Employers often invest significant time and money in recruiting and paying sign-on bonuses for new hires. They also spend on relocating, training, funding necessary licenses and certifications for new or current employees, and paying retention bonuses for current employees. To protect these investments, employers have increasingly turned to contractual provisions that require workers who receive these incentives to repay specified amounts if they leave before completing a defined period of service.

While employers generally view such terms as necessary and reasonable retention tools, lawmakers have increasingly derided them as “stay-or-pay” provisions that restrain worker mobility by imposing financial penalties on employees who change jobs.

California and New York have recently gone so far as to enact statutory restrictions on “stay-or-pay” arrangements, signaling a broader trend toward limiting contractual mechanisms that require employees to repay employers in order to leave their employment.

What Are “Stay-or-Pay” Provisions?

“Stay-or-pay” provisions are contractual terms that require workers who end their employment before a specific date to repay training costs, bonuses, relocation expenses, and other expenses. These provisions generally fall into three categories:

1. Training repayment agreements (labeled by critics as “TRAPs”): The employee must repay the cost of training or education provided by the employer if they leave within a certain period.
2. Sign-on or retention bonus clawbacks: A bonus paid at hire or at a milestone is subject to repayment if the employee departs before the end of a specified retention period.
3. Relocation cost recovery: The employer regains moving expenses, relocation expenses, or similar outlays if the employee exits early.

California: Assembly Bill 692 (Effective January 1, 2026)

California’s AB 692 took effect on January 1, 2026. It applies to all agreements entered into on or after that date, including any pre-existing contracts that are subsequently amended or renewed.[1]

Who it Covers

AB 692 applies to “workers,” defined to include employees, prospective employees, and participants in certain job-training and skills-training programs. “Employer” is defined broadly to include parent companies, subsidiaries, affiliates, third-party training providers, and debt collectors acting on the employer’s behalf.

What it Prohibits

AB 692 broadly prohibits employers from requiring workers to pay money or incur financial consequences because their employment ends. Specifically, employers may not include—or require workers to sign—any agreement that, upon the termination of employment or another work relationship:

1. Requires the worker to repay a debt to the employer, a training provider, or a debt collector;
2. Allows the employer, training provider, or debt collector to initiate, resume, or accelerate debt collection efforts based on the worker’s departure; or
3. Imposes any penalty, fee, or cost as a result of the worker leaving the job.

Any contract containing such a provision is void and unenforceable under California law. California characterizes such provisions as unlawful “restraints of trade” under Business and Professions Code §§ 16600 et seq.

What it Allows

The law carves out several categories as exceptions to the prohibition, including:

1. Transferable credential tuition repayment: Employers can still require repayment of tuition costs for a degree from an accredited third-party institution but only if the credential is not required for the employee’s current role and is useful with other employers. The repayment agreement must: (i) be in a separate standalone contract (not bundled with an offer letter or employment contract); (ii) disclose the repayment amount (not to exceed the employer’s actual cost) in advance; (iii) provide for prorated repayment with no accelerated payment schedule; and (iv) not require repayment if the worker is terminated for any reason other than misconduct.
2. Sign-on and retention bonuses: Employers may still claw back a discretionary payment (like a signing bonus) at the outset of employment that is not tied to specific job performance, provided that: (i) the repayment terms appear in a separate standalone agreement (not bundled with an offer letter or employment contract); (ii) the worker is informed of their right to consult an attorney and given at least five business days to do so; (iii) the repayment obligation is prorated over a retention period capped at two years, with no interest and no accelerated repayment schedule; (iv) the worker has the option to defer receipt of the payment until the end of the retention period, thereby avoiding any repayment obligation; and (v) early separation is at the worker’s sole election or by the employer for misconduct.
3. Government loan programs and apprenticeships: Contracts under state-approved apprenticeship agreements or under federal, state, or local loan repayment assistance programs or loan forgiveness programs are still allowed.

How it is Enforced

California’s law carries real consequences. Workers (or their representatives) can file civil lawsuits on a class-wide basis. Successful claimants are entitled to a minimum statutory penalty of $5,000 per worker (or actual damages, whichever is greater), plus attorneys’ fees and costs.

New York: The Trapped at Work Act (Effective February 13, 2027)

New York has taken a similar approach, but with several important distinctions. Governor Hochul originally signed the Trapped at Work Act (the Act) on December 19, 2025, and subsequent chapter amendments enacted on February 12, 2026 significantly narrowed the law’s scope and delayed its operative effective date to February 13, 2027.[2]

Who it Covers

The February 2026 chapter amendments narrowed the definition of “worker” to “employee” only. As a result, independent contractors and other non-employee workers fall outside the amended Act’s prohibition.

