If your company uses training repayment agreements, sign-on bonus clawbacks, or similar arrangements that require employees to pay back money when they leave early, new laws in New York, California, and Connecticut could put you at serious risk. These states have passed legislation restricting or outright banning so-called “stay or pay” provisions – sometimes referred to as TRAPs (training repayment agreement provisions) – and the penalties for noncompliance range from voided contracts to five-figure fines per employee. Here is what you need to know.
The Big Picture: What’s Being Banned
At their core, all three laws target the same practice: requiring an employee, as a condition of getting or keeping a job, to sign an agreement promising to pay the employer money if the employee leaves before a specified date. Whether you call it a training reimbursement agreement, a promissory note, or a quit fee, the effect is the same in the eyes of these legislatures – and violating agreements are declared void as against public policy.
Connecticut got there first, banning employment promissory notes back in 1985 – though initially only for employers with 26 or more employees. California followed with its law taking effect January 1, 2026. New York’s “Trapped at Work Act” was signed in December 2025, with its operative provisions kicking in on December 19, 2026. All three states amended or expanded their laws in 2026 – Connecticut removed its employee-count threshold so it now covers every employer, and will become effective on October 1, 2026, New York refined its definitions through a chapter amendment, and California enacted a follow-up bill (SB 1433) effective January 1, 2027.
The scope of who is covered is uniformly broad. New York’s law applies to all employers including government entities. California goes further, defining “employer” to include parent companies, subsidiaries, affiliates, and third-party agents, and defining “worker” to cover anyone in an employment or training relationship – not just W-2 employees. California’s definition of prohibited costs is also the widest, expressly capturing quit fees, retraining fees, visa reimbursement, liquidated damages, and lost goodwill.
What You Can Still Do
None of these laws is a complete ban on every financial arrangement between employers and employees. Each carves out exceptions – but the exceptions get narrower as you move from New York to California to Connecticut.
Tuition reimbursement for transferable credentials remains permissible in New York and California, but only if the arrangement is carefully structured. Both states require that the reimbursement agreement be a standalone document separate from the employment contract, that the employee not be required to get the credential as a condition of employment, that the repayment amount be disclosed upfront and capped at actual cost, that repayment be prorated over time with no acceleration on departure, and that the employer waive repayment entirely if it terminates the employee (unless for misconduct). What counts as a “transferable credential” matters too: New York covers any industry-recognized degree, license, certificate, or documented skill proficiency, but expressly excludes your internal onboarding, proprietary software training, or mandated compliance training like OSHA or harassment prevention courses. California is more restrictive, limiting transferable credentials to accredited degrees not required for the worker’s current job. Connecticut offers no transferable credential exception at all.
Sign-on bonuses and relocation packages can still include claw back provisions in New York and California, though with conditions. New York allows repayment of financial bonuses, relocation assistance, and non-educational incentives not tied to specific job performance – unless the employer terminated the employee for reasons other than misconduct, or misrepresented the job duties. California layers on additional requirements: the claw back must be in a separate agreement, the employee must be given at least five business days to consult a lawyer before signing, the repayment cannot accrue interest and must be prorated over a retention period of no more than two years, the employee must have the option to defer receipt of the bonus to the end of the retention period (eliminating repayment risk entirely), and the departure must be at the employee’s own election or for cause. Connecticut has no bonus claw back exception whatsoever.
Other carve-outs are available in more limited circumstances. All three states allow repayment of cash advances and payment for property voluntarily sold or leased to the employee. New York and Connecticut both exempt educational sabbatical leave terms and agreements under collective bargaining programs. California exempts state-approved apprenticeship programs and government loan repayment or forgiveness programs. Connecticut’s 2026 amendment also carved out H-1B visa fee reimbursement agreements – a narrow but meaningful exception for tech and healthcare employers that sponsor foreign workers.
What Happens If You Violate These Laws
The consequences vary by state, but the baseline in all three is the same: a prohibited agreement is void and unenforceable. If you try to collect, you can be exposed to penalties.
New York goes further with explicit penalties. Employees can file complaints with the Commissioner of Labor, and fines range from $1,000 to $5,000 per violation – with each affected employee counting as a separate violation. If you sue an employee to enforce a void note, you could end up paying their attorney’s fees.
California does not have a per-violation fine schedule, but the exposure is arguably worse. Because violations are treated as void restraints of trade, they trigger liability under multiple enforcement channels simultaneously: private civil actions, Labor Commissioner proceedings, claims under the Unfair Competition Law, and representative actions under the Private Attorneys General Act (PAGA). Connecticut’s statute has no express penalty provision beyond voiding the note. Practically, that means a prohibited agreement is simply dead on arrival – an employee sued on it can raise the statute as a defense.
What You Should Do Now
Regardless of which of these states you operate in, the message is the same: it is time to take a hard look at your agreements and make changes before enforcement catches up with you. Here is a practical starting point:
- Pull your templates and run a red-flag search. Look at every offer letter, employment contract, training policy, and onboarding document for language that conditions employment on a repayment promise or imposes a financial penalty for leaving early. In California, those provisions may already be void. In New York, the deadline is December 19, 2026. Connecticut’s amended law will take effect on October 1, 2026 – directly impacting all employers with fewer than 26 employees, who were formerly exempt from the restrictions. Employers with greater than 26 employees will see no change, but should still be vigilant as to the language contained in agreements.
- Restructure any training reimbursement programs you want to keep. In New York and California, these can survive if you do it right: the agreement must be a standalone document, participation must be voluntary, the dollar amount must be disclosed upfront and capped at actual cost, repayment must be prorated over time, and you cannot collect if you terminated the employee (unless for misconduct). In Connecticut, this type of exception does not exist—limit your agreements to cash advances, property transactions, sabbatical terms, or collectively bargained programs.
- Revisit sign-on bonus and relocation claw backs. California’s requirements are the most demanding: separate agreement, at least five business days for the employee to consult a lawyer, interest-free prorated repayment, retention period capped at two years, and a deferral option. New York is more flexible but still bars claw backs when you fired the employee for reasons other than misconduct or misrepresented the role. Connecticut does not permit bonus clawbacks at all.
- Keep an eye on what’s coming next. New York’s labor department has rulemaking authority and may issue implementing regulations before December 2026. California’s PAGA enforcement landscape means that private and representative actions could generate interpretive guidance quickly. And with the broader trend moving toward more states adopting these laws, getting ahead of compliance now will save you from scrambling later.
- Connecticut Employers: Because Connecticut’s amended law does not become effective until October 1, 2026, employers that have fewer than twenty six employees should conduct a thorough review of their current agreements and any agreements that are contemplated for the near future. Any agreements entered into before October 1, 2026 will remain in force and effect.
- Review Collective Bargaining Agreements. Connecticut has particularly strong protections and frameworks for collective bargaining. Collectively bargained agreements regarding claw backs are specifically exempted with the law, which is in keeping with Connecticut’s strong labor framework.
If you would like to learn more about authors Christopher Leddy and Daniel Dauplaise, check out our Labor and Employment practice page here.