We previously published a legal alert on the Trapped at Work Act, which, as originally enacted, and subject to limited exceptions, broadly prohibits employers from utilizing employment promissory notes, commonly referred to as “stay or pay” agreements. However, in response to much criticism, the New York legislature proposed, and NYS Governor Kathy Hochul has since signed, an amendment to the Trapped at Work Act, narrowing the scope of the law and delaying its effective date.
The amendment makes three key changes that will reshape how employers approach repayment agreements and employee retention.
- Limited Coverage: The law previously and broadly defined the term “worker” to include, among others, employees, independent contractors, interns, externs, and volunteers. Now, with the amendment, the law only applies to employees.
- Extended Implementation: The amendment postpones the effective date by one year to February 13, 2027, which provides employers with much-needed time to evaluate existing repayment agreements and to otherwise ensure compliance with the law.
- Expanded Exceptions: The amendment clarifies and, in some respects, expands the exceptions to the law’s prohibition on the use of employment promissory notes.
- Training and Education Assistance: Subject to certain requirements,1 employers may seek to recoup the cost of tuition, fees, and required educational materials for a “transferable credential,” which the statute defines as a “degree, diploma, license, certificate, or documented evidence of skill proficiency or course completion that is widely recognized by employers in the relevant industry as a qualification for employment,” and expressly excludes “employer specific or non transferable training” and “mandated safety and compliance training.”
- Other Permissible Agreements: The amendment also clarifies that following types of repayment agreements are permissible:
- Financial incentive repayment agreements: Contracts requiring employees to pay back financial bonuses, relocation benefits, or other non-educational incentives or payments unrelated to specific job performance, except when the employee was fired for reasons other than misconduct or when job duties or requirements were misrepresented to the employee.
- Property purchase/lease agreements: Contracts requiring employees to pay employers for items sold or leased to them, but only if the employees entered these transactions voluntarily.
- Educational staff sabbatical agreements: Contracts requiring teachers and other educational employees to fulfill sabbatical leave terms, including requirements to return to work or repay associated costs.
- Union-negotiated repayment agreements: Contracts requiring employees to comply with repayment obligations set forth in a collective bargaining agreement.
The enforcement provisions remain robust, specifically civil penalties ranging from $1,000 to $5,000 for each violation. Employees who successfully defend against employer lawsuits to enforce noncompliant repayment agreements are entitled to recover attorneys’ fees.
If you have any questions regarding the content of this alert, please contact Rob Thorpe, partner, at rthorpe@barclaydamon.com; Chloe Shortz, associate, at cshortz@barclaydamon.com; or another member of the firm’s Labor & Employment Practice Area.
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1Specifically, the agreement must (1) be “set forth in a written contract that is offered separately from any contract for employment”; (2) “not require the employee to obtain the transferable credential as a condition of employment”; (3) “specif[y] the repayment amount before the employee agrees to the contract, and the repayment amount does not exceed the cost to the employer of the tuition, fees, and required educational materials for the transferable credential”; (4) “provide[] for a prorated repayment amount during any required employment period that is proportional to the total repayment amount and the length of the required employment period and does not require an accelerated payment schedule if the employee separates from employment”; and (5) “not require repayment to the employer by the employee if the employee is, except if the employee is terminated for misconduct.”