On February 13, 2026, New York Governor Kathy Hochul signed chapter amendments to the state’s Trapped at Work Act (the “Act”), codified as Article 37 of the New York Labor Law, §§ 1050–1055 (the “Amendments”). The Amendments were intended to clarify the scope of the Act originally signed on December 19, 2025, and to address concerns raised by employers regarding bonus clawbacks, relocation repayment provisions, tuition reimbursement programs, and other “stay-or-pay” arrangements.
The Amendments continue to target a familiar employment device: contractual provisions that require a worker to repay money if the employment relationship ends before a stated period. But while the Amendments sharpen the statute’s text and carve out several important exceptions, they do not eliminate uncertainty. Employers with New York operations should use the period before the law takes effect, which occurs on December 19, 2026, to review training repayment, sign-on bonus, relocation, equity, and other separation-triggered repayment arrangements.
The Core Prohibition Remains Broad
The Act prohibits an employer from requiring, as a condition of employment, that an employee or applicant execute an employment promissory note. As described in the Amendments, an employment promissory note is defined broadly to include “any instrument, agreement, or contract provision that requires an employee to pay the employer…a sum of money if the employee’s employment relationship with a specific employer terminates before the passage of a stated period of time.”
That definition matters because it focuses less on label and more on function. A repayment provision need not be styled as a promissory note to fall within the Act. If the obligation is triggered by early separation and operates as a condition of employment, the statute presumptively treats it as prohibited unless an express exception applies.
The Amendments Narrow Coverage to “Employees”
One of the more significant revisions in the Amendments is the move away from the prior, broader concept of “worker.” The amended Act defines “employees” as “person[s] employed for hire by an employer in any employment.” This change narrows the statute’s express scope and may exclude categories of workers, such as certain independent contractors, interns, and volunteers.
However, employers should not assume that all non-“employee” arrangements are risk-free in this context. Other wage-and-hour, contract, and public-policy doctrines may still affect repayment provisions outside the Act.
The Law Is Not Limited to Training Repayment
The Amendments also clarify that the statute is not confined to training-reimbursement agreements. Earlier concern centered on whether the law was primarily directed at educational or training debt. The revised language makes clear that the operative issue is structural: whether the employee must pay money upon separation before a stated date. In that respect, the Act reaches beyond tuition or training and potentially affects sign-on bonuses, relocation payments, forgivable loans, and similar retention-related arrangements.
Education Carveout: Transferable Credentials Only
At the same time, the Amendments provide a more precise safe harbor for certain education-related repayment arrangements. Employers may still require repayment of tuition, fees, and required educational materials for a transferable credential, but only if several statutory conditions are satisfied:
- The agreement must be in a separate written contract, offered apart from any employment contract.
- The employee cannot be required to obtain the credential as a condition of employment.
- The repayment amount must be disclosed in advance and cannot exceed the employer’s actual costs.
- Any required service period must use a proportional, pro rata repayment structure and may not accelerate payment if employment ends.
- Repayment cannot be required if the employee is terminated, except in cases of misconduct.
The Amendments define a transferable credential as a “degree, diploma, license, certificate, or documented evidence of skill proficiency or course completion…as a qualification for employment…or that provides skills or qualifications that demonstrably enhance the employee’s employability with other employers in the relevant industry.”
The statute expressly excludes employer-specific or non-transferable training and mandated safety or compliance training from that concept. That means employers appear unable to shift the cost of proprietary training or legally required compliance courses to employees through separation-triggered repayment mechanisms.
Bonus, Relocation, and Other Non-Educational Incentives
The statute permits agreements requiring repayment of a financial bonus, relocation assistance, or other non-educational incentive or payment or benefit that is not tied to specific job performance. But that exception is limited. Repayment may not be required if the employee was terminated for any reason other than misconduct, and it may not be enforced if the employer misrepresented the duties or requirements of the job.
Thus, some service-based bonus clawbacks remain permissible, especially where the employee resigns voluntarily before the agreed service period expires. But the protection is not absolute. The undefined concepts of “misconduct,” “misrepresentation,” and “not tied to specific job performance” leave room for dispute, particularly in hybrid compensation arrangements.