What it Prohibits

The amended Act prohibits employers from requiring employees to enter into certain “employment promissory notes,” defined broadly as any instrument, agreement, or contractual provision that requires an employee to pay money to an employer if they depart before the passage of a stated period of time. These repayment obligations are deemed “unconscionable,” contrary to public policy, and unenforceable under New York law.

What it Allows

The amended Act preserves several categories of permitted arrangements, broadly similar to California’s exceptions but with some differences:

1. Transferable credential tuition repayment: New York employers may require repayment of tuition, fees, and required materials for a “transferable credential” (meaning a degree, license, or other widely recognized qualification not required for the worker’s current role and useful with other employers). The repayment agreement must: (i) be in a separate written contract; (ii) disclose the repayment amount (not to exceed the employer’s actual cost) in advance; (iii) provide for prorated repayment with no accelerated payment schedule; and (iv) not require repayment if the employee is terminated for any reason other than for misconduct.
2. Certain bonus, relocation assistance, and incentive arrangements: The chapter amendments expressly carved out agreements requiring repayment of a financial bonus, relocation assistance, or other non-educational incentive. Such repayment is permitted if repayment is not triggered (i) when the employee was terminated for any reason other than misconduct; or (ii) when the duties or requirements of the job were materially misrepresented to the employee.

How it is Enforced

New York’s enforcement mechanism is less aggressive than California’s. There is no private right of action; only the New York Department of Labor may initiate enforcement proceedings. Civil penalties range from $1,000 to $5,000 per violation, with each affected worker treated as a separate violation. Workers who successfully defend against an employer’s attempt to enforce a prohibited agreement can recover their attorney’s fees from the employer.

The Bigger Picture

Although they are unique in their breadth, California’s and New York’s laws are part of a broader national trend. Several other states have enacted or proposed restrictions on training-repayment agreements and other stay-or-pay arrangements:

• Connecticut prohibits employment promissory notes as a condition of employment, including agreements requiring reimbursement for employee training.[3]
• Colorado enacted training-repayment restrictions in 2022 and strengthened them in 2024, limiting recoverable costs to training “distinct from” normal on-the-job training, with repayment prorated over a maximum of two years.[4]
• Indiana and Pennsylvania each enacted more targeted restrictions applying specifically to healthcare workers, reflecting legislative concern that training repayment agreements exacerbate physician and provider shortages and restrict patient access to care.[5]
• Wyoming limits recovery of relocation, education, and training costs on a sliding scale, with 100% recovery available if employment ends within two years after the employee’s start date.[6]
• Washington has also amended its noncompete statute in a way that constrains certain repayment obligations.[7]

Key Takeaways: What Multi-State Employers Should Know

These laws call for a thorough review of your employment documents and practices. Here are some key areas to consider:

1. Review your offer letters and onboarding templates. Any offer letter issued to a California employee on or after January 1, 2026, that contains a training repayment clause, relocation clawback, or any repayment obligation triggered by the employee’s departure is likely void under AB 692. For New York, the window to revise is open until February 13, 2027.
2. Separate your repayment agreements from your employment contracts. Both states require that permitted repayment agreements (especially sign-on bonus clawbacks and transferable credential tuition repayment) appear in a standalone agreement, not bundled into an offer letter or employment agreement. If your current practice includes these terms in a single document, you will need to unbundle them.
3. Review training agreements carefully. Unless the training program leads to a qualifying transferable credential (essentially, a degree, license, or industry-recognized certification from an accredited institution that is not required for the worker’s current role and has value beyond the company), repayment cannot be required in California, and likely cannot be required in New York beginning in February 2027.

Written with the assistance of DaVonna Nickerson, a summer associate in Husch Blackwell’s Kansas City office.

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[1] Cal. Lab. Code § 926, Cal. Bus. & Prof. Code § 16608.

[2] N.Y. Lab. Law art. 37, §§ 1050-1055.

[3] Conn. Gen. Stat. Ann. § 31-51r.

[4] Colo. Rev. Stat. § 8-2-113(3)(a).

[5] Ind. Code § 25-22.5-5.5-1.4; 35 Pa. Stat. § 10324.

[6] Wyo. Stat. § 1-23-108(a)(iii).

[7] Wash. Rev. Code § 49.62.010 (Effective June 30, 2027).