New state laws are reshaping whether and how employers can recoup signing bonuses, relocation costs, training investments, and similar employee retention incentives

Highlights:

  • Employers face new limits on recovering signing bonuses, relocation expenses, and other payments when employees leave.
  • Connecticut, New York, and California have different effective dates and requirements, creating separate compliance deadlines for multistate employers.
  • Certain repayment agreements remain permitted, but employers must follow specific rules on voluntary participation, separate contracts, repayment caps, and prorated amounts.

Employers that require departing employees to repay signing bonuses, relocation assistance, immigration costs, training or educational costs, or other retention incentives should revisit those arrangements now. 

What Are TRAP Provisions?

A training repayment agreement provision (TRAP), employment promissory note, or stay-or-pay clause requires an employee to reimburse the employer for costs such as signing bonuses, relocation, or tuition if the employee leaves before a specified period. Employers use these provisions to protect their investment in new hires; critics say they trap workers in their jobs.

New York

With limited exceptions, New York’s Trapped at Work Act bars employers from requiring an employee or job applicant to sign an employment promissory note as a condition of employment. A prohibited note is unenforceable, though the rest of the agreement survives.

An employment promissory note is any written or oral agreement or provision requiring an employee to repay a sum if employment ends before a specified time. Excluded are truly voluntary agreements that are not a condition of accepting or keeping the job, lawful wage advances under the New York Labor Law, and third-party arrangements such as loan forgiveness programs.

According to recent NYSDOL guidance, the law takes effect December 19, 2026, and applies to agreements and new or amended terms in existing agreements entered into on or after that date. It covers all private and public employers in New York state and all employees, whether full-time, part-time, or seasonal, but not independent contractors.

The law permits five types of agreements, so long as the employer actually paid the costs it seeks to recover: 

  • Bonuses, relocation assistance, and other noneducational incentives. Employers may require repayment of items such as signing bonuses, relocation assistance, and other noneducational incentives unrelated to job performance when the employee resigns or is fired for misconduct, but not when the employer ends the relationship for any other reason (such as job elimination). NYSDOL defines “misconduct” as behavior detrimental to the employer’s interests or in violation of a reasonable work condition, including termination for cause as defined by the employer’s policy. 
  • Educational reimbursements for transferable credentials. Employers may recoup tuition, fees, and required material costs (including exam and licensing fees) for an industry-recognized “transferable credential” that enhances employability elsewhere, but not employer-specific training or mandated safety/compliance training. The agreement must (i) be separate from the employment contract; (ii) not make the credential a condition of employment; (iii) state the repayment amount up front, capped at the employer’s cost; (iv) prorate repayment without acceleration; and (v) not require repayment if the employer terminates the employee other than for misconduct. 
  • Other exceptions. Voluntary agreements to repay for property sold or leased to the employee (e.g., tools or real property), sabbatical conditions for educational personnel, and programs agreed to with the employee’s collective bargaining representative.
     

NYSDOL will enforce the law and may impose fines between $1,000 and $5,000 per violation, based on the employer’s size, good faith, the gravity of the violation, and prior violations. Each impermissible promissory note is a separate violation. There is no express private right of action, but an employee who successfully defends against an employer’s suit to enforce an impermissible promissory note can recover attorney’s fees.

California

California’s stay-or-pay law prohibits requiring a worker to sign an employment contract or a contract required as a condition of employment that (i) requires the worker to pay the employer money or property (or authorizes its collection) if the relationship terminates or (ii) imposes any penalty, fee, or cost on the worker upon termination. An amendment makes the law applicable to contracts entered into on or after January 1, 2027, eliminates liability for 2026 noncompliance, and adds new exceptions.

California now allows: 

  • Discretionary bonuses. Discretionary or unearned payments not tied to specific job performance may be subject to repayment if (i) the terms are in a separate agreement from the primary employment contract; (ii) the employee is notified of the right to consult a lawyer and given at least five business days to do so; (iii) repayment is interest-free and prorated over a retention period of no more than two years; (iv) the worker may defer the payment to the end of the retention period with no repayment obligation; and (v) separation is voluntary or for misconduct. Notably, this exception no longer applies only to payments at “the outset of employment.” 
  • Financial services. Broker-dealers, insurance producers, and investment advisors (or their affiliates) may recoup discretionary or unearned payments made to induce registered or licensed representatives to affiliate or remain with them if the repayment obligation is in a separate agreement, the payment is in addition to otherwise payable compensation, the worker is notified of the right to consult counsel and given at least five business days to do so, and any post-employment repayment obligation carries an interest cap. 
  • Advance PTO. Up to 40 hours of advance PTO, interest-free, upon voluntary separation if repayment terms were clearly disclosed separately from the employment contract when the worker requested the PTO advance. 
  • Tuition for transferable credentials. Repayment of tuition for a degree from an accredited third-party institution that is transferable and useful beyond the current job, if specific requirements are met. 
  • Other exceptions. Certain government loan and grant recruitment and retention programs, approved apprenticeship programs, and the lease, financing, or purchase of residential property. 

Employers that violate the law may be liable for the greater of actual damages or $5,000 per worker, plus injunctive relief and attorney’s fees and costs. Workers have a private right of action, and class actions for “similarly situated” workers are permitted.

Connecticut

Effective October 1, 2026, Connecticut extended its long-standing prohibition on employment promissory notes as a condition of employment to all employers, eliminating a prior 26-employee threshold. The existing exceptions remain, permitting agreements that (i) require repayment of advanced sums; (ii) require payment for property sold or leased to the employee; (iii) require educational personnel to comply with sabbatical conditions; or (iv) are part of a program agreed to with the employees’ collective bargaining representative. 

States To Watch

New Jersey and Pennsylvania have TRAP legislation pending. Washington’s noncompete ban, effective June 30, 2027, permits repayment of education expenses if certain requirements are met. 

Practical Recommendations for Employers

  1. Calendar the deadlines. Connecticut: October 1, 2026. New York: December 19, 2026. California: January 1, 2027.
  2. Audit existing agreements and policies. Review offer letters, employment agreements, and bonus, tuition, training, and relocation agreements and policies with repayment terms. Confirm each meets an exception, and ensure form agreements comply. 
  3. Revisit bonus structures. Assess bonuses against the applicable exceptions, and consider equity awards and long-term incentives.
  4. Define “misconduct.” Adopt a clear “for cause” definition for repayment arrangements.
  5. Train HR personnel on repayment constraints for New York, California, and Connecticut employees. Employers should take action now to ensure compliance and expect more states to follow.

*This client alert was originally published by HR.com and is republished with permission.