An assortment of new employment regulations is going into effect as we step into 2026, and the NY Trapped at Work Act is one that employers need to update themselves on. New York’s ban on stay or pay agreements marks a turning point in employment contracts, prohibiting businesses from requiring certain repayments for early departures.
Signed into law on December 19 by New York Governor Kathy Hochul, Assembly Bill A584C, or the NY Trapped at Work Act, places restrictions on the use of employment promissory notes as a condition of a worker’s employment. This may drastically change the nature of contracts and agreements that HR can ask employees to sign, making it a key piece of legislation for employers to understand.
NY’s latest Trapped at Work Act now bans employment promissory notes and stay or pay clauses as a condition of employment. (Image: Freepik)
What is NY’s Trapped at Work Act, and What Changes Under the New Regulations?
Employment-promissory notes are defined as “any instrument, agreement, or contract provision that requires a worker to pay their employer, or the employer’s agent or assignee, a sum of money if the worker leaves.” These agreements between employers and employees require employees to stay on at the job for a specified period of time or pay them back if they choose to leave earlier than contracted. These agreements place significant restrictions on workers who are tied down to work environments that no longer suit them, unable to pay the full amount back to their employers.
According to the changes to the stay or pay rules in NY, employment promissory notes are now prohibited as a condition of employment. Such notes have been deemed unconscionable, against public policy, and unenforceable. This means that even when placed within a broader agreement, this particular restriction can no longer be enforced, with the rest of the agreement unaffected.
Who Is Covered by the Ban on Early Departure Repayment Agreements?
New York’s Trapped at Work Act applies to both public and private sector employers across the state. Employees, independent contractors, interns, apprentices, and volunteers are all evenly covered by the act, so regardless of the nature of employment, such agreements are now unenforceable.
Some exceptions have been made on repayment agreements, such as money that has been paid in advance to workers that is not reserved for their training. Such restrictions indicate that employers may still be able to require employees to pay them back, as long as they do not rely on the typical considerations of an employment-promissory note.
What Are the Exceptions under the NY Trapped at Work Update?
While the ban on early departure repayments has been solidified, repayments in certain specific cases can still be expected by employers. This includes:
- Money paid in advance to employees, unrelated to training
- Payment for property provided by the employer that was sold or leased to the employee
- Agreements related to sabbatical leaves for educational personnel
- Agreements made as part of collective bargaining negotiations
What Are Some HR Compliance Considerations for NY’s New Law?
Violations of state and federal regulations can come with penalties, and the ban on early departure repayment agreements comes with similar restrictions. The New York State Department of Labor is authorized to levy civil penalties between $1,000 to $5,000 per violation against a worker.
The NY Trapped at Work Act does not specifically lay out any right of action in the bill for employees to take. However, workers can recover attorney fees from their employers if they are sued by the employer and manage to successfully defend themselves.
It is unclear if the law will retroactively be applicable and enforceable against agreements made before December 19, 2025. It is clear that no such agreements can now be signed and enforced between employers and employees.
HR Teams Need to Pay Close Attention to the Terms of the Repayment Agreement Ban in NY
Changes in regulation require an immediate change in company policy to ensure that no legal cases can be built against the organization for violations. This will mean reviewing existing agreements and offer letters to employees to evaluate whether such “stay or pay” clauses were included. Employees who may have recently received offer letters or may soon receive one from the company should be contacted with rewritten contract terms that eliminate such agreements. While employers are at it, reworking contract templates for the recruitment teams to use should also be a priority.
A change in company policy and practice may also be required for businesses that heavily utilize such agreements, requiring entire executive teams to sit down and discuss its implications for their business in New York. Compliance with changes in regulations is also best paired with training to ensure that HR and recruitment workers are fully aware of how to negotiate deals with employees. Adjusting to policy changes can affect each business differently, making audits a critical step in the compliance process.
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