants one route: filing a complaint with the Commissioner of Labor (A9452, § 3). It does not create a separate right for employees to sue you for damages under this law. In practice, that means most enforcement will begin with a complaint, followed by a Department of Labor inquiry.

What are the penalties? If the Commissioner finds a violation, the employer must be fined between $1,000 and $5,000 per violation. The Commissioner sets the amount based on four factors:

• the size of your business
• whether you had a good-faith basis to believe you were complying
• how serious the violation was
• your history of prior violations

Why the fines add up quickly. Penalties are counted per person. Each employee or job applicant you required to sign a prohibited agreement is a separate violation, and so is each person you try to enforce one against. For a business that has used the same offer letter template for every hire, one bad clause can mean as many violations as there are hires. Trying to collect from a former employee on a prohibited agreement can create exposure of its own.

The risk of suing to collect. If you sue an employee to enforce an agreement the law has voided, and the employee wins, you pay their attorney’s fees (S4070-B, § 1053(1)). This provision comes from the original law and was left untouched by the amendment. Before anyone at your company sends a repayment demand to a current or former employee, have the agreement reviewed. A demand on a void agreement can recover nothing, may count as a violation, and can end with you covering the other side’s legal bills.

Other claims still apply. The law expressly preserves every other right and remedy available under New York statutes and common law (S4070-B, § 1051). An employee who can’t sue under this Act may still have claims under other laws, depending on the facts.

8. Questions the Law Leaves Open

The statute answers the big questions, but it leaves several gaps that matter for day-to-day decisions. Until the Department of Labor issues regulations or guidance, employers should treat these as areas of risk.

Agreements you already have. The amended law doesn’t say whether it reaches agreements signed before it takes effect. Two details suggest it may. The amendment deleted the phrase “Beginning on the effective date of this article” from the core prohibition (A9452, § 2). And the legislators who sponsored the original bill described it as making existing notes unenforceable (A584-C sponsor memo). Our advice is not to count on older agreements being grandfathered. If a repayment clause signed years ago doesn’t fit one of the exceptions, assume you may not be able to enforce it once the law takes effect.

What counts as “misconduct.” This one word decides whether you can recover tuition or a sign-on bonus from someone you terminate, yet the statute never defines it. It’s not clear whether it means serious wrongdoing, a policy violation, or something closer to the “cause” standard many agreements already use. Until there’s guidance, document the reasons for every termination carefully, especially when repayment is on the line.

Bonuses that mix service and performance. The bonus exception covers only payments “not tied to specific job performance,” and the statute doesn’t explain where that line falls. A pure sign-on bonus is clearly on the safe side, and a sales commission clearly isn’t. A retention bonus that also carries a modest performance condition sits somewhere in between, and those arrangements deserve a closer look.

How proration works in practice. Tuition repayment must be prorated, but the law doesn’t say whether you calculate it monthly, quarterly or some other way, or how soon after the employee leaves the balance can be collected. A schedule that tracks the length of the required service period, with no lump sum at departure, is the most defensible approach for now.

Equity awards and benefit plans. The law doesn’t address stock options, restricted stock or other equity that an employee forfeits by leaving early, so it’s unclear how it applies to them. Separately, some employer training and education programs are structured as benefit plans governed by ERISA, the federal benefits law, which can override certain state laws. Whether ERISA would shield any of those programs from New York’s rule is an open question. If your retention strategy relies on equity or a formal benefit plan, have it reviewed with this law in mind.

9. What We Recommend Doing Now

For most businesses, compliance comes down to a careful review of paperwork and a few drafting changes. Here is where we would start:

1. Pull every document that requires repayment if employment ends early, including offer letters, employment agreements, bonus and commission plans, relocation letters, training agreements, tuition reimbursement policies, promissory notes, and templates used by managers or recruiters.
2. Talk to counsel before demanding repayment from a current or former employee.

• If you have employees in California, review agreements under both states’ rules.

1. Watch for Department of Labor regulations or guidance, particularly on the effective date and undefined terms.

10. Retention Strategies That Still Work

Wanting to protect your investment in good employees is perfectly reasonable. The law doesn’t stop you from rewarding people who stay. It stops you from penalizing people who leave. That distinction points to the simplest fix: pay on the back end instead of clawing back on the front end.

A retention bonus paid after an employee completes a set period of service, say 12 or 18 months, gives the same incentive to stay as a sign-on bonus with a clawback, but there is never anything to repay. The same logic applies to bonuses paid in installments over time, or deferred compensation that is earned gradually as the employee continues working. Each of these rewards staying without creating a debt for leaving.

Equity that vests over time can serve a similar purpose. Because the law doesn’t directly address equity an employee forfeits by leaving early, those arrangements should be reviewed before you rely on them. Deferred compensation also needs care, since it is subject to federal tax rules that can be costly if the plan isn’t structured correctly.

If you’re redesigning your retention approach, we recommend reviewing it alongside your existing agreements, so the new structure and the old paperwork both line up with the law.

11. How We Can Help

We help New York employers draft and update offer letters, employment agreements, and bonus and incentive plans so they hold up under the state’s changing rules. If you would like us to review your agreements before the Trapped at Work Act takes effect, call us at 1-(917) 410-0817.

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 Sources

 Primary sources

• Y. Assembly Bill A9452 (2026 amendment to the Trapped at Work Act)
• Y. Senate Bill S4070-B (original Trapped at Work Act), with sponsor memo
• Y. Assembly Bill A584-C, sponsor memorandum
• Assemblymember Phil Steck, press release (May 24, 2023)
• Consumer Financial Protection Bureau, press release on employer-driven debt (July 20, 2023, archived)
• California Assembly Bill 692 (Chapter 703, Statutes of 2025)

Further Reading

• Wilentz, Goldman & Spitzer (via Mondaq), Aug. 11, 2026
• Ogletree Deakins, Mar. 6, 2026
• Sullivan & Cromwell, Feb. 20, 2026
• Reed Smith, Sept. 2, 2026
• DLA Piper, Sept. 29, 2026

DISCLAIMER: This blog post is for informational purposes only and does not constitute legal advice. The information provided is general in nature and may not apply to your specific situation. Firearm regulations, administrative rulemaking, ethics obligations, and compliance requirements can be complex and subject to change. Nothing in this article creates an attorney-client relationship, and you should not rely on this information as a substitute for professional legal counsel.