Dear Littler: How do we avoid getting trapped by trapped at work laws?

Dear Littler: I’m hearing all this chatter about employees being “trapped” at work and I don’t understand it. We are a multistate employer that provides relocation benefits and sign-on bonuses to new hires. We also pay for educational opportunities and training for our new recruits. Of course, we ask that employees receiving these funds contractually agree to repay us if they leave our employment in a year or two; that only seems fair! I’m hearing that New York and California have passed laws targeting these types of agreements as unlawful “training repayment agreement provisions – TRAPs” and “stay-or-pay” restrictions. Our industry is competitive and I don’t want to stop providing these incentives to candidates – what should we do? 

—Concerned About Getting Trapped

Dear Concerned About Getting Trapped,

You’re right to be concerned about this issue, as compliance is complicated and the penalties for violating these new laws are steep (invalidation of the repayment obligation, actual damages, attorney fees, and penalties of up to $5,000 per violation). The key is to focus on exceptions in these laws that enable you to incentivize your applicants while at the same time reserving the right to recover amounts paid under certain circumstances. 

What’s Changed

Effective January 1, 2026, California employers may not include in an employment contract, or require as a condition of employment, any provision that requires that a worker repay a debt when they terminate employment. The idea behind the law is to prevent an employer from “trapping” an employee in a job and limiting their right to change employers. 

Similarly, effective December 19, 2026, New York generally will prohibit an employer from requiring an “employment promissory note” as a condition of employment — defined broadly to include any agreement that requires payment to the employer for leaving before a stated time. New York’s law applies to agreements in effect after December 19, 2026, so it is important to make changes for any agreements anticipated to extend beyond that date. 

Types of agreements covered by these laws include training/education-repayment contracts, relocation-repayment agreements, and retention bonus claw backs. 

Who is covered

Both laws apply to all employees in the private sector while California law also extends to applicants for employment. New York’s law covers public employees as well (CA law appears to, but it is not definitive in the statute). Neither state provides exceptions for particular industries or occupations, or for exempt employees.

What is still permitted

California provides five exceptions, two of which are most likely to be helpful

The new law provides a narrow exception allowing a repayment obligation for tuition for a transferable credential at certain accredited institutions within the state. Employers are allowed to require such repayment only if the repayment obligation is set out in a separate, voluntary agreement; the credential is portable beyond the identified company; the amount is specified and capped at actual cost; repayment is prorated with no acceleration; and if the employee is terminated, repayment is only recoverable if the employee is terminated for misconduct. As you can see, the exception is very limited. It will not cover things such as a SHRM certificate or a safety training course. If you want to continue providing those opportunities to employees, understand that the amounts you pay for them will not be recoverable if the employee leaves the company. 

The law’s “outset of employment” exception may be more useful. Employers that provide discretionary and unearned monetary payments at the outset of employment will be allowed to claw such money back if an employee leaves before a designated period of employment. Requirements for these arrangements include:

• a stand-alone agreement outlining required terms;
• the new hire must be given at least five business days to consider the agreement;
• the candidate must be provided notice of the right to consult counsel;
• the repayment amount must be interest-free and prorated;
• the retention period must be two years or less;
• the repayment obligation can be enforced only if the employee resigns, or is terminated for misconduct; and
• the employee must be allowed the opportunity to defer receipt of the money until the end of the retention period, thereby avoiding a repayment obligation entirely.

With careful drafting, you should still be able to attach repayment obligations to New Hire bonuses and Relocation bonuses. You will not, however, be able to provide such arrangements to current employees since such a payment would not be “at the outset of employment.” While you can still relocate current employees and pay the cost of such relocation, you cannot require repayment of such amounts if they leave your company. 

New York: what is permitted and how to structure it (effective 12/19/2026)

New York takes a narrower, more employer‑friendly approach than California, particularly after a chapter amendment clarified the statute’s scope. While New York generally prohibits employers from requiring an “employment promissory note” as a condition of employment, that term is defined in a way that leaves room for many common incentive and repayment arrangements—so long as they are structured carefully and fit within one of the statute’s carve‑outs.

Educational Expenses. New York permits repayment obligations for bona fide educational expenses, but only where the education leads to a credential that is portable and useful beyond your organization (for example, a degree, license, or industry‑recognized certification). As in California, this exception is not meant to cover routine onboarding, internal training, or company‑specific skill development. To be permitted in New York, the arrangement must: 

• be voluntary;
• be set out in an agreement that is separate from an employment agreement or offer letter;
• disclose the actual amount subject to repayment, capped at the employer’s actual cost;
• prorate repayment over time with no interest or acceleration; and
• limit repayment to voluntary quits or terminations for misconduct.

Non-educational incentives not tied to specific job performance (e.g., sign-on bonuses, retention bonuses, relocation assistance). The chapter amendment clarifies that these types of incentives are not unlawful “employment promissory notes” if they are not tied to specific job performance and are structured to meet the new requirements. To ensure enforceability, such agreements should limit enforcement to situations where the employee resigns or is terminated for misconduct. The amendment also adds an important qualification: repayment cannot be enforced if the employee can show that the duties or requirements of the job were materially misrepresented at hire.

Both Jurisdictions

Other limited carve‑outs exist in both CA and NY, including certain arrangements involving property sold or leased to an employee, apprenticeship programs, sabbaticals for educational employees, and repayment provisions contained in a collective bargaining agreement.

The bottom line, Concerned, is that there are steps you can take now, particularly with the assistance of employment counsel, to prepare to operate in compliance with the new restrictions. Some suggestions:

• Scrub your employee-facing documents to confirm they do not include repayment obligations that fall under a statutory exception.
• Revise offer letters or tuition assistance agreements to ensure they contain the required terms and conditions outlined in the California and New York laws.
• Weigh the value of the administrative ease of having a universal approach against a jurisdiction-specific approach, since you don’t have to comply with these restrictions in most jurisdictions (although many states are considering similar legislation).
• Stay abreast of this rapidly evolving area, not just in CA and NY but in other states with existing laws addressing TRAPs and repayment agreements (e.g., CO, CT, GA, IL, LA, MI, MT, OK and WY).

We hope you are feeling less trapped by these new limitations.