As we reported HERE, New York’s Trapped at Work Act takes effect December 19, 2026. Ahead of the effective date, the New York State Department of Labor (NYSDOL) issued guidance addressing several key points and clarifying ambiguities. To avoid getting trapped up, review these highlights of how we got here and what the NYSDOL confirms and clarifies.
Recap of Developments
December 19, 2025: Governor Hochul signed the Trapped at Work Act (S4070B/A584C). As originally enacted, the law:
- Took effect immediately; and
- Prohibited certain “stay or pay” agreements requiring workers to repay their employer if they left employment before a specified date.
February 13, 2026: Governor Hochul signed chapter amendments (A9452/S8822) that:
- Narrowed the law’s coverage to the employer-employee relationship, excluding independent contractors;
- Revised the exception permitting repayment of certain educational expenses;
- Added an exception permitting repayment of bonuses, relocation assistance, and other non-educational incentives or payments, subject to specified conditions; and
- Postponed the Act’s effective date to December 19, 2026.
General Coverage: Which Agreements Are Affected?
The NYSDOL confirms that employers cannot require employees or applicants, as a condition of employment, to agree to repay money if the employment relationship ends before a specified period of time.
The guidance clarifies that the law applies to:
- New or amended agreements: New agreements, and new or amended terms in existing agreements, entered into on or after December 19, 2026.
- Written or oral agreements: Potentially both oral and written agreements, noting that there is no express requirement that the agreement be in writing.
The law does not apply to:
- Voluntary arrangements: Agreements that employees can decline without affecting their ability to begin or continue employment.
- Third-party arrangements: Agreements that are not between an employee and the employer or its agent/assignee, such as loan forgiveness programs between a lender and borrower.
- Agreements authorized by other law: Agreements expressly permitted or required under statute or common law, including certain lawful wage or payment advances under the New York Labor Law or Insurance Law.
Five Statutory Exceptions: Which Employer Repayment Agreements Remain Permissible?
In addition to the excluded arrangements described above, the law expressly carves out five categories of employer repayment agreements, subject to applicable conditions. The NYSDOL confirms the five statutory exceptions that authorize certain agreements and provides clarity on two key exceptions.
- Voluntary property purchases or leases: Agreements requiring payment for property voluntarily purchased or leased from the employer.
- Sabbatical leave: Agreements requiring educational personnel to comply with the terms or conditions of employer-granted sabbatical leave.
- Collectively-bargained programs: Agreements entered into as part of a program agreed to by the employer and its employees’ collective bargaining representative.
- Educational expenses: Agreements requiring reimbursement of tuition, fees, and required educational materials for a “transferable credential,” subject to specific statutory conditions. The NYSDOL clarifies that qualifying expenses may include exam and licensing fees when part of obtaining the credential.
- Bonuses, relocation assistance, or other non-educational incentives: Agreements requiring repayment of these payments or benefits are permitted if they are not tied to specific job performance, provided the employer accurately described the job’s duties and requirements. The NYSDOL clarifies that repayment may be required if the employee voluntarily leaves or is terminated for misconduct; repayment cannot be required following an employer-initiated termination for reasons other than misconduct; and that “misconduct” means behavior detrimental to the employer’s interest or violating a reasonable work condition, which may include conduct defined as “for cause” under an employer’s policy.
When Repayment Can and Cannot Be Required
| Arrangement | When Repayment May Be Required | When Rayment Cannot Be Required |
| Signing Bonus | The employee resigns or is discharged for misconduct before an agreed-upon date, provided the employer accurately described the job. | The employer eliminates the position or otherwise discharges the employee for reasons other than misconduct, or the employee resigns because the employer misrepresented the job requirements. |
| Performance-Based Advance | The employee chooses an upfront payment contingent on meeting performance targets and has the option to defer payment until the targets are met. | N/A |
| Paid-Leave Advance | The employee voluntarily accepts advanced paid leave and leaves before earning it. | N/A |
Recovery and Enforcement: Additional Clarifications
The guidance provides some additional points of clarification regarding recovery and enforcement.
- Actual payments required: To recover costs under any exception, the employer must have actually paid out the costs they seek to recover. Any recovery must comply with applicable New York wage-and-hour rules, including restrictions on payroll deductions.
- Employee lawsuits: The law does not expressly provide a private right of action, but employees successfully defending enforcement lawsuits may recover attorney’s fees.
- Determining enforceability: For complaints, the NYSDOL will determine if an agreement is null and void. For lawsuits, a court will make the determination.
Employer Takeaways: Avoid the Repayment Trap
The NYSDOL’s guidance provides employers with a clearer framework to evaluate the scope and application of repayment arrangements. Ahead of the December 19, 2026 effective date, employers should review agreements and practices to ensure repayment arrangements align with the law and guidance. To prepare for compliance, here are some steps to consider:
- Review new agreements and amendments to existing agreements entered into on or after December 19, 2026 that include repayment provisions to ensure they fall outside the prohibition or satisfy an exception.
- Ensure that actual practices align with the agreement terms.
- Update templates, offer letters, and onboarding documents to revise or remove repayment terms that resemble prohibited “stay or pay” arrangements.
- Train HR, payroll, recruiting, and management personnel on the restrictions.
- Consult counsel about enforceability and compliance before pursuing recovery.
If you have any questions related to NY’s Trapped at Work Act or the NYSDOL’s guidance, or need assistance reviewing repayment arrangements for compliance, please feel free to reach out to the NFC Attorney with whom you typically work or call us at 973.665.9100.