New York’s “Stay-or-Pay” Ban Taking Effect December 19

New York employers have until December 19, 2026, to prepare for the Trapped at Work Act (the "Act"), a new provision of the New York Labor Law that restricts employment-related repayment obligations commonly described as "stay-or-pay" arrangements. The Act prohibits requiring employees or applicants, as a condition of obtaining or maintaining employment, to agree to repay the employer for certain advance payments if the employment relationship ends before a specified date. The New York State Department of Labor (NYSDOL) has recently issued guidance (found here) resolving key questions about the Act's scope and its treatment of common employer programs, including sign-on bonuses, training and tuition repayment, relocation assistance, performance-based advances, and advanced paid leave. Employers should review repayment provisions in offer letters, employment agreements, incentive plans, training and tuition programs, relocation agreements, and payroll practices to ensure compliance with the Act.

What the Act Prohibits

The Act applies to all New York employee-employer relationships, but not to independent contractors. It bars an employer from requiring an employee or prospective employee, as a condition of employment, to execute an "employment promissory note," defined as any agreement "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." A prohibited note is unenforceable, and the employer cannot demand repayment from the employee.

Critically, a repayment arrangement that is genuinely voluntary and separate from accepting or maintaining employment is not a prohibited condition of employment. To be voluntary, the employee must be able to begin or continue employment without accepting the repayment arrangement. For example, an employer may offer an optional upfront performance-based payment, repayable if the employee leaves before meeting specified targets, where the employee may instead defer payment until the targets are met.

Statutory Exceptions

The Act preserves several categories of employer-employee repayment agreements, which can continue after the Act's effective date, each subject to certain conditions.

• Tuition, fees, and educational material. Employers may recover tuition, fees, and required educational materials for a transferable credential. A "transferable credential" is any degree, diploma, license, certificate, or documented evidence of skill proficiency or course completion that:
  • Employers widely recognize in a relevant industry as a qualification for employment (independent of the employer’s specific business practices)
  • Provides skills or qualifications that demonstrably enhance the employee’s employability with other employers in the relevant industry
  • Is not employer-specific or non-transferable training
  • Is not mandated safety and compliance training

Repayment for tuition, fees, and educational materials is only allowed if the agreement: (1) is a written contract offered separately from any employment contract; (2) does not require the employee to obtain the credential as a condition of employment; (3) 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; (4) 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 (i.e., the amount of repayment must decrease the longer the employee is employed) and does not require an accelerated payment schedule if the employee separates from the employment; and (5) requires no repayment when the employer terminates the employee, unless for misconduct (defined below).

• Sign-on bonuses, relocation assistance, and other non-educational incentives not tied to specific job performance may be made repayable, but not where the employer (i) terminates the employee for a reason other than misconduct; or (ii) misrepresented the position's duties or requirements. A voluntary resignation may trigger repayment if the position was accurately described, as may a termination for misconduct. According to the recently issued guidance, "misconduct" means behavior detrimental to the employer's interests or violating a reasonable work condition, and may include conduct an employer's policy defines as "for cause." NYSDOL's new guidance provides the following examples of applying the Act to agreements for non-education incentives:
  • If the employee accepts a signing bonus and resigns before agreed-upon X date, then an agreement can require repayment to the employer (because the employer did not terminate the relationship, the employee did).
  • If the employee accepts a signing bonus and the employer fires them for misconduct before agreed-upon X date, then an agreement can require repayment to the employer (because the employee was terminated for misconduct).
  • If the employee accepts a signing bonus and the employer eliminates their position before agreed-upon X date, then an agreement cannot require repayment to the employer (because the employee was terminated for a reason other than misconduct).
  • If the employee accepts a signing bonus and the employee resigns before agreed-upon X date because the employer misled the employee about the job requirements, then an agreement cannot require repayment to the employer (because the employee was misled about the job).
  • If the employer offers the employee the option to receive an up-front payment that is contingent on meeting specified performance targets, then the agreement can require repayment to the employer, so long as the employee also has the option to defer the contingent payment until after meeting such performance targets (because accepting the up-front payment was not a condition of employment).
  • If the employer agrees to advance paid leave time to an employee and the employee leaves before agreed-upon X date when leave is earned, then an agreement can require repayment to the employer (because accepting the advance was not a condition of employment).
• Other permitted arrangements include voluntary employee purchases or leases of employer property, sabbatical-leave obligations for educational personnel, and collectively bargained programs. The Act does not reach third-party arrangements, such as a lender-borrower loan-forgiveness program dependent on continued employment, and does not displace agreements expressly allowed or required by statute or common law.

Wage Deductions

A permissible repayment obligation does not itself authorize a wage deduction. New York generally prohibits wage deductions absent legal authorization or the employee's written authorization for the employee's benefit, so any payroll deduction, offset, or final-pay recovery must be assessed independently under New York's wage-payment and deduction laws.

Effective Date and Existing Arrangements

The Act takes effect December 19, 2026, and applies to new agreements entered into on or after that date, and to new or amended terms in existing agreements entered into on or after that date. An existing repayment obligation is not swept in merely because its repayment or service period continues past December 19. Employers should nonetheless evaluate amendments, renewals, extensions, replacement agreements, and new awards issued under existing programs after the effective date.

Enforcement

There is no private right of action, but NYSDOL enforces the Act and may impose civil penalties of $1,000 to $5,000 per violation, weighing the employer's size, good-faith belief in compliance, the gravity of the violation, and its history of prior violations. Additional exposure arises if an employer tries to enforce a void provision and the employee successfully defends, in which case the employee may recover its attorney's fees.

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For more information regarding the Trapped at Work Act or other employment matters, please contact:

Carol M. Goodman at +1 212 592 1465 or [email protected]
Fred R. Green at +1 212 592 5910 or [email protected]
Scott A. Sears at +1 973 274 2009 or [email protected]
Basil C. Sitaras at +1 212 592 1572 or [email protected]

© 2026 Herrick, Feinstein LLP. HERRICK® is a registered trademark of Herrick, Feinstein LLP. This alert is provided by Herrick, Feinstein LLP to keep its clients and other interested parties informed of current legal developments that may affect or otherwise be of interest to them. The information is not intended as legal advice or legal opinion and should not be construed as such.