New York Trapped at Work Act Amendment Gives Employers Relief and Provides Clarity on Permissible ‘Stay-or-Pay' Agreements

Key Takeaways

• Gov. Kathy Hochul signed a chapter amendment to the New York Trapped at Work Act, a law prohibiting certain agreements that require workers to reimburse employers for payments if they leave before a set period of time. 
• The amendment pushes back the Trapped at Work Act's effective date to Dec. 19, 2026, giving employers time to review and revise their employee repayment agreements. 
• The amendment clarifies that common repayment agreements used for sign-on bonuses and relocation allowances are permissible, and it also allows voluntary tuition repayment agreements that relate to “transferable” educational credentials, subject to specific conditions.

As detailed in our prior alert, on Dec. 19, 2025, New York enacted the Trapped at Work Act (the Act), which bans “employment promissory notes” – agreements or contract provisions obligating workers to repay employers if they depart before a specified period – as a condition of employment. Almost immediately thereafter, on Jan. 6, the New York Legislature proposed a chapter amendment that would change the Act's effective date and expand and further clarify certain exemptions. On Feb. 13, Hochul signed the chapter amendment (the Amendment), giving employers some much-needed relief from the original Act's onerous provisions.

Effective Date and Scope of the Act

The Amendment pushes back the Act's effective date to Dec. 19, 2026.

The Amendment also significantly narrows the Act's scope. While it previously applied to all “workers,” the Act now applies only to “employees,” which is defined as “any person employed for hire by an employer in any employment.” The term “employer” has also been narrowed to mean any “person, corporation, limited liability company, or association employing any individual” – and subsidiaries of such employers are no longer covered by the Act.

What Is Permitted

In another welcome change, the Amendment clarifies and expands the scope of permissible promissory agreements. While promissory notes that are a condition of employment are still broadly “unconscionable, against public policy, and unenforceable,” the Amendment states that the following types of agreements are permitted:

• Repayment agreements that require employees 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,” provided that the (i) employee is not terminated for a reason other than misconduct or (ii) requirements/duties of the job were not misrepresented to the employee
• Agreements for the repayment of any property the employer sold or leased to the employee, provided that the sale or lease was voluntary
• Voluntary tuition-repayment agreements that relate to transferable educational credentials, subject to specific conditions. However, employer-specific or legally mandated safety/compliance training repayment agreements are still prohibited. Transferable credentials are defined as degrees, diplomas, licenses, certificates or documented skill proficiencies or course completions that are widely recognized in the relevant industry or that “enhance employability with other employers in the relevant industry.” If a voluntary tuition-repayment agreement relates to transferable education credentials, employers may use such a repayment agreement provided:

— It is included in a written agreement separate from any contract for employment.

— The transferable credential is not a condition of employment.

— The repayment amount is specified before the agreement is executed, and does not exceed the actual cost to the employer of the tuition, fees and required educational materials for the transferable credential.

— The agreement provides for a prorated repayment amount proportional to the total repayment amount and required length of employment, and it does not require an accelerated repayment schedule if the employee separates from employment.

— The agreement limits an employee's repayment obligations to situations of voluntary resignations and terminations for misconduct.

• Agreements requiring educational personnel to comply with the terms and conditions of a sabbatical leave
• Agreements entered into as part of a collective-bargaining agreement

Penalties

Although the Amendment does not provide employees with a private right of action, employees may file a complaint with the New York Department of Labor (NY DOL). Additionally, employees who successfully defend an action brought by an employer to enforce an unlawful promissory note may recover their attorneys fees. Further, the NY DOL has the authority to impose civil penalties of $1,000 to $5,000 per violation while taking into account the employer's size, its good-faith compliance and the severity of the violation when assessing the penalty amount.

Next Steps for Employers

While employers now have more time to prepare for the Act's new effective date, they should use this grace period to review existing employment and repayment agreements to ensure compliance. Employers using promissory notes for the repayment of training costs should pay particular attention to the Act's narrow exceptions and the strict conditions for permissible agreements.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.