Key Takeaways
- New York’s Trapped at Work Act prohibits “stay-or-pay” agreements that require workers to reimburse employers if they leave before a set time.
- The law applies to employees, interns, contractors, volunteers, apprentices, and sole-proprietor service providers.
- The law contains exceptions: permissible agreements include agreements requiring repayment of certain advances, property repayment agreements, sabbatical agreements for educators, and agreements entered into as part of a program agreed upon during collective bargaining.
- The New York Legislature has already proposed amendments, which, if enacted, would postpone the effective date of the law and meaningfully expand the scope of permissible repayment agreements. Currently, though, the law is in effect.
New York has joined California in banning the use of almost all “stay-or-pay” agreements in employment. Often called “TRAPs” (Training Repayment Agreement Provisions), these obligations require workers to pay back their employer for certain advanced payments if they leave their job before a set time. The recently signed “Trapped at Work Act” (the “Act”) amends the New York Labor Law to ban “employment promissory notes” – which are defined as agreements or contract provisions obligating workers to pay employers if they depart before a specified period – as a condition of employment. The Act, which deems all such promissory notes “unconscionable, against public policy, and unenforceable,” applies to all agreements entered into on or after December 19, 2025. However, on January 6, 2026, the New York Legislature proposed amendments that would change the Act’s effective date and expand and further clarify its exemptions.
What is Prohibited
Under the Act, which is currently in effect and applies to any agreement signed on or after December 19, 2025, employers may not, as a condition of employment, require any worker or prospective worker to sign an employment promissory note. The Act is expansive in who it covers and what it prohibits:
- The Act defines an “employment promissory note” as any instrument, agreement, or contract provision requiring a worker to pay the employer a sum of money if the employee leaves before the passage of a stated period of time, including circumstances where the payment of money is considered reimbursement for training provided to the worker.
- An “employer” is defined as any “individual, partnership, association, corporation, limited liability company, trust, government or government subdivision, or any organized group that hires or contracts with a worker to work for the employer,” as well as any subsidiary of any such employer.
- The term “worker” means an “employee, independent contractor, extern, intern, volunteer, apprentice, sole proprietor who provides a service or services to an employer or to a client or customer of an employer on behalf of such employer, and an individual who provides service through a business or nonprofit entity or association.” However, an individual whose only relationship with an employer is as a “vendor of goods,” a term that is not defined in the Act, is explicitly excluded from the definition of “worker.”
The Act does not claim to have retroactive effect, but it does classify employee promissory notes as “unconscionable, against public policy, and unenforceable,” leaving open the question of how courts will enforce pre- Act agreements
Critically, there are some limited exceptions to the Act’s broad prohibitions. Specifically, the Act does not prohibit:
- Repayment of advances made to the worker that are unrelated to training;
- Repayment for property sold or leased by the employer to the worker;
- Sabbatical agreements for educational personnel; and
- Agreements resulting from collective bargaining.
Penalties for Non-Compliance
Although the Act does not provide a private right of action, workers that successfully defend an action brought by an employer to enforce an unlawful promissory note may recover their attorneys’ fees. Additionally, the New York Department of Labor (“NY DOL”) can impose civil penalties of $1,000 to $5,000 per violation, which include each worker or prospective worker against whom an employer attempted to enforce a prohibited agreement.
Proposed Amendments
On January 6, the New York Legislature proposed Chapter Amendments (the “Amendments”), which are typically used to make technical fixes, clarify ambiguities, or enact negotiated changes, that would clarify the scope of the Act and provide greater flexibility for employers to use certain types of repayment agreements. Among other things, the Amendments suggest the following changes:
- New Effective Date: The Amendments push back the effective date by a year to December 19, 2026, allowing employers time to make changes to existing agreements and prepare new, compliant agreements.
- Narrow the Scope of Covered Workers: If the Amendments go into effect, the Act would apply only to “employees,” which the Amendments define as “any person employed for hire by an employer in any employment.” While the Amendments do not define the phrase “employed for hire,” they propose replacing the term “worker” with “employee” throughout the legislation, which we anticipate will be interpreted consistently with the definition of “employee” as it is used throughout the New York Labor Law. We therefore anticipate that employers would be free to use promissory notes with independent contractors, externs, interns, volunteers, apprentices, and sole proprietors providing services to the employer.
- Clarify and Expand the Scope of Permissible Agreements: The Amendments clarify and expand the scope of permissible repayment agreements to include:
- 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 (i) the employee is not terminated for a reason other than misconduct, or (ii) the requirements/duties of the job were 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; and
- Voluntary tuition-repayment agreements that relate to “transferable” educational credentials, subject to specific conditions. “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.” The Amendments exclude employer-specific or legally mandated safety/compliance training, meaning employers could not require repayment of costs related to such training.
- Amended Penalty Structure: The proposed Amendments require the NY DOL to consider employer size, good-faith compliance, and the severity of the violation when assessing the amount of the penalties, which remain between $1,000 and $5,000 per violation. Notably, the Amendments would not create a private right of action.
Next Steps for Employers
While the Amendments are pending, the Trapped at Work Act, as originally enacted, is the current law of New York and employers should be aware of their obligations and ability to use TRAPs with their workers.
[View source.]
