Labor & Employment Law Daily Wrap Up, EXPERT INSIGHTS—New York's Trapped At Work Act: Immediate prohibition of ‘stay-or-pay‘ employment provisions, (Jan 15, 2026)

Law Firms Mentioned:Sheppard Mullin Richter & Hampton

By Lindsay Colvin Stone and Margaret K. Yanulis of Sheppard Mullin Richter & Hampton

On December 19, 2025, Governor Kathy Hochul signed the Trapped at Work Act (the "Act"), introducing sweeping new restrictions on certain employment-related repayment agreements. Effective immediately, the Act prohibits employers from requiring any worker or prospective worker to sign agreements that obligate the individual to repay moneys paid by the employer if the worker leaves before a designated period. These agreements - commonly referred to as "stay-or-pay" agreements - are now deemed unconscionable, contrary to public policy, and unenforceable under New York law.

Scope of the Act

"Employer" is broadly defined under the Act to include "any entity that hires or contracts with a worker to perform services," inclusive of an employer's subsidiaries. The Act defines a "worker" as any "individual who is permitted to work for or on behalf of an employer," including employees, independent contractors, externs and interns, volunteers, apprentices, and sole proprietors providing services. The term "worker" does not include individuals whose only connection to the employer is as a vendor of goods, even if they perform incidental services.

Under the Act, employers may not require workers to execute an "employment promissory note" as a condition of employment. The Act defines an "employment promissory note" as "any instrument, agreement, or contract provision that requires a worker to pay the employer … a sum of money if the worker leaves such employment before the passage of a stated period of time." This definition specifically includes a contract provision requiring "reimbursement for training provided to the worker," whether by the employer or a third party. As drafted, the Act could potentially implicate a range of common employment-related repayment arrangements, including signing or retention bonuses, relocation and housing allowances, and technology or equipment advances.

Notable Exceptions

The Act provides for several specific exceptions to its ban on employment promissory notes. In particular, the following types of agreements are not rendered void or unenforceable:

Repayment of non-training advances: Agreements requiring a worker to repay sums advanced by the employer, provided those sums were not used for training related to the worker's employment;
Payment for employer property: Agreements requiring the worker to pay for any property the employer sold or leased to the worker;
Sabbatical leave terms for educational personnel: Agreements involving terms or conditions of sabbatical leaves granted by employers to educational personnel;
Collective bargaining agreements: Agreements that are part of a program agreed to between the employer and the workers' collective bargaining representative.

While these exceptions are clear, several ambiguities remain regarding the definition of "employment promissory notes." For example, it is unclear what constitutes "training" and whether tuition assistance, professional licensing or certification fees, continuing education, and exam costs fall within the definition.

Retroactivity and Severability

While the Act provides that prohibited employment promissory notes are "null and void," it does not specify whether the Act will apply retroactively to agreements entered into prior to the Act's effective date. Thus, retroactive enforcement remains an open question and may be clarified in future guidance or legislative amendments.

It is important for employers to note, however, that the Act explicitly provides for severability where a prohibited promissory note is part of a broader employment agreement. In such cases, the invalidity of the promissory note provision will not impact the validity or enforceability of the remaining terms of the agreement.

Enforcement and Penalties

The Act does not provide workers with a private right of action. Instead, enforcement is handled by the New York State Department of Labor (NYSDOL), which may impose civil penalties ranging from $1,000 to $5,000 for each violation. Each instance where an employer requires a worker or applicant to sign a prohibited employment promissory note, or attempts to enforce such a note, is considered a separate violation. Additionally, the Act permits workers to recover attorneys' fees if they successfully defend against an employer's attempt to enforce a void promissory note.

Key Takeaways for Employers

New York's adoption of the Trapped at Work Act aligns with a broader national movement away from restrictive retention tools that limit worker mobility. Given the immediate effect of the Act, New York employers should promptly review and, where necessary, revise offer letters, employment agreements, and any other agreements containing "stay-or-pay" language. Sheppard Mullin continues to monitor for additional guidance and legislative amendments to the Act. As always, Sheppard Mullin is available to provide guidance and support to employers as they adapt to these new restrictions.

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.

Lindsay Colvin Stone and Margaret K. Yanulis

Sheppard Mullin Richter & Hampton

350 South Grand Avenue, 40th Floor

Los Angeles

90071

United States

Tel.: +1

E-mail: mbennett@sheppardmullin.com

URL: www.sheppardmullin.com/

Attorneys: (Sheppard Mullin Richter & Hampton).

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