Property Transactions, Sabbaticals, and Collective Bargaining
The amended Act confirms that several categories of agreements remain outside of its scope: voluntary arrangements requiring payment for property sold or leased by the employer to the employee, sabbatical-related obligations for educational personnel, and obligations arising under a collective bargaining agreement.
These exclusions should be useful to employers that facilitate bona fide employee purchases, including certain equity-related transactions. Even so, employers should review any repayment feature tied directly to termination to ensure that it does not function as a prohibited employment promissory note in substance.
Enforcement and Penalties
The Act does not create an express private right of action. Instead, enforcement is primarily administrative. Aggrieved employees or applicants may file a complaint with the New York Commissioner of Labor or the New York State Department of Labor.
Violations may result in civil penalties assessed per violation ranging anywhere from One Thousand and 00/100 Dollars ($1,000.00) to Five Thousand and 00/100 Dollars ($5,000.00). The Act suggests considering certain factors when determining the amount of penalties, such as the size of the employer’s business, good-faith compliance efforts, the gravity of the violation, and the employer’s prior history. The Act also indicates that an employee who successfully defends against an employer’s effort to enforce a void promissory note may recover attorneys’ fees.
Practical Steps for Employers
Before the Act takes effect, employers should consider reviewing:
- sign-on bonus repayment provisions;
- relocation reimbursement agreements;
- tuition reimbursement and training repayment agreements;
- forgivable loan structures;
- restricted stock or equity purchase arrangements with termination-linked repayment terms; and
- legacy “stay-or-pay” provisions in offer letters, side letters, and policy documents.
Looking Ahead
The Amendments answer some of the most immediate questions raised by its original enactment. In particular, they provide useful guidance on educational reimbursements, bonus and relocation clawbacks, and the law’s more limited focus on employees. But some key interpretive issues remain unresolved:
- The Act provides that “[n]o employer may require” an employment promissory note and that any such condition is “null and void.” The Amendments do not expressly state whether invalidation of employment promissory notes applies only to agreements entered into on or after the effective date or whether it also reaches agreements executed beforehand. As a result, employers that currently maintain arrangements that would be prohibited under the Act may face uncertainty regarding whether those arrangements remain enforceable once the law takes effect.
- “Condition of employment” and scope of covered repayment obligations. The Act prohibits requiring an employment promissory note as a condition of employment, while remaining silent on repayment arrangements that are entered into after employment begins or that are structured as ostensibly voluntary agreements rather than express conditions of employment. Although the educational-expense exception contemplates certain standalone agreements that are separate from employment and not a condition of employment, it remains unclear how broadly that principle extends outside the exception. In addition, the definition of an “employment promissory note” covers an instrument, agreement, or contract provision that requires an employee to pay the employer (or its agent) a sum of money if employment terminates before a stated period, but it does not expressly address more open-ended repayment policies or reimbursement obligations that are not framed in those terms. Accordingly, ambiguity remains both as to what constitutes a prohibited “condition of employment” and whether alternative repayment arrangements that differ from the statutory definition nevertheless could be viewed as falling within the Act’s prohibition, particularly where they operate in substance as a prerequisite to obtaining or maintaining employment.
- Employment-Related Expenses. The existence of an employer policy requiring repayment of certain employment-related expenses does not, by itself, guarantee that the obligation will be enforceable under the Act. In the absence of a written agreement executed by both the employer and employee, an employer may have difficulty proving that the employee assented to a post-employment repayment obligation. While the Act recognizes limited exceptions permitting recovery of certain expenses, advances, bonuses, relocation assistance, or qualifying educational costs, those exceptions generally do not eliminate the need for a valid contractual basis for repayment.
Zachary Mike is an associate in Twomey Latham’s Business and Corporate law department. This publication is for general information purposes only and does not constitute legal advice. The author of this article is available to discuss its contents at your convenience.
Thank you to Scott Handwerker and Jeffrey Pagano for their contributions to this article.
